4 December 2009 | Allie Anderson
Growth in procurement outsourcing (PO) will be slow in the coming years despite “excessive hype” and optimism, according to a report by researchers Ovum.
The report, Procurement Outsourcing – The Next Major BPO [business process outsourcing] Growth Area, found that an anticipated rapid expansion has not been seen and that a slow, steady rate of growth is more likely.
Ed Thomas, author of the report and analyst at Ovum, said: “The PO market has been described as on the verge of major expansion a number of times in recent years, yet the promised boom has yet to happen. However, there remains a great deal of room for growth in the market and Ovum expects it to increase in size at a steady, if unspectacular, rate over the next five years.”
Thomas told SM one of the reasons PO had not yet risen to expected levels was because companies have been reluctant to surrender control of purchasing in the current climate. Moreover, there is a general lack of knowledge about how much companies actually spend, with the average large company, according to the report, only managing 50 per cent of its spending. “It’s difficult to outsource something you don’t manage effectively yourself,” Thomas said.
However, many experts forecast growth in 2010 – albeit at a slower rate than has previously been expected – despite misplaced optimism. This is in part due to the low take-up of PO so far, which creates a wide-open market for vendors to target. There is also a better understanding among organisations of the potential benefits PO can offer, including significant cost savings, which is particularly attractive in the current economic climate.
Potential expansion may particularly benefit smaller outsourcing firms, who will be better placed to challenge the four market leaders – IBM, Accenture, ICG Commerce and Ariba – and open the market up to competition.
In November research by the Everest Research Institute found PO is expected to increase by 25 per cent next year. The organisation forecasts that uptake of PO will be led by the "mature" US market, while European businesses will also continue to increase spend on outsourced purchasing.