Procurement Outsourcing - The Next Major BPO Growth Area? (Strategic Focus)

Introduction

Procurement outsourcing is the smallest of the horizontal business process outsourcing (BPO) functions, but many industry experts believe 2009 will mark the start of a significant period of expansion in the market. This report analyzes the evidence used to support these claims and attempts to separate the hype from the reality.

Scope

*This report looks at the prospects for future growth in the procurement outsourcing market.

*It defines the procurement outsourcing market, with particular focus on key functions such as sourcing, purchasing and payments.

*The report provides in-depth analysis of the market's competitive landscape, from global outsourcing giants to specialist providers.

*It also offers recommendations to vendors looking to take advantage of the growth potential of procurement outsourcing.

Highlights

At various points over the last 10 years, BPO industry experts have predicted an explosion of procurement outsourcing activity, but the expected boom has yet to happen. That has not deterred market-watchers from forecasting that 2009 will be the beginning of a period of rapid expansion in the procurement outsourcing market.

Procurement outsourcing does not rely on labor arbitrage to deliver cost savings. As procurement is not a labor-intensive process, vendors have to use other methods to deliver savings, including improving both internal processes and the management of supplier relationships and innovating around technology and processes.

The procurement outsourcing market has a unique competitive landscape. It is dominated by four market-leading vendors, including two outsourcing giants (IBM and Accenture) and two procurement specialists (ICG Commerce and Ariba).

Reasons to Purchase

*Provides a detailed analysis of the current state of the procurement outsourcing market.

*Gives a detailed overview of the market's unique competitive landscape.

*Offers recommendations to vendors looking to grow their presence in the procurement outsourcing market.

Report Highlights

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Overview 1
Catalyst 1
Summary 1
Key Messages 2
Growth expectations for the procurement outsourcing market are high 2
Procurement outsourcing does not rely on labor arbitrage to deliver cost savings 2
The procurement function is made up of three key processes 2
The procurement outsourcing market is dominated by four vendors 2
Most vendors aim to offer clients an end-to-end service 2
Table of Contents 3
Table of figures 4
Table of tables 4
Market Opportunity 5
Growth expectations for the procurement outsourcing market are high 5
Is the procurement outsourcing market expanding? 7
Defining procurement outsourcing 9
The differences between direct and indirect spending 9
Why is indirect spending more commonly outsourced than direct spending? 9
Procurement outsourcers operate across vertical markets 10
Most procurement outsourcing vendors target large organizations 11
The US is by far the largest geographic market for procurement outsourcing 12
Customer Impact 14
Procurement outsourcing does not rely on labor arbitrage to deliver cost savings 14
The procurement function is made up of three key processes 15
Sourcing 15
Purchasing 15
Payment 15
Clients are wary of committing to end-to-end procurement outsourcing 16
Many clients are currently focused on short-term objectives 17
Competitive Landscape 19
The procurement outsourcing market is dominated by four vendors 19
The market leaders 19
IBM Procurement Services 20
Accenture Procurement BPO Services 21
ICG Commerce 21
Ariba 22
The other vendors in the market can be divided into two broad categories 23
Vendors with a sourcing background 23
Vendors with a transactional process background 24
Global IT services providers 24
Offshore outsourcers 24
Indian BPO vendors 25
Go to Market 26
Most vendors aim to offer clients an end-to-end service 26
It will be difficult for new vendors to establish themselves in the market 27
Significant barriers to entry exist 27
New technology continues to change how procurement services are delivered 28
Recommendations 29
Focus on core competencies 29
Explore the opportunities available for partnerships 29
Develop a multi-shore delivery model 29
Maintain the focus on large enterprises 30
APPENDIX 31
Methodology 31
Further reading 31
Ask the analyst 31
Datamonitor consulting 31
Disclaimer 31
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List of Tables
Table 1: Details of 10 large procurement outsourcing end-users 12
Table 2: Examples of recent partnerships in the procurement outsourcing market 27
List of Figures
Figure 1: Market sizes of BPO functions, 2008 ($ billion) 5
Figure 2: If you are engaged in BPO contracts, which functions do they cover? 6
Figure 3: Number of procurement outsourcing contracts announced, 2004 - August 31 2009 7
Figure 4: Total number of BPO contracts announced, 2004 - August 31 2009 8
Figure 5: Breakdown of procurement outsourcing contracts by signing region 12
Figure 6: Rate the importance of the following factors in your decision to enter into a BPO contract (1 - Least Important; 4 - Most Important) 18
Figure 7: Vendor share of the procurement market by total contract value and number of contracts signed 20
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