According to Everest
Group an advisory and research firm
on global services, the Procurement Outsourcing market saw a growth of 10
percent in 2012, reaching US$1.72 billion in annualized contract value
representing US$220 billion in terms of managed spend. Consumer goods followed
by manufacturing companies are the major adopters and financial Services,
hi-tech and telecom are increasing their adoption which is helping the growth
in the market. The growth is not only fueled by increased buyer adoption in
major verticals as highlighted above but also there are other factors like
investments in new technologies, volatile economic conditions forcing business
organizations to control their spends and also increase in the depth and
breadth of service offerings offered by the major vendors like IBM, Accenture,
GEP, Infosys, Procurian, Xchanging, Genpact, etc. IBM and Accenture are still
the leaders in the PO market with more than 50 percent market share (by ACV)
but competition particularly from Indian players is increasing. Along with the
geographic expansion PO is also expanding to downstream Finance & Accounting processes and
adjacent supply chain activities.
Since 2007, the PO market has maintained an 18 percent
compound annual growth rate in terms of Total Contract Value (TCV), according
to Everest’s Procurement Outsourcing Annual Report 2013. The average contract
size has remained the same for the past few years where as the other types of
outsourcing have seen fall in the average contract sizes. Small and Medium
Businesses have significantly increased their adoption but the market is
dominated by the large buyers. Another fact highlighted by the report is that
PO contracts serving buyers in multiple continents are on the rise with thirty-eight
percent of the new TCV signed in 2012 has a global spread forcing the vendors
to expand and create capabilities across the globe particularly Central and
Eastern Europe, China and South East Asia.
TechNavio's analysts forecast the Global Procurement Outsourcing market to grow
at a CAGR of 23.14 percent over the period 2012-2016 fueled by business
organizations need for significant cost reduction and changing pricing models
and lack of domain understanding, couple of challenges for growth in this
market. ( Data Source: Everest Group)
Spend reduction drives the demand for outsourcing
upstream sourcing activities while operational cost reduction is the key driver
for the more transactional Procure-to-Pay scope according to Everest Annual
report. Another increasing trend is buyers starting a PO relationship with
spend analytics and analytical tools are also being leveraged for minimizing
payment errors and improving planning/forecasting. Buyers are increasing to
outsource direct spend categories as traditionally most of the focus has been
on indirect spend and which also leading to rise in outsourcing Maintenance,
Repair Overhaul (MRO) spend and tail-end spend. “Arbitrage-led operating
efficiencies 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. With the success and growth that PO has had over the last few years, it
provides new lessons in value creation to the entire BPO industry.”
Overall satisfaction has been good but the clients are
looking for more service offerings from the vendors particularly in the direct
spend categories. Direct spend categories are highly challenging as it requires
domain experts and specialists who are very hard to find. Emerging technologies
like mobility, cloud computing, social media and big data analytics are also
impacting the procurement outsourcing market. Clients want vendors build
category and domain expertise, and offer services that will have a significant
impact on their business outcomes, clients want vendors to be critical
stakeholders in improving their business efficiencies and ultimately
profitability. Outcome based pricing and nonlinear strategies like products,
platform based offerings and intellectual property like patents are also being
used by major PO vendors to increase their revenues. Overall procurement
outsourcing will play a key role in the overall growth of the Business process
outsourcing industry growth in the coming years and will be a key driver for
revenue and margin growth for major players in the industry. All the major
Indian BPO vendors like TCS, Infosys, Wipro and HCL Tech have invested
significantly invested in procurement outsourcing market and are expecting to
increase their share of revenues in future.
