Direct vs Indirect Procurement: Definition, Best Practices & Differences

‍

Procurement is essential to any business, but it is even more critical when considering Software as a Service (SaaS). The SaaS industry has transformed business operations, and procurement is not immune to this transformation.

Companies must change their procurement methods as they transition to cloud-based solutions to maximize their return on SaaS investments.

In this article, we will look at the two main types of SaaS procurement: direct and indirect procurement. Both have differences, and understanding these distinctions is critical for making informed SaaS purchasing decisions.

What is direct procurement?

Direct procurement in SaaS refers to purchasing software and related services directly from the software vendor or provider.

This approach bypasses the traditional procurement method involving a middleman or third party. Direct procurement is usually preferred by organizations with the right bandwidth and expertise to evaluate software solutions, compare and negotiate with vendors, and make an informed purchasing decision.

Additionally, it permits them to establish a direct link to the vendor, which can improve prompt and effective assistance and upkeep.

Direct procurement examples

Customer Relationship Management (CRM) Platform: When businesses require a centralized system for managing customer interactions and data, they’ll directly purchase it from the vendor or the marketplace.

In a nutshell, purchasing applications, hardware, and resources for the team falls under direct procurement.

Direct procurement best practices to follow

In direct procurement, you must follow specific rules to ensure the purchase is cost-effective, efficient, and secure. Here are some of the basic practices to keep in mind:

‍

‍

Define the requirements and goals

Before directly procuring software and services, clearly defining your company's procurement requirements and goals is essential. This includes identifying the specific software and services needed and the desired features and capabilities.

Research and compare SaaS vendors

Carefully research and compare SaaS vendors to determine which ones best meet your company's needs. Consider factors such as the quality of products and services, the vendor's reputation, and customer support.

Negotiate pricing and contracts directly with vendors

When procuring software and services directly, it is essential to negotiate pricing and contract terms directly with vendors. This can provide greater control over costs and flexibility in pricing models and contract terms.

Ensure data security and privacy

Ensuring the security and privacy of your company's data is a critical consideration in any procurement process. When procuring directly, it is essential to thoroughly evaluate vendors' security measures and privacy policies to ensure that your data is protected.

Evaluate vendor reliability and track record

Before signing a deal with a SaaS vendor, evaluating their reliability and track record is vital. This includes reviewing references, analyzing customer feedback, and assessing their history of providing quality products and services.

Monitor and regularly review SaaS usage and costs

Regularly monitoring and reviewing SaaS usage and costs can help ensure that the software and services continue to meet your company's needs and control costs.

‍

What is indirect procurement?

Indirect procurement in SaaS involves acquiring software products and services through intermediaries, such as resellers or third-party providers.

This approach to procurement is often utilized when a company wants to access a broader range of options or when the desired software is not readily available through direct procurement.

Indirect procurement can offer advantages such as access to a larger pool of options, more flexible pricing and contract terms, and the ability to leverage the expertise of intermediaries.

It is essential for companies to weigh the potential benefits and drawbacks of indirect procurement and to carefully evaluate intermediaries to ensure they are reputable and provide high-quality services.

Indirect Procurement Examples

• Network Devices: To guarantee secure and dependable communication between SaaS solutions and other systems, organizations need networking equipment, like routers, switches, and firewalls, another illustration of indirect procurement in SaaS.
• Hosting Servers: To host their SaaS solutions and store data, organizations require servers, another example of indirect procurement in SaaS.
• Data Center Resources: Data center services offer organizations a secure and dependable environment for hosting their SaaS solutions and related infrastructure, another instance of indirect procurement in SaaS.

Indirect procurement best practices to follow

Indirect procurement can be trickier than direct procurement due to its complexity and the number of parties involved. Let’s take a look at the best practices for the same.

‍

Analyze intermediaries

Assess the intermediary options available through indirect procurement to identify who can fulfill your requirements most effectively. Consider aspects such as the intermediary's stability, the quality of goods and services provided, and the level of customer assistance.

Assess the credibility of intermediaries

Before forming a partnership, it is critical to thoroughly examine their credibility and past performance. This involves exploring references, gauging customer feedback, and evaluating their history of delivering high-quality products and services.

Ensure seamless interaction with intermediaries

Keeping a smooth flow of communication and cooperation can guarantee the attainment of procurement targets and the prompt resolution of any problems that may arise.

Monitor the efficiency of intermediaries

Keeping a close watch on the efficiency of intermediaries can guarantee they meet your firm's demands and swiftly tackle any hurdles.

It is recommended to cut off ties if they are not delivering your requirements efficiently.

Develop a systematic approach for procurement

Forming and adhering to a systematic procurement and vendor management approach can lead to an efficient and effective procurement process.

Use a procurement tool to streamline your SaaS buying process and manage your vendors without hassles.

Perpetually evaluate procurement techniques

Continuously examining and enhancing procurement techniques and procedures can guarantee their effectiveness and the ability of your company to adapt to market fluctuations and new requirements.

‍

What is the difference between direct and indirect procurement?

The difference between direct and indirect procurement holds great significance.

‍

‍

Direct vs Indirect procurement: How a SaaS procurement software can help you?

Organizations can benefit from SaaS procurement software in a variety of ways.

To begin with, it streamlines the procurement process by making it easier to search for vendors, automate purchase request approvals, manage SaaS contracts, and issue invoices.

It gives organizations greater visibility into their procurement activities and spending, allowing them to make more informed decisions and track their SaaS spending against budget goals.

A SaaS procurement software like CloudEagle can enable organizations to negotiate better deals with suppliers by giving them access to market data and price benchmarking information, allowing them to secure better prices and terms.

‍

‍

Here’s how a SaaS procurement software like CloudEagle can help you.

Nowports, the biggest Digital Freight Forwarder streamlined SaaS procurement and save time using CloudEagle, check out their exciting customer success story.

‍

Conclusion

In this article, we looked at direct and indirect procurement, their examples, and how they differ.

Most businesses prefer a direct procurement strategy to purchase SaaS applications, giving them more control over the process. Businesses that lack dedicated procurement teams are the ones that use indirect procurement.

But both methods serve a similar purpose for businesses—helping them acquire new applications for a seamless business operation.

You can streamline the procurement process using SaaS-based buying software, as it’ll help you automate repetitive tasks and take the sting out of the complex purchasing process.

Businesses have been using CloudEagle to simplify SaaS buying, enhance vendor relationships, and improve SaaS negotiations to secure their businesses' best apps.

Do you want to know how they streamline their SaaS buying process?

‍