How do direct sourcing and indirect sourcing differ?

Direct sourcing and indirect sourcing differ primarily in the type of goods and services each process focuses on. Direct sourcing pertains to materials that are used directly in the production of a company's goods, such as raw materials or components that are essential for manufacturing. This process often involves establishing strong supplier relationships because the quality and reliability of these materials significantly affect the final product.

On the other hand, indirect sourcing involves the procurement of goods and services that support the overall operations of a business rather than contributing directly to the production of its products. These can include office supplies, maintenance services, or professional services. Although indirect supplies and services are vital for business operations, they do not directly affect the manufacturing process.

This distinction is crucial for supply chain management, as each type of sourcing requires different strategies, metrics, and supplier management practices. Understanding these differences allows companies to optimize their supplier relationships and procurement processes tailored to their operational needs.