According to Everest group Research, the procurement outsourcing market grew by 12 % (YoY) in 2013, and is expected to grow by 10-12 per cent in 2014. Everest Group further forecasts the market will expand to between $270 billion (£158 billion) and $275 billion (£161 billion) in spend, and reach $2.2 billion (£1.3 billion) in annualized contract value in 2014 compared to managed spend of $254 billion (£149 billion) and $2 billion (£1.2 billion) in annualized contract value in 2013.
TechNavio's analysts forecast the Global Procurement Outsourcing Market to grow at a CAGR of 22.48 percent over the period 2013-2018. According to research from Information Services Group (ISG), the first half of 2014 has seen a decrease in the number of companies outsourcing procurement work and the outsourcing market as a whole achieved a record-high annual contract value during the second quarter, reaching $6.4 billion (£3.7 billion). Based on the performance seen during the first half of the year, ISG expects annual outsourcing contract value to grow 25 per cent over the year as a whole.
Everest Group also highlighted emerging markets of Asia Pacific, Middle East and Africa, and Latin America are driving the procurement outsourcing market growth and more end to end procurement process outsourcing deals also tripled in the past three years. Everest Group said: “The market is currently in a state of flux, with record new deal signings and a record number of terminations, simultaneously. Such volatility, attributed to switching of service providers, is an indication of reducing stickiness”.
The prime value proposition for procurement outsourcing still remains cost and spending cuts but other functions like category expertise, technology related and governance and compliance related is also on rise. Collaboration between procurement and other enterprise functions like Finance & Accounting, Human Resource, Supply Chain and Manufacturing. Accenture, IBM followed by Indian vendors dominate the market and India dominates the delivery location as most of the PO work is done from India based on the location of the number of Full Time Equivalent employees. Manufacturing segment followed by Financial Services, CPG & Retail, Energy & Utilities are the verticals that are outsourcing the procurement activities.
Procurement outsourcing is subcontracting of key procurement requirements of an organization to a third-party vendor who has expertise in the required domains which helps businesses to focus on their core business activities and benefit from reduced costs and spending generated by PO vendors. But businesses have to be careful in PO as they have to clearly define the performance criteria and SLAs so that the process moves in line with the business objectives. According to Abhishek Menon, practice director at Everest Group, “Procurement outsourcing makes an attractive business case for both buyers and service providers who have remained disciplined, vigilant and progressive.”