Indirect Spend in Procurement: What It Is, How to Classify It, and How to Reduce It

1. What Is Indirect Spend in Procurement?

Indirect spend (also called indirect costs or indirect procurement) refers to all expenses necessary for a company's operation that are not directly part of the product or service sold to the end customer.

Unlike direct spend (raw materials, production components), indirect spend is cross-functional and typically fragmented across multiple departments, suppliers, and categories.

Typical examples of indirect spend:

• Technology & IT: Software, licenses, hardware, telecommunications, cloud services
• Professional services: Consulting, legal advisory, auditing, accounting services
• Facility management: Maintenance, cleaning, security, building services
• Travel & entertainment: Flights, hotels, per diems, corporate events
• Marketing & communications: Agencies, media, events, promotional materials
• Office supplies: Stationery, furniture, office consumables
• Logistics & transport: Courier, parcel, fleet (when not core business)
• Human Resources: Training, recruitment, uniforms, benefits

2. Classification of Indirect Spend

A clear classification is the first step to controlling indirect spend. Leading companies organize these costs in 3 levels:

1. By category: Group by type (IT, services, facility, travel, marketing). Identifies categories with highest savings potential.
2. By criticality: Classify as essential (non-negotiable, like security) vs. discretionary (can be optimized, like travel). Facilitates prioritization.
3. By management level: Managed spend (under contract and control) vs. unmanaged spend (direct purchases without formal process, also called maverick spend).

3. The Real Impact of Indirect Spend

In most large LATAM enterprises, indirect spend represents 15-30% of total expenditure, yet receives a fraction of the attention given to direct spend. This disproportion creates significant opportunities:

• Extreme fragmentation: Hundreds of suppliers for similar categories, without economies of scale
• No formal contracts: Up to 60% of indirect spend occurs without an active contract
• High maverick spend: Users buy directly without going through procurement
• Lack of visibility: Management doesn't know how much is spent, with whom, or at what price
• Automatic renewals: IT, insurance, and service contracts renew without renegotiation

4. Direct vs Indirect Spend: Key Differences

5. 5 Proven Strategies to Reduce Indirect Spend

1. Spend visibility: Consolidate all indirect spend on a single platform. Without visibility, there's no control. Explore Egixia for procurement management →
2. Supplier consolidation: Reduce the number of suppliers per category. Instead of 15 stationery suppliers, negotiate with 2-3 for better prices and service.
3. Framework agreements: Establish contracts with predefined prices, SLAs, and conditions for top-spend categories.
4. Approval automation: Implement digital approval workflows with spending limits by level. Purchase requisitions module →
5. Periodic category analysis: Review top-spend categories quarterly to identify renegotiation opportunities.

6. Technology for Indirect Spend Control

Procurement platforms like Egixia transform indirect spend management by offering:

• Digital catalogs: Users purchase from approved suppliers at preset prices, eliminating off-contract spend
• Smart approval workflows: Automatic rules by amount, category, and cost center
• Spend Analytics: Dashboards showing spend by category, supplier, and trend
• Supplier portal: Self-service for indirect service providers. Explore the Supplier Portal →

Request a demo to control your indirect spend →

7. Frequently Asked Questions About Indirect Spend