What is Direct Procurement?- Definition
Direct procurement commonly called direct spend or direct cost, refers to the procurement of raw materials, goods, and services that directly support the production of whatever goods or services the procuring company produces.
Understanding Direct Procurement
Direct procurement is the business of sourcing and purchasing the necessary raw materials, goods, and services required by a company for the manufacturing process. Goods are bought in bulk to optimize spend and are sourced from a qualified list of vendors.
Vendors must meet minimum order quantities, desired quality, various industry standards, and provide raw materials at cost-effective prices. When approved, contracts are signed, and purchasing cycles established to ensure timely delivery of goods.
A breakdown in the direct procurement operation will result in enterprises failing to produce goods and this will in turn affect the entire value chain. This is one of the reasons it is imperative that procurement teams are furnished with procurement software that allows them to properly do their job.
Example of Direct Procurement
Examples of direct procurement include the purchase of machinery, raw materials, subcontracted labor, and products for resale.
For a smartphone manufacturing organization, direct procurement would mean acquiring the resources like chips, processors, screens and so forth that are directly related to the offering of the business.
For a product-based business, both direct and indirect procurement complement each other and create a balance for the smooth functioning of the operations.
For a service-based business, indirect procurement plays a more prominent role compared to direct procurement.
Explore Additional Resources to Know More
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