Direct spend
Everything a manufacturer buys that ends up in, or on, the product it sells: raw materials, components, sub-assemblies and their packaging.
Also called: Direct procurement, Direct materials, Production purchasing
If you can find it on the bill of materials, it is direct spend. Steel coil, castings, fasteners, PCBs, molded housings, the corrugated case the product ships in. For an industrial manufacturer it is usually 50 to 70% of revenue, which makes it the biggest cost line in the company by a long way.
The opposite is indirect spend: energy, IT, maintenance, travel, consultants. Everything that keeps the company running but does not ship to the customer.
Why it behaves differently
Direct spend is decided early and paid for late. By the time a buyer receives a purchase requisition for a part, an engineer chose the material, the tolerances and often the supplier months or years before. Studies across manufacturing put 70 to 80% of a product’s cost as fixed at the design stage.
So the usual procurement levers (tenders, volume bundling, payment terms) work on what is left. They tend to deliver 2 to 3% a year. The rest of the money sits in the specification, which procurement rarely gets to question.
A rough split
For a mid-size equipment maker with €200M of revenue, direct spend might look like €70M of machined and fabricated metal parts, €25M of electrical and electronic components, €15M of plastics, €8M of fasteners and standard parts, and €4M of packaging. The fasteners are the smallest line and almost always the messiest one, with thousands of references for a few hundred real parts.