Procurement Outsourcing Market Redefining Itself; on See-Saw Growth Path, According to Everest Research Institute

Global Sourcing and Offshoring of Procurement Outsourcing Gaining Momentum

DALLAS–(BUSINESS WIRE)–Outsourcing of procurement functions is on a “see-saw” growth path fueled by an enhanced value proposition and strong movement towards global sourcing and offshoring, according to an Everest Research Institute study of the procurement outsourcing (PO) market.

Companies signed fewer procurement outsourcing deals in 2007, a number slightly below the landmark 2006 figures; however, market growth was evident as managed, non-core PO spend crossed $50 billion (US) last year, according to the Institute’s study, Procurement Outsourcing (PO) Annual Report. The study explores and defines three key factors that are enhancing the value proposition for PO and driving market growth: expansion of existing engagements, a shifting adoption pattern away from “big bang” contracts towards more “phased-approach” engagements, and an increased focus on the operational components of procurement that appeals to a broader set of potential PO buyers.

“Procurement outsourcing is redefining itself with the emergence of a ‘phased’ sourcing approach that benefits both buyers and suppliers,” said Katrina Menzigian, Vice President, Everest Research Institute. “This phase-in approach is allowing the opportunity for testing of synergies, scaling up operations, developing industry-specific capability which, in turn, delivers better results and savings. Buyers are also able to ‘experiment’ with procurement outsourcing as they potentially migrate towards a full Source-to-Pay (S2P) strategy.”

The study also identifies strong movement towards global sourcing and offshoring, thereby providing buyers with new levers for addressing issues that are related to operational costs, technology management costs, and enhanced analytics, among other factors. The newly emerging PO value proposition also represents the convergence of the traditional PO value proposition around sourcing efficiencies with the traditional Finance & Accounting Outsourcing (FAO) value proposition centered upon operational effectiveness.

Other highlights of the annual report include:

* Increasing leverage of technology in PO solutions is driving more standardization, vertical best industry practices and tighter compliance protocols.
* Pricing structures are stabilizing towards a combination of managed service fee and gain-sharing contracts.
* Manufacturing continues to be the dominant adopter of PO; however, demand in financial services and consumer products sectors has risen.
* The top five suppliers are Accenture, IBM, Ariba, ICG Commerce, and Xchanging that control 75 percent of market share.
* While the top five PO suppliers continue to command 75 percent of market share, PO “specialists” (such as buyingTeam, DSSI and Provade) and offshore-centric suppliers (such as Genpact, HCL, Infosys BPO and Wipro) have captured a growing number of new contracts over the past two years.
* Few suppliers today have end-to-end S2P service capabilities, but they are making concerted efforts to acquire capability through acquisitions partnerships and internal enhancements.

“New market segments are emerging, and global sourcing for PO is gaining traction, which is creating medium-term market differentiation for suppliers capable of delivering the services,” said Saurabh Gupta, Research Director, Everest Research Institute and co-author of the report. “PO suppliers with existing capabilities in finance and accounting and offshoring are well positioned to service present buyer requirements. With the influx of new suppliers, buyers need to carefully assess their organizational readiness to take on this very complex undertaking as well as assess suppliers’ service delivery capabilities, procurement expertise and performance records.”

In conjunction with the study, the Institute redefined multi-process procurement outsourcing to enhance its ability to track emerging PO market trends. The new definition acknowledges the rise in phased-in approach contracts, an increased focus on the operational components of procurement and an expanding supplier landscape. To learn more, read the Institute’s complimentary whitepaper, Procurement Outsourcing (PO) Market Definition Update - Tracking the Next Phase of the PO Market Evolution, available at www.everestresearchinstitute.com.

To read more about the findings of the Procurement Outsourcing (PO) Annual Report, an extract of the report is available at www.everestresearchinstitute.com. To purchase the report or receive more information about other research services, please e-mail info@everestresearchinstitute.com or call +1-214-451-3110.

About Everest Research Institute

Everest Research Institute (www.everestresearchinstitute.com) serves as a central source of independent and objective strategic intelligence, analysis, and actionable insight for leading corporations, service providers, and investors in the global outsourcing and offshoring marketplace. The Institute addresses both business process and information technology sourcing topics, providing the global outsourcing and offshoring community with information that empowers highly productive, sustainable sourcing strategies and relationships. The Institute’s distinguished Board of Advisors, senior executives and thought leaders oversee the Institute’s research agenda to ensure that it fully supports the business needs of corporations, service providers and investors.

