In supply chain management, the types of procurement typically include direct procurement, indirect procurement, goods procurement, and services procurement.
Based on the provided reference, there are four main types of procurement in supply chain management:
- Direct Procurement
- Indirect Procurement
- Goods Procurement
- Services Procurement
It's important to note that goods and services can be procured through both direct and indirect channels.
Understanding the Types of Procurement
Let's look at each type in more detail:
Direct Procurement
This involves purchasing items that are essential for a company's core business activities and directly contribute to the final product or service. These are typically raw materials, components, or goods that become part of the finished product sold to customers.
- Examples:
- A car manufacturer buying steel, tires, and engines.
- A baker buying flour, sugar, and yeast.
- A software company licensing a core technology component for their product.
Indirect Procurement
Indirect procurement covers the purchase of goods and services necessary for the day-to-day operations of a business but do not directly contribute to the final product or service. These are supporting items and services that help the company run smoothly.
- Examples:
- Office supplies (pens, paper, furniture).
- Utility services (electricity, internet).
- Marketing services (advertising campaigns).
- Consulting services.
- Maintenance and repair services.
Goods Procurement
This type focuses specifically on the acquisition of physical goods. These can be either raw materials (direct) or finished products and supplies (indirect).
- Examples:
- Buying laptops for employees (indirect good).
- Purchasing components for manufacturing (direct good).
- Acquiring office furniture (indirect good).
Services Procurement
Services procurement involves contracting for services rather than physical goods. These services can support core operations (direct) or internal business needs (indirect).
- Examples:
- Hiring a logistics company to transport goods (can be direct or indirect depending on integration).
- Contracting a marketing agency (indirect service).
- Outsourcing customer support (can be direct or indirect).
- Engaging IT support services (indirect service).
Relationship Between Types
As highlighted, goods and services are the what you buy, while direct and indirect procurement relate to the why (how it relates to the core business). Both direct and indirect types of procurement include goods and services. For instance, purchasing raw materials (goods) is direct procurement, while subscribing to cleaning services (services) is indirect procurement.
Summary Table
Here's a quick overview:
| Type of Procurement | Description | Relation to Core Business | Includes Goods/Services | Examples |
|---|---|---|---|---|
| Direct | Purchases essential for the final product/service. | Directly contributes to output. | Both | Raw materials, components, core services. |
| Indirect | Purchases needed for operations but not directly in the final product/service. | Supports business functioning. | Both | Office supplies, utilities, consulting, IT services. |
| Goods | Acquisition of physical items. | Can be direct (raw materials) or indirect (supplies). | N/A (Focuses on physical items) | Components, office furniture, finished products. |
| Services | Acquisition of non-physical services. | Can be direct (e.g., core outsourced process) or indirect (e.g., consulting). | N/A (Focuses on services) | Consulting, maintenance, marketing, logistics. |
Understanding these different types helps businesses optimize their procurement processes, manage supplier relationships, and control costs effectively.
