Outsource deals on the up

5 January 2006
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05 January 2006 | SM reporters

Buyers responsible for procurement outsourcing decisions are set to benefit from good deals as the market expands.

A study by the Everest Research Institute, Procurement Outsourcing Annual Report 2005, shows the sector is growing at a global rate of 30 per cent a year.

It estimates that the market will be worth £220 million to outsourcers in 2006 and says the highest savings are to be made from source-to-pay services.

"While purchase-to-pay is traditionally dominated by major players such as EDS, IBM and Accenture - that contribute just 15 per cent of the overall potential returns in complex procurement outsourcing deals - strategic sourcing and compliance management can create around 85 per cent of savings," the report said.

But it added that buyers should still include the purchase-to-pay element for maximum value.

Stephen Dunn, Everest's UK principal, said the market was growing because outsourcing procurement could deliver savings to a firm's bottom line and increase its market value.

The report comes as big deals were announced by IBM and Accenture. IBM has signed a five-year contract to manage the strategic sourcing and procurement of indirect materials and services for Unilever's North American operations. The Bank of Ireland has appointed Accenture to provide procurement and training services over the next seven years.

Everest tracked the activity of 70 business process outsourcing suppliers. It looked at deals where three or more purchasing activities are outsourced over at least three years, including some source-to-pay work. This now accounts for almost 10 per cent (£172 million) of the total £1.76 billion procurement transaction outsourcing market.

Forty-five per cent of the deals are up for renewal within five years, suggesting that the market is on the "cusp of its next growth phase".

It said corporate procurement outsourcing buyers should be able to attract positive deals at this stage of market evolution.

SMjan2006

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