‘Pent-up demand’ leads to outsourcing growth

22 March 2010

22 March 2010 | Jake Kanter

Spend on procurement outsourcing (PO) is predicted to rise more than 20 per cent this year to $1.3 billion (£0.87 billion), the Everest Research Institute has said.

The increase was revised down from a prediction of 25 per cent growth made by Everest late last year, but was based on more detailed findings.

According to the Institute, the latest forecast would bring the total value of spend under management to $170 billion (£113.4 billion). “Interest levels in PO will continue to be high in 2010 given the significant bottom line impact that PO promises,” Everest explained.

There will be a greater number of large deals signed over the next two years given the “pent-up demand” for PO and easing of economic conditions, the research group said. It follows the average size of outsourcing deals falling from $28 million (£18.7 million) to $17 million (£11.3 million) last year.

There will be a rise, Everest said, in category-focused deals with popular targets being IT, telecoms and business travel. Large manufacturing and consumer products firms will lead demand for PO as they aim to cut non-core spend.

Everest said the number of PO suppliers will continue to expand as new players enter the market. IBM and ICG Commerce still dominate proceedings, however, picking up the majority of business.

“Buyers in last year’s down economy were averse to risk and thus inclined to start small and adopt sourcing-centric approaches to generate quick savings,” said Katrina Menzigian, vice-president of Everest. “Buyers are now poised to expand sourcing-focused contracts.”

Last month, buyers told SM they were not concerned that increased outsourcing would lead to job losses in the profession

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