It Will Exceed US$ 380 Million in 2006, According to New Study by the Research Institute Everest
Procurement Outsourcing Will Exceed US$380 Million in 2006, According to New Study by the Everest Research Institute
Rapid Growth Market Gaining Traction, with Potential to Deliver Savings Close to 400% Compared to Other Segments of the Business Process Outsourcing Market
NEW YORK and DALLAS, December 12, 2005 – The US$297 million multi-process procurement (PO) outsourcing sector is growing at 30% annually and will surpass US$380 million in 2006, according to new findings from the 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 business processes, infrastructure and resources associated with the purchase of all indirect costs, including contracted 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 PO transactions, in which a combination of three or more procurement processes, such as strategic sourcing, supplier management, daily purchasing, and accounts payable, are outsourced. The multithreaded PO market currently represents a US$25 billion spend base, according to Everest analysis.
”Procurement outsourcing has the potential to become the biggest ‘game changer’ in business process outsourcing,” said Michel Janssen, Executive 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 potential savings of up to 2% of sales.” Unlike other BPO domains, the study found that procurement outsourcing does not rely on labor cost arbitrage or scale to recover. ”Procurement outsourcing depends on sector and functional expertise, with savings coming from smarter sourcing decisions, effective relationship management and legal compliance,” added Janssen. The Everest report found that the multi-threaded PO market is beginning to gain traction and moving into a faster 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 positioned to become prominent clients for prominent outsourcers, such as IBM, Accenture, Ariba and ICG Commerce, which 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% in the past two years, as multinational buyers seek to extend the benefits of procurement outsourcing across global operations. Suppliers are 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 over the next two years. With current market penetration of less than 1%, Everest expects the PO market to continue to offer investment opportunities and increasing returns in alignment with sector growth.
”Outsourcing procurement directly addresses the bottom line, and is a high-impact decision,” Janssen said. "It offers great opportunities for partners to share profits, which many are embracing. But its transition to a fast-growing market will depend on the ability of suppliers to create an effective market, by integrating niche sourcing and technology expertise with broader BPO outsourcing expertise."
About Everest Research Institute
The Everest Research Institute (www.everestresearchinstitute.com) serves as a central source of strategic intelligence, analysis and actionable information for corporate 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 it needs to build highly productive outsourcing relationships and programs, focusing on the factors 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 it fully supports the business information needs of corporate buyers, service providers and investors. Everest Research Institute members gain unique, highly personalized analytical and advisory services not available anywhere else, including:
- Unlimited access to analysts – In addition to a full strategic planning session for in-depth face-to-face discussions, Everest analysts are available for ongoing consultations 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 insights – Members receive detailed reports on major outsourcing topics, complemented 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 information to support decision making.
- Wealth of Knowledge and Experience – Members benefit from domain 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 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 supplier selection process and, ultimately, the factors essential to outsourcing success. Additionally, the Institute has leveraged multiple market sources and compiled proprietary information to assemble the most comprehensive database in the industry.
The Everest Research Institute was established by Everest Group, which provides strategic advisory services that help companies harness the power of outsourcing. Since its formation in 1991, Everest Group has served as business advisor for hundreds of IT and business process outsourcing transactions around the world.
