Indirect Suppliers and Scope 3: What They Are, Why They're Different, and How to Engage Them

What's the Difference Between Direct and Indirect Suppliers?

Direct suppliers are usually the first thing that comes to mind when someone says "supply chain." They're the companies that provide what goes into the product a business sells. A clothing brand’s textile manufacturer is a clear example: the textiles end up in the finished product, so the relationship is direct.

Indirect suppliers work differently. They support the operations behind the business, rather than the product itself. An event planner, an accounting firm, an HR support provider, these suppliers are indirect because they keep the business running without becoming part of what customers actually buy.

Some cases sit in a gray area. A cloud provider for a software company could reasonably be a direct supplier, since the infrastructure is a part of the digital product itself and the expense lands under cost of goods sold; yet for a bank buying the same cloud services for its internal infrastructure, that cost would sit in the indirect bucket. These edge cases matter less than the general pattern: if it's part of what gets sold, is included under COGS, and scales with units sold, it's direct. If it supports the business without becoming part of the product, it's indirect.

This distinction matters more for some industries than others. A manufacturer usually has a substantial list of direct suppliers and a comparatively smaller set of indirect ones, by emissions impact. Consulting firms, software companies, financial services, and most service-based businesses, or “intangible” industries, run in the opposite direction. Nearly everything they buy falls into the indirect category, because COGS vendors represent a lower portion of overall spend, and there's generally less of a “product” for a supplier to contribute to. For these industries, this means that the entire decarbonization challenge lives almost exclusively in a category that manufacturing companies often treat as secondary.

Getting this distinction right matters beyond terminology. It determines where a company should look when it starts mapping its own emissions, and it explains why service-based businesses often face a much bigger indirect supplier challenge than manufacturers, even when they're a fraction of the size in terms of revenue and headcount.

Why Indirect Suppliers Make Up the Majority of Your Scope 3 Footprint in Intangible Industries

For service-focused and non-manufacturing organizations, emissions rarely stem from factories, physical operations, or vehicle fleets. Instead, most of their environmental footprint lies in Scope 3, which typically accounts for 70–80% of total emissions. In these intangible sectors, indirect suppliers represent the vast majority of that Scope 3 impact, even though these vendors rarely view themselves as major carbon emitters.

Because non-manufacturing and service-oriented businesses rely primarily on third-party services rather than physical supply chains, and incur comparatively lower COGS from vendors, indirect suppliers are both their primary source of emissions and the hardest group to engage. The primary obstacle is a conceptual mismatch: when a service-based firm asks an IT vendor or marketing agency for emissions data, the request is often met with confusion. Without factories or heavy machinery, these vendors fail to recognize their own footprint. What gets overlooked is that emissions originate from office space, remote work, software hosting, business travel, and purchased services. For non-manufacturing companies, failing to engage indirect suppliers leaves virtually their entire Scope 3 footprint unaddressed, and delaying that engagement doesn't just slow one company down. It puts off the systems-level shift that broader supply chains eventually need to make towards engagement, measurement, and decarbonization becoming the norm for all suppliers.

Four patterns explain why indirect suppliers behave so differently from direct ones, and each shapes how an engagement strategy needs to work.

• The mindset gap. Traditional “direct supplier” relationships in physical goods usually make sense, since they're tied to a product or process you can point to. Indirect suppliers often don't see themselves as contributing meaningfully to emissions, so education has to come before any request for action.

• Volume and churn. Indirect suppliers can represent more than half of total spend, and the majority of suppliers by count, yet they turn over faster than direct vendors do. A multi-year decarbonization roadmap doesn't fit naturally into a vendor relationship that might not last past a one- or two-year contract.

• Fragmented ownership. Direct supplier relationships usually sit with a supply chain team and a clear point of contact. Indirect spend is scattered across IT, HR, marketing, legal, and facilities, often with no single department responsible for coordinating the relationship or the request.

• The leverage paradox. Your company might be a rounding error to a massive cloud provider, with no ability to influence that relationship. Conversely, you can hold real influence over a smaller, mid-market indirect supplier, where the relationship is proportionally much more valuable, and therefore, worth engaging in for the supplier.

Understanding these four patterns separates a supplier engagement plan that gets traction from one that stalls after the first round of outreach.

How to Start Engaging Your Indirect Suppliers

At a small or mid-size services or SaaS company, sustainability usually isn't anyone's job. A data request from a customer typically lands on a finance lead or an operations manager; someone already running a full workload, who now has to learn an entirely new framework of scopes and reporting terminology from scratch. Getting from that request to a first real inventory and report tends to take six-plus months, if it happens at all, and it often represents dozens of hours pulled from a job that was already full.

