[PROCUREMENT OUTSOURCING] Procurement Outsourcing: On the Rise, Flush with DealsSourabh Chandra Pushp
Procurement outsourcing is proving its value as a strategic piece of services. The procurement function would entail more complex categories of products and is focused on creating long term, sustainable relationships with global suppliers.
Procurement spends have a direct impact on profit and at times like these, anything that moves the lever on profits is good strategy. The merits of procurement outsourcing (PO) as the means to unlock value from the procurement function is being tested as never before. PO is making the most of its newly gained importance in the corporate board room. In 2011, the shift towards transforming procurement from a mere functional role to a more strategic one is expected to continue.
Market & Engagements
PO has made big advances across the board in the last few years. PO enjoyed a good year in 2010 - with the value of contracts hitting $1.3 billion. PO market experienced a record year for new contract signings and extensions. 2010 saw actual contract value (ACV) grow 13 percent to reach US$1.3 billion. Cumulative total contract value (TCV) for existing and new engagements reached US$9 billion, an increase of 15 percent from 2009.
"Procurement has started to acquire the perception that procurement is rapidly becoming a power player, well able to augment the fortunes of business just as finance, manufacturing, sales and marketing are seen to do," says global consultant Accenture. The market has adapted to client objectives by providing a wide variety of outsourcing solutions by spend category, process, or geography.
The number of small-sized contracts increased; nearly 70 percent of contracts signed last year have a TCV less than US$15 million. While manufacturing companies led adoption, the consumer packaged goods and retail sectors together accounted for 35 percent of market share in terms of TCV. The United States led PO adoption, accounting for 45 percent of contracts signed, followed by Europe with 43 percent
“Following the economic recession, we saw market recovery begin in 2010 as evidenced by a large number of new and renewed contracts and a significant rebound in mid-market adoption, We continue to see an increase in sourcing-focused contracts expanding into transactional services to ensure compliance and sustainability” said Saurabh Gupta, vice president, Everest Research.
Traditionally, the UK and USA have been at the lead of the PO market, followed by the likes of European powerhouses France and Germany. According to Everest research, the PO market star performers were Accenture, IBM and ICG Commerce, which together accounted for nearly 75 percent of the overall market by ACV and 50 percent of new contracts signed in 2010. These service providers demonstrated the strongest movement forward across the following two dimensions: market success in 2010 based on ACV growth, number of contract signings and value of contract signings last year. Other prominent players in PO market were Global eProcure, Xchanging, CapGemini, Corbus and Genpact.
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