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Procurement Outsourcing Will Top US$ 380 Million in 2006, According to New Everest Research Institute Study
Fast-growing Market Gaining Traction, With Potential to Deliver Nearly 400% Savings Over Other Business Process Outsourcing Market Segments
NEW YORK and DALLAS, December 12, 2005 – The US$297 million multi-process procurement outsourcing (PO) sector is growing at 30% per annum and will exceed US$380 million in 2006, according to new findings by Everest Research Institute, with the potential to grow into a multi-billion dollar market over time. Procurement outsourcing refers to the complete or partial transfer of the business processes, infrastructure and resources associated with purchasing all indirect costs, including contracted services, by a company to a third-party services provider.
Everest Research Institute's annual Procurement Outsourcing report, released today, focuses on the emerging market for multi-process PO transactions, in which a combination of three or more procurement processes, such as strategic sourcing, vendor management, day-to-day purchasing and accounts payable, are outsourced. The multi-process PO market currently represents a spend base of US$25 billion, according to Everest's analysis.
''Procurement outsourcing has the potential to become the biggest 'game-changer' in business process outsourcing,'' said Michel Janssen, Managing Research Director at Everest Research Institute. ''Our findings indicate that PO will achieve five times the savings multiples of other BPO domains, including HR, IT and offshore outsourcing, delivering a potential bottom-line saving of up to 2% of sales.'' Unlike other BPO domains, the study found that procurement outsourcing does not depend on labor cost arbitrage or scale to pay off. ''Procurement outsourcing is dependent on sector and functional expertise, with savings coming from smarter sourcing decisions, effective relationship management and legal compliance,'' Janssen added. The Everest report found that the multi-process PO market is starting to gain traction and moving towards a more rapid growth phase, as both buyers and suppliers test the waters. Key findings indicate that:
- Procurement outsourcing is currently a buyer's market – Corporate PO buyers should be able to negotiate very favorable terms at this early stage of market evolution. They are in a position to become marquee clients for prominent outsourcers, such as IBM, Accenture, Ariba and ICG Commerce, who are all expanding their outsourcing capabilities and together represent 80% of the PO market.
- Suppliers need to build global capabilities – Global PO transactions have increased from 15% to 44% over the past two years, as multinational buyers seek to extend the benefits of procurement outsourcing across global operations. Suppliers will be expected to leverage flexible and virtual shared capabilities to serve major geographic regions.
- Investors should approach the PO market with a long-term view – Procurement outsourcing, with significant untapped potential and no clear winners, is expected to enter a rapid growth phase within the next two years. With current market penetration of less than 1%, Everest expects that the PO market will continue to offer increasing investment opportunities and returns in alignment with sector growth.
About Everest Research Institute
Everest Research Institute (www.everestresearchinstitute.com) serves as a central source of strategic intelligence, analysis and actionable insight for corporate buyers, service providers and investors in the global business process outsourcing and information technology outsourcing marketplace. The Institute is dedicated to providing the global outsourcing community with the information it needs to build highly productive outsourcing relationships and programs, focusing on the drivers that are continually reshaping the industry landscape and analyzing how they impact member organizations and the success of their outsourcing strategies. The Institute's distinguished Board of Advisors, all senior executives and thought leaders in global outsourcing, oversee the Institute's research agenda to ensure that it fully supports the business information needs of corporate buyers, service providers and investors. Everest Research Institute members gain unique and highly personalized analytical and advisory services, not available elsewhere, including:
- Unlimited analyst access – In addition to a full-day strategic planning session for indepth, face-to-face discussions, Everest analysts are available for ongoing consultation to address members' immediate issues and concerns. Such access is unprecedented in the industry, and gives members a distinct competitive advantage as they seek to take advantage of emerging opportunities, changing market conditions and unforeseen developments.
- Visionary research with actionable insight – Members receive in-depth reports on major outsourcing topics, supplemented by quarterly updates and monthly research notes on market-shaping events, including regulatory developments, technological advancements and emerging sources of risk and value. These forward-looking reports not only cover important trends and developments, but also project future scenarios and outcomes of outsourcing decisions made today. This comprehensive interpretation of data provides members with actionable insights to support decisionmaking.
- Wealth of knowledge and experience – Members benefit from the domain expertise and perspectives that come from Everest's direct involvement in structuring and negotiating more than 530 ITO and BPO transactions and more than 800 best practice case studies. Everest analysts have intimate knowledge of the strengths and weaknesses of service providers in different markets, processes, industries and geographies. They also have a first-hand understanding of how buyers approach the vendor selection process and, ultimately, of the factors essential to outsourcing success. In addition, the Institute has tapped multiple market sources and collected proprietary information to assemble the industry's most comprehensive database.