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Glossary: Spend Types/Spend Categories

Commodities – A good for which there is a supply demand but has little to no differentiation across a market of suppliers. Price of a commodity is generally determined by its overall market availability and demand characteristics at a particular point in time. Examples of commodities include energy (petroleum, crude oil, electricity), metals (coal, copper, gold, platinum, palladium, aluminum, iron ore), and agriculture (paper, corn, cotton, salt, coffee beans, tea, wheat). However, buyers may choose to consider other factors that may or may not influence the supplier’s price on that commodity, such as sustainability and environmental impact, animal welfare practices, method of generation, and other criteria. [Refer to: CombineNet’s Expressive Bidding for collecting price and non-price supply data.]

Direct Materials – A direct material is any component (raw materials, ingredients, standard parts, specialized parts) that goes into the manufacture of a finished good. Direct Materials is one of the major spend categories managed by procurement and sourcing teams. [Refer to: Videocast on Sourcing Direct Materials in Volatile Markets.]

Direct Spend – Refers to the costs to procure direct materials. [Refer to: CombineNet for Getting More Spend Under Management.]

Indirect Materials – Materials and consumables purchased that do not become part of produced goods or services that a company delivers to the market, but are necessary for the supporting operations of a business. Examples of indirect materials include office supplies, computer and phone equipment, furnishings, cleaning supplies, tools and manufacturing equipment, fleet vehicles, uniforms, etc.

Indirect Spend – Refers to the cost to procure Indirect Materials as well as costs to cover other services and expenses not part of raw/direct materials, such as personnel costs, marketing, legal, financial, healthcare, housekeeping, travel, MRO (maintenance, repair, and operating costs) and other such expenses. [Refer to: CombineNet for Getting More Spend Under Management.]

Spend Category – A grouping of types of spend/expense. The two primary examples of different spend categories include direct materials (or direct spend) and indirect spend (including indirect materials and services). Further category breakdowns may include transportation/logistics, corporate services, IT sourcing, and packaging. An organization may also have custom category names specific to their business. [Refer to: CombineNet for Getting More Spend Under Management.]

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