GS100: 2011 Global Services Compendium
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Procurement’s strategic importance within an organization continues to rise and along with the higher profile comes greatly elevated performance expectations.
Procurement is involved in critical decisions that pertain to a greater portion of third-party spend, and as a result there is an innovation agenda that goes well beyond cost and working capital. Organizations typically employ a competitive RFI process to identify service providers who meet their criteria to provider PO services. Once in a PO relationship
service providers typically undertake strategic sourcing initiatives by launching competitive RFIs across various vendors in order to identify the best suited vendor for the organization. Procurement department’s strategic importance is rising within an organization and this is because a typical organization spends between 40% to 50% of its revenue on procured goods and services. This means any reduction in that 40% to 50% of spend is a direct impact on companies bottom-line.

Realizing the Strategic Importance

Bob Booth, Head, Capgemini Procurement Services says, "Procurement is a continuous change-management activity and unless you understand your stakeholders motivations and their likely objections, you will struggle to convince them to support the change you desire and to build a consensus for change."

As technology continues to shrink the world, PO market will gain more traction. Unlike other BPO areas the value proposition for PO is not based on labor arbitrage. In fact, in many cases the higher skilled service provider resources may be more expensive than the existing procurement team within the organization.
What Future Holds?

In terms of the number of service providers in the market as well as the number of procurement subject matter experts at each provider, capacity in the market has expanded, with continued new entrants and increased competition.

For 2011, it is estimated that the end-of-term activity will be significant as 45 percent of PO contracts, valued at nearly US$3 billion, are up for renewal within the next three years.
PO will see higher adoption and impact influenced by new platform-based offerings that include cloud services as a delivery model. Research firms such as Gartner and Everest, predict that 2011 will be a stronger year compared to 2010 for PO. PO market is set to grow at 15-20% YoY to reach a market size of US$1.5 billion for multi-process PO, representing managed spend of around US$190 billion. Beyond just new contracts, over US$3 billion worth of existing contracts are coming up for renewal in the next three years. The SMB segment will see higher adoption levels, influenced by new platform-based offerings.

With eProcurement on the rise, not only did e-procurement solutions seem to offer a new way of improving purchasing processes through the automation of requisitions and purchase orders for both goods and services. E-procurement provides real-time business intelligence to the vendor as to the status of a customer's needs. The greatest advantage of e-procurement is ‘reducing invoice processing delays and errors’. PO is becoming especially attractive to mid-market companies, who have found it challenging to invest in development of indirect sourcing talent as well as eSourcing and eProcurement tools.

The focus will move to considering global suppliers for more complex categories and creating long term, sustainable relationships with them. PO is at an inflection point and will be a prominent strategy in 2011.

 GS100: 2011 Global Services Compendium
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