Will exceed US$ 380 million in 2006, according to new study by Everest Research Institute
Procurement Outsourcing Will Exceed US$380 Million in 2006, According to New Study by Everest Research Institute
Rapidly Growing Market Gaining Momentum, with Potential to Deliver Savings of Almost 400% in Relation to Other Commercial Process Outsourcing Segments
NEW YORK and DALLAS, December 12, 2005 – The $297 million multi-process procurement (PO) outsourcing sector is growing at 30% annually and will exceed $380 million in 2006, according to new findings from the Everest Research Institute, with the potential to grow into a multibillion-dollar market over time. Procurement outsourcing refers to the complete or partial transfer of the business processes, infrastructure and resources associated with the purchase of all indirect costs, including contracted services, by a company to a third-party service provider.
Everest Research Institute's Annual Procurement Outsourcing Report, released today, focuses on the emerging market of 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 analysis by Everest.
”Procurement outsourcing has the potential to become the biggest ‘game-changer’ in business process outsourcing,” said Michel Janssen, Director of Management Research 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 bottom-line 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 be profitable. ”Procurement outsourcing relies on sectoral 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-process PO market is starting to gain momentum and moving toward a faster growth phase as buyers and suppliers test the waters. The main 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 in the market's evolution. They are in a position to become prime customers for prominent outsourcers such as IBM, Accenture, Ariba and ICG Commerce, who are 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 last two years, as multinational buyers seek to extend the benefits of procurement outsourcing across global operations. Vendors are expected to leverage flexible, virtual shared capabilities to serve key 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 phase of rapid growth over the next two years. With current market penetration of less than 1%, Everest expects the PO market to continue offering opportunities and increasing investment returns in alignment with sectoral growth.
”Procurement outsourcing directly addresses the bottom line and is a high-impact decision,” said Janssen. "It offers great opportunities for partners to share gains, which many are embracing. But its transition to a fast-growing market will depend on suppliers' ability to create an effective marketplace, integrating sourcing expertise and niche 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 insights for enterprise 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 needed to build highly productive outsourcing relationships and programs by 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 Advisory Board, comprised of senior executives and leading thinkers in global outsourcing, oversees 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 elsewhere, including:
- Unlimited access to analysts – In addition to a full-day strategic planning session for in-depth in-person discussions, Everest analysts are available for ongoing consultation to address members' immediate questions and concerns. Such access is unprecedented in the industry and offers members a distinct competitive advantage as they seek to take advantage of emerging opportunities, changing market conditions and unforeseen developments.
- Foresighted research with actionable insights – Members receive in-depth reporting on key 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 important 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 domain expertise and perspectives that come from Everest's direct involvement in structuring and negotiating 530+ ITO and BPO transactions and 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 first-hand understanding of how buyers approach the supplier selection process and, ultimately, the essential factors for outsourcing success. Additionally, the Institute explored multiple market sources and collected proprietary information to assemble the industry's most comprehensive database.
Everest Research Institute was established by Everest Group, which provides strategic consulting services to help companies harness the power of outsourcing. Since its formation in 1991, Everest Group has served as commercial advisor to hundreds of IT and business process outsourcing transactions worldwide.
