Will exceed US$380 million in 2006, according to new research from the Everest Research Institute
Procurement outsourcing will exceed US$380 million in 2006, according to new research from the Everest Research Institute
Fast-growing market gains momentum with potential for 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 (BO) sector is growing 30% annually and will exceed US$380 million in 2006, according to new findings from the Everest Research Institute, with the potential to become a multi-billion dollar market over time develop. Procurement outsourcing refers to the complete or partial transfer of the business processes, infrastructure and resources associated with the procurement of all indirect costs, including contract services, from a company to a third-party service provider.
Everest Research Institute's annual Procurement Outsourcing Report, released today, focuses on the emerging market for multi-process BO transactions, in which a combination of three or more procurement processes such as strategic sourcing, supplier management, day-to-day purchases and accounts payable are outsourced. The multi-process BO 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 suggest that BO will achieve savings multiples five times higher than other BPO areas, including HR, IT and offshore outsourcing, with potential bottom line savings of up to 2% of revenue.” Unlike other BPO areas, the study found that procurement outsourcing does not depend on labor cost savings or scale to pay for itself. “Procurement outsourcing relies on industry and functional expertise, with savings coming from smarter sourcing decisions, effective relationship management and legal compliance,” Janssen added. The Everest report noted that the multi-process BO market is gaining momentum and moving towards a faster growth phase as both buyers and suppliers test the waters. Key findings show the following:
- Procurement outsourcing is currently a buyer's market - corporate BO buyers should be able to negotiate very favorable terms at this early stage of market development. They are positioned to become marquee customers for prominent outsourcers such as IBM, Accenture, Ariba and ICG Commerce, all of which are expanding their outsourcing capabilities and together represent 80% of the BO market.
- Suppliers need to build global capabilities – Global BO transactions have increased from 15% to 44% in the last two years as multinational buyers look to extend the benefits of procurement outsourcing to global operations. Suppliers are expected to leverage flexible and virtual shared capabilities to serve large geographic regions.
- Investors should view the BO market with a long-term perspective - procurement outsourcing with significant untapped potential and no clear winners is expected to enter a rapid growth phase over the next two years. With current market penetration of less than 1%, Everest expects the BO market to continue to provide increasing investment opportunities and returns in line with sector growth.
”Procurement outsourcing directly addresses bottom line and is a high impact decision,” said Janssen. ”It offers great opportunities for partners to share profits that benefit many. But its transition to a fast-growing market will depend on suppliers' ability to create an effective marketplace by integrating procurement expertise and specialist technology with broader BPO outsourcing experience.”
About Everest Research Institute
Everest Research Institute (www.everestresearchinstitute.com) serves as a central source of strategic intelligence, analysis and actionable insight for enterprise buyers, service providers and investors in the global business process outsourcing and information technology outsourcing market. The Institute is dedicated to providing the global outsourcing community with the information they need to build highly productive outsourcing relationships and programs, focusing on the factors that continue to reshape the industry landscape and analyzing how they impact member organizations and the success of their outsourcing strategies. The Institute's Distinguished Board of Advisors, comprised of senior executives and thought leaders in global outsourcing, oversees 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 receive unique and highly personalized analytical and consulting services not available elsewhere, including:
- Unlimited Analyst Access – In addition to a full-day strategic planning session for detailed one-on-one discussions, Everest analysts are available for ongoing consultations to address members' immediate issues and concerns. Such access is unparalleled in the industry and gives members a distinct competitive advantage as they look to take advantage of emerging opportunities, changing market conditions and unforeseen developments.
- Visionary Research with Actionable Insight – Members receive in-depth reporting on major outsourcing topics, supplemented by quarterly updates and monthly research notes on market-shaping events, including regulatory developments, technological advances and emerging sources of risk and value. These forward-looking reports not only cover key trends and developments, but also project future scenarios and outcomes of outsourcing decisions made today. This comprehensive data interpretation provides members with actionable insights to support decision making.
- Wealth of Knowledge and Experience – Members benefit from the expertise and perspectives that come from Everest's direct involvement in the structuring and negotiation of more than 530 ITO and BPO transactions and more than 800 best practice case studies. Everest analysts have deep knowledge of the strengths and weaknesses of service providers in various markets, processes, industries and geographies. They also have a direct understanding of how buyers approach the vendor selection process and ultimately what factors are essential to outsourcing success. In addition, the Institute has leveraged multiple market sources and collected proprietary information to compile the industry's most comprehensive database.
Everest Research Institute was founded by Everest Group, which provides strategic advisory services that help companies harness the power of outsourcing. Since its founding in 1991, Everest Group has served as business advisor to hundreds of IT and business process outsourcing transactions worldwide.
