Classification of Procurement

In terms of procurement management, different procurements are usually managed in different way. Management is based on the classification of procurement in accordance with, for example, usage, nature, economic importance, group or supplier. Procurements can be divided into direct and indirect procurements.

Direct procurement

Direct procurement is used to produce company’s core product or service and they are, for example, raw materials and components.

Indirect procurement

Indirect procurement include all other except production procurement. These are MRO (Maintenance, Repair, Operating) procurement such as office supplies, spare parts, maintenance supplies, chemicals and safety equipment. In addition, support services including marketing, travel and IT consulting services, included in indirect procurement.

The share of company’s procurement costs in indirect procurement is approximately 40 per cent on average. There are clearly more suppliers in indirect procurement than in direct procurement. Since the economic importance of indirect procurement is very high, companies started to pay attention to them. In the service industries, customer service procurement may be classified as direct procurement and others as indirect procurement.

Service procurement

Service procurement can be associated with production, these are, for example, subcontracting. Services that are not related to production are travel agencies and marketing services. Management and leadership of service procurement has risen to a more important role because more complex service packages are purchased from external suppliers.