The Procurement Paradox Continues: Why Mixing Direct, Indirect, Services, and CapEx Spend Quietly Kills Margin

Procurement leaders argue that the biggest value leaks are not negotiation failures. They are structural. Here is how the market is separating the four spend categories and why one playbook across all

Most procurement teams treat every pound leaving the business as “spend.” One bucket. One playbook. One set of negotiation tactics. Then they wonder why savings run out, maverick purchasing keeps growing, and finance stops taking them seriously. The problem is not effort. It is architecture.

The debate gained traction after Tom Mills posted a breakdown of the four spend categories on LinkedIn. Direct spend, the cost of production. Indirect spend, the cost of running the business. Services spend, the cost of expertise. CapEx spend, the cost of assets and investment. Each demands a different approach. Each fails in a different way. The post drew procurement leaders, transformation consultants, CFO advisors, and operators who pushed the framework into sharper operational territory.

Different Failures, Different Logic

The strongest framing came from Tomasz Tyras, a senior supply chain and S&OP architect. “A lot of procurement leakage starts when companies call everything ‘spend’ and then manage none of it with the right logic.” His diagnosis landed with the most engagement on the thread. “Direct, indirect, services and CapEx may all hit the P&L differently, but more importantly they fail differently. That is why one sourcing playbook across all categories usually produces cosmetic savings in one area and value destruction in another.”

His prescription was specific. Margin protection for direct. Compliance and demand control for indirect. Scope discipline for services. Lifecycle economics for CapEx. “Procurement becomes strategic the moment it stops chasing price and starts shaping financial outcomes.”

Sanchita Sur, a Gen AI founder and thought leader incubated by SAP, reinforced the point in one line. Each category operates on a completely different value logic. “Margin (direct), efficiency (indirect), outcomes (services), and long-term returns (CapEx). Applying one lens across all four is where most teams go wrong.”

Romain Ducrocq, a global indirect procurement leader with a $160M international scope, drew the same conclusion from enterprise transformation work. “Many professionals don’t struggle with spend first, they struggle with spend architecture.” When categories are aggregated, he noted, “margin levers get mixed with opex control, scope-based services get managed like unit-price buys, and lifecycle decisions get reduced to purchase price.” That, he argued, is when value leakage stops being a negotiation issue and starts becoming a structural one.

Visibility Is the Starting Point, Not the Solution

A second thread argued that categorization is only the first step. Governance is where most organizations break down.

Mark Strange, a procurement and supply chain transformation leader and founder of Möbius Nexus, pushed back on the idea that structure alone solves the problem. “Categorising spend is only the first layer. The real problem many organisations face today is not what bucket the spend sits in, it is how the spend is governed once it enters the system.” He listed the failure modes he sees regularly: fragmented catalogue governance, uncontrolled supplier onboarding, disconnected P2P processes, poor demand management. His verdict was sharp. “Spend visibility does not automatically create spend control. The real shift happens when procurement moves from spend classification, to spend orchestration across the entire enterprise.”

Sebastian Grigoras, a tail spend specialist, added the cross-functional angle. “Visibility as a starting point. The challenge may sit in getting procurement, Finance, and the wider business aligned closely enough to turn visibility into different decisions and better buying behaviours.”

Nis-Peter Iwersen, an interim procurement and supply chain excellence leader, warned that without a structured Total Spend Analysis there are no clear priorities, no category-specific strategy, and no sustainable savings. “Analysis alone doesn’t deliver impact, execution does.”

The Cost of Confusion

Mark Coulson, Co-Founder of SmartBuyer and a CIPS-qualified procurement expert, surfaced a category that most frameworks miss entirely. “For me, the real challenge isn’t managing them separately, it’s when they collide and overlap.” He gave two examples. IT needs Facilities for their data centre. Marketing needs IT for their martech stack. That spend, he argued, sits in no-man’s land and is only half-managed. He proposed a fifth bucket. “Hybrid spend (maybe call it ‘cost of confusion’?).” Cross-functional projects nobody owns. The spend that falls between departments. “There’s savings to be found in those ‘gaps’.”

Jeff Miller, a global procurement leader, voted for the indirect-plus-services combination as the biggest governance problem. “Very often departments or individuals do their own sourcing for those services.”

Where the Real Money Bleeds

Several operators pointed to specific category leaks most procurement teams underestimate.

Pamela Hopper, a procurement executive focused on TCO and value creation, flagged direct tail, indirect, service spends, and freight as chronically overlooked. “In most manufacturing environments, freight belongs right under Direct COGS.” Her discipline: a formal review of Direct “B”, Freight, Indirect, and Service spends at least every 3 years. “With current AI technology, we can now also manage the Direct C tail spend with much higher efficiency.”

Omer Sasson, a direct sourcing specialist working with 7 and 8-figure D2C and Amazon brands, drew the clearest comparison. “I’ve seen teams chase 5 to 10% indirect savings while direct spend leaks millions through poor should-cost modeling and weak supplier partnerships.”

Clayton Michael-Butler, a veteran-led business consultant working with $1M to $50M founders, pointed to the structural reality in smaller organizations. For many of his operators, all money leaving the business is just “expenses.” They have no procurement team. The categories blend into one drain. “We find $60K in duplicate software under Indirect, or $95K in mispriced service contracts because scope blurred over time. That’s real money that bleeds straight off the margin. It’s a structural problem before it’s anything else.”

Matt Hunter, focused on energy and sustainability management, added the energy spend angle. For direct, “energy spend on process is usually held to a budget that doesn’t take into account the recent volatility or upward trend of tariff and supply rates.” For indirect, facility energy spend is seasonal with decentralized procurement, no benchmarking, and no strategy.

Conversations With Finance Change

Matthias Svetic, an advisor on deal communication, captured the shift that happens when teams finally separate the four categories. “The real problem here isn’t the categories. It’s that most teams never separate them in the first place. Once you do, every conversation with finance and leadership changes. You stop defending costs and start showing where margin is being built or lost.”

Chantell L., an enterprise value leakage advisor, pointed to where the fastest value sits. “The mistake isn’t lack of effort, it’s using one playbook for four very different spend types. The fastest value is in Services and CapEx: tighten decision rights, lock scope to outcomes, and manage total lifecycle impact.”

Strahinja Jovanovic, a supply chain builder in eCommerce and qCommerce, summed up the architecture point. “Getting the supplier wrong isn’t just a cost issue, it’s a depreciation + downtime + switching cost problem for years. Procurement + Finance alignment here is everything.”

Takeaways for Procurement Leaders

Three lessons run through the discussion. First, different spend categories fail differently. Direct bleeds margin. Indirect bleeds EBITDA. Services bleed scope. CapEx bleeds the balance sheet for years. One playbook cannot fix four different failure modes.

Second, visibility is not control. Structured Total Spend Analysis is the starting line. Spend orchestration, governance, and demand management are where value is actually created.

Third, watch the gaps. Cross-functional spend that sits between departments is often the largest unmanaged category. The “cost of confusion” is real and quantifiable.

Which spend category is most often unmanaged in your organization: direct, indirect, services, or CapEx?

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