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Outsourcing and procurement mastery: How procurement masters leverage outsourcing on the path to high performance

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Procurement outsourcing is a $9 billion market, according to the Everest Research Institute. Within the procurement market, full service procurement outsourcing (PO) is the fastest growing segment even though it currently accounts for less than two percent of all procurement-related outsourcing (with revenues of $25 million this year). However, the Institute predicts this market is likely to grow to at least ten percent of the total market in the next three-to-five years.

1. There will be an up tick in procurement outsourcing deals.

Hap Brakeley, Managing Director, Accenture Procurement, predicts 2006 will be the year procurement outsourcing becomes a force in the marketplace because 2005 provided evidence "it can work." He cites the successful Deutsche Bank procurement deal, which was a landmark given "the scope, scale, and spend."

Knut Meyer, Associate Principal in Charge of Procurement Outsourcing for Everest Group, adds suppliers are experiencing stronger pipelines with "more serious buyers." This year buyers were learning about procurement outsourcing; he says next year they will go through the RFP process. "We're seeing senior management getting involved earlier. And there's less buyer resistance," he reports.

Brakeley predicts companies "on a mergers and acquisitions tear," those that are growing rapidly, and ones "locked on the revenue side like utilities" are the sectors looking closely at procurement outsourcing. Meyer adds financial services and retail companies to that list. He predicts financial services companies will ink up to five deals in 2006.

2. Procurement may become part of multi-tower deals.

Brakeley predicts buyers will combine procurement with finance and accounting or human resources and learning. Meyer adds "a lot of companies are looking at outsourcing the entire enterprise, not just outsourcing procurement only."

3. Suppliers will become risk adverse.

Meyer says gain-sharing agreements are falling out of favor as suppliers take the position of "not wanting to risk much." Guaranteed savings will be gone from 2006 contracts, he predicts.

4. Strategic sourcing will become more important than improving operating costs.

Meyer says the key value proposition of procurement outsourcing is changing. Now he says strategic sourcing will rise to the forefront.

5. Pure play suppliers will become more important in the marketplace.

As strategic sourcing gains prominence, Meyer predicts pure plays will have a greater role in the process.

6. Buyers will look at hosted solutions.

Meyer says buyers want suppliers "to be technology agnostic." And they like hosted solutions because they are quicker to implement. "Today buyers don't want a one-year implementation," the Everest executive says.

7. Suppliers will have to be environmentally friendly in their procurements.

Brakeley says some jurisdictions are taxing suppliers based on their impact on the environment or if they violate environmental laws like the Kyoto Treaty. Next year suppliers will have to calculate the total economic impact of their sourcing solutions, he says.

Publish Date: November 2005

Copyright © 2005 - Everest Partners, L.P.

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