The Four Spend Categories: Why Visibility Without Authority Leaves Procurement Powerless

Procurement leaders argue spend taxonomy is only half the answer. Without category-specific governance, decision rights, and clean data, the four-bucket model delivers labels rather than savings.

Most procurement teams treat every pound leaving the business as “spend.” One bucket. One playbook. One set of negotiation tactics. The result is predictable. They cannot find savings because they never separated where the savings actually sit. Direct spend protects gross margin. Indirect spend bleeds EBITDA when unmanaged. Services spend spirals when scope is loose. CapEx locks in mistakes for years. Four categories, four failure modes, four different sourcing logics.

The debate gained traction after a LinkedIn post laid out a four-bucket spend model. Direct (cost of production), indirect (cost of running the business), services (cost of expertise), and CapEx (cost of assets and investment). The post drew procurement directors, category managers, sourcing transformation leaders, and senior buyers across pharma, manufacturing, energy, FMCG, and financial services. The agreement on the framework was strong. The pushback on what the framework alone can achieve was sharper.

Taxonomy Is Not Governance

The most cited critique came from Mario González, a procurement and supply chain leader at Tier-1 automotive. “Most teams do not mismanage spend because they lack categories. They mismanage it because visibility without category-specific authority changes nothing. Spend taxonomy explains the problem. Governance is what actually moves money.”

Shehab Hagag, a supply chain and operations transformation leader in KSA and the GCC, drew the same line. “Each spend category requires not only a different sourcing strategy, but also a different governance model. The biggest gap I’ve seen is not in defining the categories, but in aligning stakeholders and decision rights accordingly, especially for indirect and services spend.”

Balaji Swaminathan, a global sourcing and supplier strategy leader working with global OEMs, completed the picture. “The real unlock happens when this segmentation is combined with ownership and capability.”

The pattern is consistent. Categorizing the spend tells you what you have. It does not tell you who decides, who approves, or who absorbs the cost when the decision goes wrong. That second question is where most organizations stall.

Services Spend Is the Biggest Mess

The category that drew the most concern was services. Multiple operators flagged it as the most immature, the most poorly governed, and the largest unmanaged opportunity.

Mark Coulson, Co-Founder of SmartBuyer and a CIPS-qualified procurement expert, was direct. “In my experience, Services spend is the most immature, poorly governed and undefined. A bit of a catch-all for spend that doesn’t fit in the other categories nicely, and the data quality is typically very poor. It’s a big opportunity, but you need the streetwise experience to manage it.”

Omer Sasson, a direct sourcing specialist working with 7 and 8-figure D2C and Amazon brands, agreed. “Services spend is the one that quietly gets out of control. Clear scope and outcome-based payments make a massive difference.”

Jon Milton, a services procurement consultant, pushed the best-practice list further. Beyond clear scopes and milestone payments, he argued for “enable competition” and “ensure effective project governance.” His logic: “If, as McKinsey make us believe, c70% of projects fail, helping line managers to collaborate effectively with suppliers on projects post go-live is surely value-adding. Plus, it ensures variation orders and land and expand activities are controlled to protect the bottom line.”

Sean Dollar, a Senior Buyer focused on strategic sourcing and SRM, gave a shop-floor view of how badly the category gets handled in practice. “I have seen MRO buyers forced to act like a Swiss Army knife while juggling office supplies, CapEx projects, and even a few direct material accounts. This creates massive P&L blind spots.” His framing of where procurement adds value: “We add the most value when we act as a strategic bridge between the production line and the finance office. How do you gain that seat at the table before an irreversible decision drains your EBITDA?”

Marketing Should Not Be in Indirect

The sharpest reframing on the category boundaries came from Rebecca Bellairs, Co-founder of Pitch’d. “I honestly don’t think marketing spend should sit in the indirect cost bucket or be treated in the same way as other services. Consolidation often loses technical mastery, cheap impacts return, and desired outputs eg brand awareness and loyalty take time that no procurement metric can and should try to interfere with. I want to start a petition to move it out of procurement and go rogue, reporting into the CMO.”

