Your ERP tracks every purchase order for raw materials, every strategic supplier contract, every goods receipt note. But do you know how much your teams spent on office supplies last quarter? On SaaS subscriptions activated without involving IT? On occasional HR providers invoiced directly by the department that needed them?
In most SMEs and mid-market companies, the honest answer is no. These expenses — indirect procurement — represent, according to market estimates, between 20 and 40% of a company’s total cost base. They remain largely invisible in the ERP, handled outside the formalised procure-to-pay process. Tail spend, that segment of low-volume but high-count suppliers, is the most telling symptom.
This guide explains why indirect procurement resists ERP control, how to measure its scale, and which levers to activate to bring it back in line.
Direct vs. Indirect Procurement — The Distinction That Changes Everything
Direct Procurement: Structured, Planned, Native to the ERP
Direct procurement covers spending directly tied to production or service delivery: raw materials, components, production subcontracting, goods for resale. It shares several common traits.
It is predictable: bills of materials or service workflows allow requirements to be planned in advance. It is recurring: the same references, from the same suppliers, in known volumes. It is critical: a stockout halts production. And above all, it is naturally at home in the ERP: the MRP module plans it, the purchasing module orders it, the stock module receives it.
Indirect Procurement: Dispersed, Often Off-Catalogue
Indirect procurement covers everything outside that category: office supplies, software subscriptions, travel and accommodation, facilities maintenance, consulting services, small IT equipment, cleaning services, training, advertising.
These purchases are defined by their fragmentation: they are initiated by dozens of different people across the organisation, often without involving the procurement function. A sales rep who signs up for a prospecting tool online, an HR manager who calls on a one-off recruitment firm, a project leader who orders presentation materials without a prior purchase order — all transactions that never enter the formalised P2P flow.
Tail Spend: The Long Tail of Your Supplier Base
Tail spend refers to the mass of low-value suppliers that represent, by market estimates, 40 to 60% of a company’s total supplier count but only 10 to 20% of spend by value. A reverse Pareto: many suppliers, little volume.
These suppliers have in common that they are rarely used (fewer than five orders a year), operate under no negotiated framework agreement, and are managed informally — often by email or corporate card with no ERP reconciliation.
Maverick spend is a related concept: it refers to purchases made outside the approved process, regardless of supplier. An employee who orders IT equipment through an online marketplace without a purchase order, or who engages an unlisted provider, is making maverick spend. Procurement specialists estimate this type of expenditure represents 15 to 30% of indirect spend in companies without formalised controls.
Why Indirect Procurement Slips Through Your ERP
Reason 1 — Purchase Requisitions Ignored for Small Amounts
The purchase requisition (PR) process in the ERP is designed for significant purchases. Nobody is going to open the ERP to create a PR, wait for approval, and then wait for a purchase order — just to buy three reams of paper or renew a £12/month software subscription. The process is perceived as disproportionate to the amount involved.
The result: the employee buys directly, pays by corporate card, or claims it on expenses. The spend only appears in the books at bank reconciliation, with no analytical cost code and no identified supplier.
Reason 2 — Corporate Cards Not Reconciled in the ERP
Corporate payment cards (business cards, virtual cards for online purchasing) generate parallel spend flows that bypass the ERP entirely. Transactions flow directly to the bank statement, with no purchase order or invoice linked in the system.
Manual reconciliation of these expenses is laborious: an accountant must match each statement line to the corresponding expense claim and assign the right cost code. In practice, this happens with a lag and variable accuracy. “Miscellaneous” or “general expenses” categories absorb everything that resists quick identification.
Reason 3 — Direct Purchasing by Operational Teams (Shadow Purchasing)
Shadow purchasing refers to purchases made directly by operational teams, with no involvement from the procurement function or the ERP process. This practice is endemic in companies where the procurement process is perceived as slow or bureaucratic.
A marketing manager who signs a content agency contract directly, a technical director who orders a spare part from a supplier he has “known for years” without raising an ERP order: shadow purchasing is not bad faith — it is a rational adaptation to a process that impedes operational speed.
Reason 4 — No Internal Catalogue for Routine Purchases
Without an internal catalogue in the ERP, every indirect purchase starts with the same question: “Who do we use for this?” Teams search through email, call a colleague, or simply order from the first site they find on Google.
