Procurement Outsourcing Market Grows to US$40 Billion in Managed Spend in 2006, Says Everest Research Institute
BPO Business Intelligence
world, is poised for a landmark year in 2007, according to Everest
Research Institute. PO expenditure has grown at over 35 percent in 2006
and represents an annual managed spend of nearly US$40 billion. Plus,
PO buyers are realizing significant benefits. Phil Fersht, vice
president of the BPO Research practice at Everest, offers Tekrati
readers a preview of the indepth PO industry research his team will
debut during a free webinar on December 13, 2006.
"We are very upbeat at Everest regarding the future potential of
Procurement Outsourcing after some early challenges in this nascent
market. Contract activity in PO this year has been much more dynamic,"
said Fersht. He noted that existing PO buyers have realized sourcing
related savings of 5-20% on each category head, which translates into a
significant bottom-line impact.
The Research Institute's PO analyst team has been conducting major
ongoing research of the service providers and buyers of PO offerings
across multi-process procurement domains. The webinar will reveal
preliminary findings from a forthcoming 2006-2007 PO report, including
trends and dynamics from over 50 multi-process PO contracts. A small
sampling of research highlights includes:
Verticals: Manufacturing, Consumer Products, and Financial Services
have led the charge over the last 2 years
Geographies: Since 2005, Europe has witnessed substantial PO activity
Suppliers: Accenture, IBM, ICG Commerce, and Ariba are the leading
suppliers in terms of PO market share
Spend categories: Based on actual PO deals tracked, nearly 65-80% of
this indirect spend can be outsourced to an outsourcing supplier. This
includes most indirect categories like offices supplies, MRO,
advertising and promotion, IT, facilities, professional services, and
HR services.
While labor arbitrage is the key lever that suppliers utilize in FAO,
in PO the most important value creation lever is people expertise. "By
asking an outsourcing provider to manage indirect spend, buyers gain
access to category experts with sourcing expertise across indirect
categories," Fersht explained. "While category expertise and market
know-how for indirect categories is typically low for most buyers, we
find that a top-notch PO provider would have nearly 16 category experts
with six-plus-years experience on an average for each broad category
head. (The average external spend managed for each category is around
US$560 million). This kind of expertise is clearly something that an
individual buyer cannot afford, and can only be gained through a
Procurement Sourcing engagement with a supplier."