Procurement Outsourcing Will Top US$ 380 Million in 2006, According to New Everest Research Institute Study
Fast-growing Market Gaining Traction, With Potential to Deliver Nearly 400% Savings Over Other Business Process Outsourcing Market Segments
NEW YORK and DALLAS, December 12, 2005 – The US$297 million multi-process
procurement outsourcing (PO) sector is growing at 30% per annum and will exceed US$380
million in 2006, according to new findings by Everest Research Institute, with the potential to
grow into a multi-billion dollar market over time. Procurement outsourcing refers to the
complete or partial transfer of the business processes, infrastructure and resources associated
with purchasing all indirect costs, including contracted services, by a company to a third-party
Everest Research Institute's annual Procurement Outsourcing report, released today, focuses on
the emerging market for multi-process PO transactions, in which a combination of three or more
procurement processes, such as strategic sourcing, vendor management, day-to-day purchasing
and accounts payable, are outsourced. The multi-process PO market currently represents a spend
base of US$25 billion, according to Everest's analysis.
''Procurement outsourcing 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, delivering a potential bottom-line
saving of up to 2% of sales.'' Unlike other BPO domains, the study found that procurement
outsourcing does not depend on labor cost arbitrage or scale to pay off. ''Procurement
outsourcing is dependent on sector and functional expertise, with savings coming from smarter
sourcing decisions, effective relationship management and legal compliance,'' Janssen added.
The Everest report found that the multi-process PO market is starting to gain traction and moving
towards a more rapid growth phase, as both buyers and suppliers test the waters. Key findings
''Procurement outsourcing directly addresses the bottom line, and is a high impact decision,''
Janssen said. ''It offers great opportunities for partners to share gains, which many are
embracing. But its transition to a rapid growth market will depend upon suppliers' ability to
create an effective marketplace, by integrating sourcing expertise and niche technology with
broader BPO outsourcing experience.''
- Procurement outsourcing is currently a buyer's market – Corporate PO buyers
should be able to negotiate very favorable terms at this early stage of market evolution.
They are in a position to become marquee clients for prominent outsourcers, such as
IBM, Accenture, Ariba and ICG Commerce, who are all 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% over the past two years, as multinational buyers seek to extend the
benefits of procurement outsourcing across global operations. Suppliers will be expected
to leverage flexible and virtual shared capabilities to serve major 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 rapid growth phase within the next two years. With current market penetration of less
than 1%, Everest expects that the PO market will continue to offer increasing investment
opportunities and returns in alignment with sector growth.
About Everest Research Institute
Everest Research Institute (www.everestresearchinstitute.com) serves as a central source of
strategic intelligence, analysis and actionable insight for corporate 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 it needs to build highly productive outsourcing relationships and programs, focusing
on the drivers that are continually reshaping the industry landscape and analyzing how they
impact member organizations and the success of their outsourcing strategies. The Institute's
distinguished Board of Advisors, all senior executives and thought leaders in global outsourcing,
oversee the Institute's research agenda to ensure that it fully supports the business information
needs of corporate buyers, service providers and investors.
Everest Research Institute members gain unique and highly personalized analytical and advisory
services, not available elsewhere, including:
Everest Research Institute was established by the Everest Group, which provides strategic
advisory services that help companies harness the power of outsourcing. Since its formation in
1991, Everest Group has served as business advisors for hundreds of IT and business process
outsourcing transactions worldwide.
- Unlimited analyst access – In addition to a full-day strategic planning session for indepth,
face-to-face discussions, Everest analysts are available for ongoing
consultation to address members' immediate issues and concerns. Such access is
unprecedented in the industry, and gives members a distinct competitive advantage as
they seek to take advantage of emerging opportunities, changing market conditions
and unforeseen developments.
- Visionary research with actionable insight – Members receive in-depth reports on
major outsourcing topics, supplemented by quarterly updates and monthly research
notes on market-shaping events, including regulatory developments, technological
advancements 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 decisionmaking.
- Wealth of knowledge and experience – Members benefit from the domain expertise
and perspectives that come from Everest's direct involvement in structuring and
negotiating more than 530 ITO and BPO transactions and more than 800 best practice
case studies. Everest analysts have intimate knowledge of the strengths and
weaknesses of service providers in different markets, processes, industries and
geographies. They also have a first-hand understanding of how buyers approach the
vendor selection process and, ultimately, of the factors essential to outsourcing
success. In addition, the Institute has tapped multiple market sources and collected
proprietary information to assemble the industry's most comprehensive database.