It's rarely just one customer asking either. Many suppliers juggle three to five separate sustainability requests at once, each with its own form, portal, and deadline. Crucially, however, because most small and mid-market vendors lack a centralized sustainability department, these inquiries naturally get routed to disparate points of contact across finance, operations, or account management. While the organization as a whole is managing a growing volume of reporting demands, each employee receiving them sees an unfamiliar, isolated one-off request. This internal fragmentation prevents suppliers from building repeated capability or leveraging prior work, causing engagement to stall before meaningful progress occurs.

Getting past that starts with data, not immediate outreach.

• Pull indirect spend by vendor. Start with finance and procurement records, then run an initial emissions estimate using available industry emission factors. This gives a rough sense of where the impact concentrates before you contact any supplier.

• Segment by emissions and leverage together. The biggest emitter on the list isn't always the supplier most ready or willing to engage. Prioritizing where both factors line up, meaningful impact and realistic influence, produces better early results than chasing the largest number first.

• Tailor the approach to each supplier. A one-size-fits-all outreach template treats a small vendor the same as a large one, which usually means both get an approach that doesn't quite fit. Your approach should shift with the supplier's size and maturity.

• Build it into existing processes. Working with procurement and legal to fold sustainability requirements into RFPs, onboarding, and contract renewals turns this into a routine expectation, rather than a standalone ask that competes for attention against everything else already on a supplier's desk.

Even with a solid process in place, the most common failure point is assuming that suppliers already understand what's being asked of them and have the resources to respond. Many suppliers see this request as new; view it as something that sits quietly in a compliance function no one prioritizes; or simply don't have anyone positioned to own it. Companies that build their entire engagement plan around the assumption that suppliers are ready to act, rather than starting from where suppliers actually are, tend to see most of their outreach land flat.

From an outreach perspective, routing requests through existing relationship owners, like account managers already in contact with suppliers, tends to work better than cold outreach from a sustainability team the supplier has never interacted with. Most critically, leading with education before expecting action is what turns a request that gets ignored into one that actually gets an impactful response.

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FAQ

• What's an example of a direct supplier versus an indirect supplier?

  A direct supplier provides something that becomes part of the sold product, like a component manufacturer. An indirect supplier supports business operations without becoming part of the product, like an accounting firm or an HR platform.

• Are employees considered suppliers?

  No. Employees performing a company's core service are staff, not suppliers, even if their work is central to what the business sells. Suppliers are outside vendors that provide goods or services the business relies on. 3rd-party staffing organizations, such as staff augmentation suppliers, however, are often considered suppliers, depending on how a company sets its organizational boundaries. 

• Why do service-based companies have mostly indirect suppliers?

   Because they primarily  on third-party services rather than physical supply chains, and incur comparatively lower COGS from vendors. Nearly everything a consulting firm or financial services company purchases supports operations rather than becoming part of a sellable product, so most supplier relationships fall into the indirect category.

• What percentage of a company's emissions typically comes from Scope 3?

  Scope 3 usually represents roughly 70-80% of a company's total emissions, with Scope 1 and Scope 2 making up a much smaller share. In the case of intangible industries, such as software or professional services, Scope 3 often accounts for 90%+ of emissions.

• Why are indirect suppliers harder to engage than direct suppliers?

  Indirect suppliers often don't see themselves as having meaningful emissions, since they usually lack the physical operations that make a direct supplier's footprint more obvious, or aren’t as directly involved in their customers’ value chains. That mismatch means engagement usually starts with education rather than a direct request for action.

• What's the risk of only engaging direct suppliers on emissions goals?

  Companies that only engage direct suppliers leave a substantial part of their supply chain unaddressed, since indirect suppliers frequently make up the larger share of spend and vendors by logo count.

• How do I start engaging suppliers I don't have commercial leverage over?

  Start by pulling indirect spend data to estimate emissions impact, then segment suppliers by both impact and realistic leverage before reaching out, so early effort goes toward suppliers who are both significant and reachable.

• Why don't suppliers respond to sustainability data requests?

  Often because the request lands with someone without sustainability experience, gets routed to disparate contacts across finance, operations, or account management without a centralized owner, and competes with several similar requests from other customers.

• What's the biggest mistake companies make when asking suppliers for emissions data?

  Assuming the supplier already understands the request and has the resources to respond quickly. Most engagement plans that skip education and go straight to expecting action see limited follow-through.