The absence of a catalogue drives supplier proliferation: after two or three years, a 200-person company can find itself with 300 to 500 active suppliers, 80% of whom have been used once or twice. Every new supplier carries an administrative cost: creating the vendor record, setting up payment, managing documentation.
Reason 5 — Approval Processes Too Heavy for Small Amounts
A three-tier approval workflow for an £80 purchase is counterproductive. Process friction is consistently cited as the main reason teams bypass the formal channel. If getting a purchase requisition approved takes longer than the purchase itself, the channel will be systematically circumvented.
How to Quantify Your Tail Spend Using Your Current ERP
Before putting corrective measures in place, you need to measure the scale of the problem. Here is how to do it with the tools available in any ERP with a reporting module.
Supplier ABC Analysis
ABC analysis applied to suppliers is the most effective diagnostic tool. From the reporting module of your ERP, extract purchase volumes by supplier over the last 12 or 24 months, then segment as follows:
- A suppliers: the 20% of suppliers that account for 80% of spend. These are your strategic suppliers, covered by framework agreements.
- B suppliers: the next 30%, with intermediate volumes. They merit a structured relationship, though not necessarily a formal contract.
- C suppliers: the remaining 50%, representing a minimal share of spend. These are your tail spend suppliers.
Complete this analysis with the number of orders per supplier. A supplier who received fewer than five orders in the year is typically a tail spend supplier, regardless of the unit value of those orders.
Cross-Reference ERP Data with Bank Statements and Corporate Cards
The gap between spending recorded in the ERP and actual bank flows reveals the scale of shadow purchasing and unreconciled card spend. Ask your finance team to cross-reference, for one representative quarter, bank debits with no associated PO in the ERP: the delta is your blind spot.
Identify Unaddressed Spend Categories
Some spend categories have no referenced supplier in the ERP, even though they represent significant volumes. Digital subscriptions, maintenance supplies, corporate catering, small technical service providers: map the categories where your teams purchase without going through the procurement module.
This mapping is the starting point for your action plan. It lets you prioritise workstreams by the volume of spend involved and the number of suppliers to rationalise.
5 ERP Levers to Regain Control of Indirect Spend
Lever 1 — Internal Electronic Catalogue
Creating an internal catalogue in the ERP is the most structural lever available. The idea is to list recurring suppliers for each indirect spend category — with negotiated prices, delivery terms, and contacts — and make them directly accessible from the purchase requisition module.
The catalogue transforms the user experience: instead of searching for a supplier, the requester picks from a validated list. The approval workflow remains lightweight, but the spend is captured in the ERP with the correct cost code and the right supplier.
Procurement integrators estimate that a well-maintained internal catalogue can reduce the number of indirect suppliers by 40 to 50% within 12 months, by mechanically steering purchases towards listed suppliers.
Lever 2 — Simplified Purchase Requisition (Mobile Workflow)
Resistance to the PR/PO process is often about perceived complexity. The solution is not to remove controls, but to make them invisible for small amounts.
Modern ERPs allow express approval workflows to be configured: one-tap approval from a mobile notification, without logging into the full interface. For a £150 purchase, the requester submits the PR from their phone, the manager approves from their notification — the transaction is in the ERP in under five minutes.
Lever 3 — Automatic Approval Thresholds
Defining auto-validation thresholds eliminates friction for routine low-value purchases. A typical configuration:
| Amount | Process |
|---|---|
| Under £200 | Auto-approved if in the internal catalogue |
| £200 – £1,000 | Line manager approval (1 level) |
| £1,000 – £5,000 | Department head approval (2 levels) |
| Over £5,000 | Executive and procurement approval (3 levels) |
This configuration reduces the volume of PRs requiring manual approval by 60 to 70% (for purchases below the first threshold), while ensuring proportionate control for significant amounts.
Lever 4 — Integration with Spend Management Solutions
Platforms such as Spendesk, Payhawk, and Expensify offer connectors to the main ERPs on the market (SAP, Sage, Odoo, NetSuite) to automatically reconcile corporate card spend.
The principle: the corporate card remains the practical tool for small purchases, but each transaction is automatically categorised, submitted for approval if required, and pushed into the ERP with the correct analytical allocation. Manual reconciliation — a source of errors and delays — is eliminated.
