Creating Value Through Indirect Procurement in Manufacturing

Success in indirect procurement demands both expertise and execution, delivering immediate value while building lasting capabilities. Unlike direct procurement, which is a core capability for manufacturers, indirect procurement spans diverse categories with unique stakeholders, cost drivers and complexities. Without dedicated resources and strategy, companies across industries often overspend and miss opportunities for value creation.

A leading global manufacturer faced this challenge firsthand. After successfully implementing a global sourcing function for direct materials, the company sought to replicate that success in indirect services and materials — an entirely different challenge.

Though the company had a strong leader in place, unlocking the full potential of indirect procurement required specialized expertise, a clear strategy and hands-on execution. To drive this transformation, the company leveraged L.E.K. Consulting’s experience in navigating complex procurement challenges to build a structured, scalable indirect procurement function — equipping the organization with the processes, tools and expertise to drive ongoing efficiency and cost savings.

Building a foundation for indirect procurement

While the manufacturer excelled in direct procurement, indirect spend was left to functional leaders, driving up costs, increasing risk and consuming valuable time for their teams.

L.E.K. took a structured approach to building the company’s indirect procurement capability from the ground up. Using a comprehensive strategic sourcing process (see Figure 1), the team ensured consistent execution across categories while building the client’s capabilities.

Figure 1. L.E.K.'s 7-step strategic sourcing process

Executing for impact

With a structured approach in place, the focus shifted to execution. To drive immediate results while strengthening long-term sourcing capabilities, we embedded a senior procurement leader to work alongside the internal team. This working group tackled eight projects across logistics, packaging, facilities services and corporate services, leveraging a range of strategic sourcing techniques:

Competitive RFPs to introduce new suppliers and optimize costs
Incumbent negotiations informed by benchmarking and should-cost modeling
Global sourcing to expand supplier options and drive efficiency
Group purchasing strategies to unlock volume discounts and improve terms
Demand management to identify services that could be discontinued or have service levels reduced to meet the need from the business
Cost modelling to develop a perspective on cost drivers and cost savings potential in support of a key supplier relationship

These efforts delivered significant results, including 15% annual cost savings across freight, packaging, maintenance, repair and HR services. Additionally, the team developed a roadmap for 17 future projects, expected to generate 5%-8% savings on addressable indirect spending over the next two years.

In addition to cost savings, this structured approach resulted in category strategies, improved supply resiliency, supplier diversity, fit-for-purpose service levels and a path to value across key indirect categories.

Indirect procurement touches every layer of an organization, from corporate services to manufacturing, distribution and logistics — as illustrated below.

Creating an engine for value

Beyond immediate cost savings, we built a procurement function designed for long-term success. The capability roadmap developed helps establish key infrastructure, processes and expertise that will support the manufacturer’s objectives to drive ongoing efficiency and strategic sourcing excellence.

Tools and templates: A tailored set of resources standardized RFPs, supplier evaluations and contract negotiations, making best practices repeatable.
Master data integration: Collaboration with finance and IT to create spend visibility across disparate systems where indirect category spend was managed.
KPI dashboard: A performance tracking system provided real-time visibility into procurement efficiency, supplier performance and cost savings.
Contract portfolio review: Evaluation of 50+ agreements uncovered renegotiation opportunities, risk areas and cost-saving adjustments.
Integrated procurement processes: Workflows mapped across 15 systems uncovered disparate systems, data flows and decision points that provided the foundation for the indirect team to take on management of indirect categories.

Our experts embedded experts within the team, guiding them through live sourcing projects, supplier negotiations and category strategy workshops. This hands-on approach built confidence, strengthened procurement skills and ensured long-term process ownership.

Essential insights for manufacturing leaders

This transformation highlights critical strategies for organizations looking to elevate their indirect procurement capabilities across industries:

Reframe assumptions: Excellence in direct procurement doesn’t ensure success in indirect categories. Indirect procurement spans a broad range of services and materials, requiring specialized strategies to manage complexity, mitigate risk and drive efficiency.
Prioritize actionable expertise: Effective transformation combines strategic guidance with hands-on leadership. Partners who work alongside teams to deliver immediate results while building long-term capabilities are essential.
Focus on enduring value: Sustainable impact comes from embedding new capabilities, improving transparency and aligning procurement strategies with broader business goals.

Regardless of industry, indirect procurement is often considered a tactical cost reduction activity. Organizations that take a strategic approach to indirect spend can unlock hidden efficiencies and gain a lasting competitive advantage.

To learn how L.E.K. can help transform your indirect procurement function and capture significant value, contact us today.