Everest Research Institute members receive access to unparalleled analytical and advisory services, including access to Everest analysts, in-depth reports on major outsourcing and offshoring topics, white papers on market-shaping events, and Webinars designed to provide insight and information about important market trends. The Institute’s wealth of knowledge and experience provides members with unique perspectives into today’s marketplace and the competitive edge required to take advantage of emerging opportunities.

Everest Group is a global operational strategy consulting firm with offices in such leading business centers as Dallas; Gurgaon, India; London; Amsterdam; New York; Toronto and Melbourne. An industry leader since 1991 when we created the sourcing consulting category, Everest Group has earned a worldwide reputation for ongoing innovation as we help clients achieve maximum value from their operations, which includes sourcing strategy and implementation. Everest created the Everest Research Institute (www.everestresearchinstitute.com) as the central source of industry information. Please visit www.everestgrp.com and www.everestresearchinstitute.com for more information.

CSC Snags Five-Year, $1.9 Billion Outsourcing Gig with BAE

TAKEAWAY: Computer Sciences Corp. has signed on to a new five-year IT outsourcing services deal with BAE Systems, replacing the existing agreement between the global IT services company and the defense and aerospace company, which would have expired in October of 2006.

The new deal, which is worth about $1.9 billion, has Computer Sciences managing mainframe and midrange computer operations, servers and desktops, local and wide area networking, Internet services, help desk, applications development and support, and procurement services for BAE

The IT Outsourcing Price Equation

TAKEAWAY: Pricing is one of the most important aspects of outsourcing projects, yet it doesn’t seem to get the full attention it deserves in the outsourcing process. This article breaks the pricing structure down into three parts: how much, how long and what elements need to be priced. The “how much” portion of the equation is based on what the buyer wants to accomplish, and tends to focus too much on getting more for less.

While low prices are obviously desirable, sometimes achieving performance or quality improvement or reduction of future costs can be even more appealing than a price decrease, this article points out. As well, companies need to be detail-oriented when settling on a pricing plan. This includes making sure that there is enough granularity so that the pricing plan can be adjusted when or if necessary without causing problems. This article also suggests that companies do a risk assessment, because risk and pricing go hand-in-hand.

Ukrainian Programmers from Lviv are Golden Medal holders at International Programming Competition in Canada!

The team from the Lviv National Universit after Ivan Franko, including Vasyl Biletsky, Ostap Korkuna and Ruslan Babylya has become the first Ukrainian National Team to earn a golden medal at international programming competition.

Congrats and full support!

The 2008 European Outsourcing Summit

The 2008 European Outsourcing Summit is being held October 16-17, 2008 at the IESE Business School, University of Navarra in Barcelona, Spain. It’s designed to specifically meet the educational and business development needs of outsourcing professionals in Europe by connecting the best in global insights to the very real differences in how companies across Europe approach outsourcing.

The Summit will create a forum where the topic of outsourcing is discussed from both global and regional points of view. There are some significant differences in creating and implementing outsourcing strategy in the European marketplace. We want to explore and highlight them and learn from those that have experience in the arena and create customer-provider interaction through joint presentations on topics as well as participating in panels.

In its 12th year, the Outsourcing World Summit Conference Series has been presented more than 20 times around the globe and has been bringing buyers, providers, and advisors from the world’s top organizations together for unparalleled learning, networking, and business improvement.

IAOP is the global, standard-setting organization and advocate for the outsourcing profession. Through professional and ethical standards, educational and certification programs, and recognitions such as The Outsourcing Hall of Fame and The Global Outsourcing 100, IAOP is advancing one of the 21st century’s most important new management fields - outsourcing.

Renée J. Preston, Director, Association Development
International Association of Outsourcing Professionals (IAOP)
Tel +1.845.452.0600 ext.109 | Fax +1.845.452.6988
renee.preston@outsourcingprofessional.org | www.outsourcingprofessional.org

The 2008 European Outsourcing Summit | October 16-17, 2008 | Barcelona, Spain
The 2009 Outsourcing World Summit | February 16-18, 2009 | Carlsbad, California