Her appeal to procurement on promotional items was specific. “Just please ban all low quality promotional items. No one needs £5 branded headphones or a key chain, and they definitely aren’t wearing a gifted baseball cap.”

Bellairs’ point lands on a real tension. The same procurement playbook that consolidates IT software vendors will destroy value when applied to creative agencies. Different categories require different governance. Marketing may be the clearest case for category-specific decision rights.

The Data and Classification Problem

Several commenters argued the four buckets only work if the underlying data lets you separate them.

Abdulmajeed Al Sheraim, a procurement and contracting leader, pinpointed the gap. “The biggest gap is usually visibility and classification. Many organizations don’t have clean spend data to even separate Direct, Indirect, Services, and CapEx properly, so strategies end up reactive rather than intentional. Procurement maturity starts with understanding what you’re managing before deciding how to manage it.”

Chong Wan Yun, a learning and transformation leader, surfaced an even more basic problem. “Some organisations don’t even know how to differentiate between trade and non-trade. When that basic clarity is missing, everything gets lumped as ‘expenses,’ and procurement is expected to deliver savings without a clear foundation. At that point, it’s not a strategy issue. It’s a culture issue. And that’s the hardest part to change.”

Muhibuddin Soekarno, a procurement advisor with 20 years in energy and petrochemicals, put the practical question to the original framework. “What’s your practical approach to classify these spend buckets quickly assuming the Procurement org use SAP when relying only on standard procurement reports?”

That question, often asked but rarely answered cleanly, is where most spend transformation projects spend their first six months.

The Procurement Pro as Financial Architect

Bishowjuti Bhattacharjee, a strategic procurement professional and chartered MCIPS, widened the role description. “A modern procurement professional acts as a Financial Architect of the business cycle too. Beyond simple sourcing, managing categories, they strategically manage the Cash Conversion Cycle to ensure the organisation’s ‘metabolism’ remains healthy. By aligning AP with AR and tailoring payment terms to specific spend categories based on their nature, they protect operating cash flow.”

Dr. Srinivasan CT, Head of Infrastructure and Procurement in financial services, added three operational refinements. “CapEx to be tracked till capitalisation and extend to asset management to create best value. Opex to inwarded with order to receive and tracked till consumption. Service cost structure to be fixed to variable to outcome based.”

Veronica Scorrano, a strategic sourcing and procurement leadership specialist, made the connection to the broader financial plan. “Leading organizations go further, refining these categories to build a roadmap that clearly connects sourcing strategy to cost savings and cost avoidance impacts across the financial plan.”

The Strategic Shift

Pankaj Tuteja, Head of Operations at Dragon Sourcing, captured the broader transition this enables. “When the procurement team clearly separates direct, indirect, services, and CapEx spending, the team gets real visibility into where money is going and what levers to pull, whether it’s protecting margins, controlling maverick spend, tightening scope, or optimizing long-term investments. In this context, procurement shifts from cost-cutting to value creation, making decisions based on insight rather than assumptions.”

Olga Catena, a supply chain consultant and educator, summarized the operational consequence. “When you separate spend by category, you stop negotiating blind and start making decisions with real criteria.”

Takeaways for Procurement Leaders

Three lessons run through the discussion. First, taxonomy without authority is theater. The four-bucket model only works when each category has its own governance, decision rights, and accountability.

Second, services is the highest-leverage category to fix. Poor scope, poor data, and weak governance combine to make it the largest unmanaged spend in most organizations.

Third, the foundation is data and culture. If finance and procurement cannot separate trade from non-trade, no sourcing strategy will land.

Which of the four spend categories is most poorly governed in your organization?

Continue the discussion on Chain.NET, the global supply chain community, at www.chain.net. Ask questions, join events, and access exclusive resources.