Procurement outsourcing market could grow by up to 12 per cent in 2015

28 July 2015

The global market for procurement outsourcing could grow up by up to 12 per cent this year, as buyers look for more value in contracts, according to research.

Everest Group said the market grew by 12 per cent last year, reaching $2.2 billion (£1.4 billion), and could grow by the same amount in 2015.

It said while cost and spend reduction are still important, buyers are increasingly seeking new value metrics, such as operational excellence, market intelligence, and supplier relationship management.

The group’s report, Procurement Outsourcing (PO) Annual Report — The Dawn of a Transformational Era, said contracts were shifting to a “cost plus value” model, where productivity improvements were targeted along with spend reduction, and focus was shifting to procurement that drove business outcomes.

The strategic focus of contracts was currently directed at reducing manpower requirements, the research said. But it was moving towards a focus on the value of procurement to enhance top-line growth, with supplier innovation, compliance and risk management, and market intelligence.

The report said the procurement outsourcing market is highly consolidated with the top five players commanding nearly 75 per cent of the market. The top two — IBM and Accenture — have more than half the market share. But it added that competition among service providers was intensifying as the market expanded.

The study also found the average deal size dropped in 2014 due to a high number of small-value deals. The scope of new contracts was increasingly becoming end-to-end as buyers looked to maximise savings. The role of technology was growing, with an increasing adoption of end-to-end platform-based offerings. Key drivers included 'as-a-service' models, advanced analytics, mobile-enabled technologies, and process automation.

Offshoring continued to rise in procurement outsourcing contracts, rising faster in procure-to-pay focused contracts than in source-to-contract focused contracts, the research said.

Pricing structures of contracts were turning predominantly hybrid, with significant inclusion of incentive-based mechanisms.

“Procurement specialists and India IT plus BPO players have rapidly increased their share at the expense of global majors and will be the drivers of future growth, which we estimate will be between 10 and 12 per cent in 2015,” said Swapnil Bhatnagar, practice director at Everest Group. “We also predict that service providers will continue to invest more in technology, particularly in three areas: end-to-end platforms, analytics, and automation.”

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