Spend Reduction and Compliance Fuel Procurement Outsourcing

By Narayan Ammachchi

The procurement outsourcing market is poised to be among the fastest growing BPO segments, and it is certain that the sector will continue to post double digit growth , says a new report from market research firm Everest Group.

According to the report, the procurement outsourcing market grew at 10% in 2012, reaching $1.72 billion in annualized contract value representing US$220 billion in terms of managed spending.

Since 2007, the PO market has grown by 18% in terms of Total Contract Value (TCV), and service providers are embracing expertise and technology-driven strategies to maintain that double-digit pace, the report added.

Everest Group says that consumer goods and manufacturing continue to be the largest adopters of PO, adding that adoption in financial services and hi-tech & telecom increased significantly in 2012.

Procurement outsourcing is on the rise in almost every country and the buyers of this service are spread around the world. Nearly 30% of those signed PO contracts in 2012 had business operation in multiple countries.

“To draw higher value from second and third generation PO engagements, traditional penetration models such as increasing the depth and breadth of service coverage are being augmented by new modes of scope expansion, including expansion into other geographies and/or business units, downstream F&A processes and adjacent supply chain activities,” the report said.

As usual, the driver behind this growth is the needs of companies to reduce cost and increase productivity.

“While PO continues to focus on indirect spend, inclusion of direct spend category has witnessed significant increase. Consequently, outsourcing Maintenance, Repair Overhaul (MRO) spend and tail-end spend is on the rise,” says the report.

Interestingly,  U.S technology firm IBM and Accenture continue to lead the PO market with more than 50 percent market share. Accenture, GEP, IBM, Infosys, Procurian, and Xchanging accounted for nearly 90 percent of the contracts signed in 2012.

“Arbitrage-led operating efficiency account for only 15-20 percent of the overall savings potential from PO,” said Saurabh Gupta, vice president at Everest Group. “A majority of savings in PO is derived from procurement spend reduction and compliance. This only now is becoming efficiently enabled by indirect category expertise and access to new technologies that service providers are now beginning to invest in.”

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