These integrations bring into the ERP spend flows that previously escaped it entirely: online marketplaces, SaaS subscriptions, travel, online supply purchases.
Lever 5 — Indirect Supplier Consolidation
Rationalising the tail spend supplier portfolio is a long-term project, but it produces lasting results. The goal: moving from 200 indirect suppliers down to 30 to 40 suppliers with framework agreements.
The approach is to identify categories where spend is fragmented across many suppliers (office supplies, ad hoc IT services, maintenance) and negotiate a framework agreement with one or two players per category. The consolidated volume provides leverage on price. Reducing the number of vendor records lowers administrative costs. And the ERP can finally track these expenses through referenced contracts.
ERP Solutions and Specialist Modules for Indirect Procurement
Native Modules: SAP Ariba Spot Buy, Oracle iProcurement, Microsoft BC
SAP offers Ariba Spot Buy, which simplifies unplanned purchases (tail spend) by connecting requesters to a network of spot suppliers directly from within the SAP interface. The online catalogue is maintained by suppliers themselves, offering competitive pricing for one-off purchases.
Oracle iProcurement covers indirect procurement through a self-service catalogue integrated with Oracle EBS or Fusion. The module manages granular approval rules and integration with supplier ordering systems.
Microsoft Dynamics 365 Business Central natively integrates purchase requisition management with configurable workflows, suited to SMEs looking for a solution without additional licence costs.
For Mid-Market: Odoo, Sage Intacct, and Acumatica
Odoo is particularly well-suited to indirect procurement management for SMEs, thanks to the flexibility of its Purchase module. Internal catalogues, automatic approval thresholds, and integration with the Expenses module cover most needs without additional modules. The mobile interface handles quick approvals effectively.
Sage Intacct provides a purchasing module with supplier contract management. Its approval workflow engine and multi-entity capabilities make it a strong fit for mid-market organisations with complex approval hierarchies.
Acumatica offers configurable purchase workflows that adapt well to indirect spend scenarios. Its cloud-native architecture allows procurement rules to be tailored by branch or business unit, and its approval automation covers the threshold configurations described above without complex customisation.
Specialist Spend Management Integrations
Beyond native modules, the ecosystem of spend management platforms has grown significantly. These tools position themselves as ERP complements for use cases that native modules handle poorly.
Spendesk provides a company spend management platform with virtual cards, mobile approvals, and automatic exports to the main ERPs and accounting tools (Sage, NetSuite, Xero). Its strength is user adoption: the interface is designed for non-procurement users.
Payhawk targets mid-market and multi-site companies. Its ERP integration (SAP, Oracle, Dynamics, NetSuite) is deeper, with automatic spend reconciliation and an analytics reporting module.
Expensify is widely used across international teams for expense and corporate card management, with direct ERP integrations. Its policy-enforcement tools can flag out-of-policy purchases in real time, helping reduce maverick spend.
Dashboard: 5 KPIs to Track Your Indirect Spend in the ERP
Implementing the levers above must be paired with regular monitoring of key indicators. These five KPIs let you measure the maturity of your indirect spend control.
| KPI | Definition | Target |
|---|---|---|
| % off-catalogue spend | Share of indirect purchases made outside the internal ERP catalogue | Under 20% |
| Tail spend supplier count | Suppliers with fewer than 5 orders in 12 months | 40% reduction in 12 months |
| P2P compliance rate | Share of indirect purchases routed through the ERP PR/PO process | Over 70% |
| Average approval lead time | Mean time between PR submission and validation | Under 24 hours |
| Consolidation savings | Average price gap between fragmented purchases and framework contract rates | 10–15% savings |
These indicators should be tracked monthly during the initial programme phase, then quarterly once the levers are operational. A simple dashboard in the ERP’s reporting module is sufficient to feed them automatically.
To structure your approach, start with the supplier ABC analysis described in this article: it reveals the scale of tail spend in less than a day. Then read our complete guide to the procure-to-pay cycle in ERP to understand how approval and catalogue levers integrate into an end-to-end procurement process. If you are running a procurement optimisation project as part of a broader ERP initiative, our 5-year ERP total cost of ownership analysis will help you build the ROI case for these improvements into your business plan.
