03 January 2008 | Paul Snell
The market for procurement outsourcing in Australia is expected to more than double in the next five years, according to a study.
Research firm IDC said the market for outsourcing procurement in the country was worth AUS$233 million (£101 million) in 2006, but would rise to AUS$534 million (£231.5 million) by 2011.
But analysts said current uptake of procurement outsourcing in Australia was low and activity would remain relatively small over the next few years. Aprajita Sharma, research manager, outsourcing and BPO services at IDC and author of the report, told SM
that Australian companies see outsourcing procurement as risky.
She added that most companies "have a very decentralised procurement function, which makes it difficult to outsource".
Indirect materials and spend are the major targets of outsourcing deals because of their non-core status.
Firms would still have to maintain purchasing departments to look after other spend areas, once these areas had been outsourced.
Growth in the outsourcing market is driven primarily by large companies with more than 500 employees.
"The market is not ready for comprehensive procurement BPO. However, it is still important to consider the smaller-scale engagements. As BPO deals increase over time in scope and complexity, these smaller engagements allow firms to gain a foothold in the marketplace."
She added that outsourcing other areas of the business, such as finance and accounting, could eventually open the door to procurement outsourcing.
The report said that economic pressures were giving cost-cutting a great priority in many firms, renewing their interest in outsourced buying. It added one of the main benefits of BPO was the chance to treat procurement as an end-to-end service, making it more efficient and taking advantage of economies of scale.
"Transformational outsourcing is high on the agenda, where companies and service providers alike are taking an approach to drive efficiencies within the business process before it is outsourced," said Sharma.
"A decentralised function is a prime candidate for transformation."Telstra, the Australian telecoms firm, last month announced an expansion of its seven-year supply chain deal with IBM. The deal should save AUS$700 million (£298 million) over seven years, an increase of AUS$200 million (£85 million). The next phase of the supply chain transformation will focus on improving the delivery and management of parts needed by its technicians.