Will Reach US$380 Million in 2006, According to New Study by Everest Research Institute
Outsourcing Procurement Will Reach US$380 Million in 2006, According to New Everest Research Institute Study
Fast-Growing Market Gaining Traction, with Potential to Generate Nearly 400% Savings Compared to Other Segments of the Business Process Outsourcing Market
NEW YORK and DALLAS, December 12, 2005 – The US$297 million multi-process outsourcing (PO) procurement industry is growing at 30 percent annually and will surpass US$380 million in 2006, according to new findings from the Everest Research Institute, with the potential to grow to a billion-dollar market over time. Outsourced procurement 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, where a combination of three or more procurement processes, such as strategic sourcing, supplier management, day-to-day purchasing and accounts payable, are outsourced. The multi-process PO market currently represents a spending base of US$25 billion, according to Everest analysis.
“Outsourced procurement 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, generating potential bottom line savings of up to 2% of sales.” Unlike other BPO domains, the study found that outsourced sourcing does not depend on labor cost arbitrage or scale to pay for itself. ”Outsourced sourcing depends on industry and functional expertise, with savings coming from smarter sourcing decisions, effective relationship management and regulatory compliance,” added Janssen. Everest's report found that the multi-process PO market is starting to gain traction and is moving into a faster growth phase as both buyers and suppliers test the waters. Key findings indicate that:
- Outsourced procurement is currently a buyer's market – Corporate PO buyers should be able to negotiate very favorable terms at this early stage in the market's evolution. They are positioned to become prime clients for leading outsourcers, such as IBM, Accenture, Ariba and ICG Commerce, all of which are expanding their outsourcing capabilities and together represent 80% of the PO market.
- Suppliers must develop 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 outsourced sourcing across global operations. Providers will need to leverage flexible, virtual shared capacity to serve key geographic regions.
- Investors should approach the PO market with a long-term view – Outsourced procurement, with significant untapped potential and no clear winner, is expected to enter a rapid growth phase within 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 line with sector growth.
”Outsourcing sourcing directly addresses the bottom line and is a high-impact decision,” Janssen said. "It offers great opportunities for partners to share revenue, which many are embracing. But its transition to a fast-growing market will depend on providers' ability to create an effective marketplace by integrating sourcing expertise and niche technology with broader BPO outsourcing expertise."
About Everest Research Institute
Everest Research Institute (www.everestresearchinstitute.com) serves as a central source of strategic intelligence, analysis and actionable insights for business 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 by focusing on the factors that are continually transforming the industry landscape and analyzing how they impact member organizations and the success of their outsourcing strategies. The Institute's leading Board of Advisors, comprising 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 receive unique, highly personalized analytical and advisory services not available anywhere else, including:
- Unlimited access to analysts – In addition to a comprehensive strategic planning session for in-depth, face-to-face discussions, Everest analysts are available for ongoing consultations to address members' immediate issues and concerns. This access is unprecedented in the industry and gives members a distinctive competitive advantage as they seek to take advantage of emerging opportunities, changing market conditions and unanticipated developments.
- Visionary research with actionable insight – Members receive in-depth reporting on key outsourcing topics, complemented 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 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 decision making.
- Wealth of Knowledge and Experience – Members benefit from the 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 case studies. Everest analysts have in-depth knowledge of the strengths and weaknesses of service providers across 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 drawn on multiple market sources and collected proprietary information to assemble the most comprehensive database in the industry.
Everest Research Institute was founded by Everest Group, which provides strategic consulting services to help companies harness the power of outsourcing. Since its consolidation in 1991, Everest Group has served as a corporate advisor for hundreds of IT and business process outsourcing transactions worldwide.
