Procurement outsourcing will generate huge savings and gain ground among customers.
That’s the analysis of Everest Research Institute, an outsourcing advisory firm. The company on Monday reported that the multiprocess procurement outsourcing market is growing at a 30 percent annual clip and will exceed $380 million in 2006.
Multiprocess procurement outsourcing refers to transactions in which three or more procurement functions are outsourced. Such functions include strategic sourcing, vendor management, purchasing and accounts payable.
Michel Janssen, managing research director at Everest Research, said procurement outsourcing will achieve five times the savings of other business process outsourcing fields, such as human resources.
The cost savings don’t stem from a difference in labor costs between in-house operations and outsourcing suppliers.
“The biggest issue is spend savings,” Janssen said. Outsourcers who provide smarter sourcing can reduce a customer’s outlay on indirect materials—office supplies and the like.
Organizations are beginning to seek that savings potential. A number of procurement outsourcing pacts have been awarded this year, including a couple of high-visibility deals.
Affiliated Computer Services Inc.’s slice of Walt Disney Co.’s $1.3 billion outsourcing pact includes procurement services, as does IBM’s $1.6 billion outsourcing pact with NiSource Inc.
For more on these outsourcing pacts, click here.
“I think this industry is in its formative stage,” Janssen said.
The nascent procurement outsourcing sector is currently a buyers’ market, according to Everest Research, which noted that buyers should be able to negotiate favorable terms with suppliers seeking reference customers.
Those suppliers include IBM, Accenture, Ariba and ICG Commerce, which, according to Everest Research, represent 80 percent of the procurement outsourcing market.
Procurement outsourcing vendors will need to extend their global reach, according to the company. Procurement outsourcing transactions with a global component have increased from 15 percent of the deals to 44 percent over the past two years, Everest Research said.
Accenture can attest to the global trend. Bank of Ireland on Monday tapped Accenture to provide procurement outsourcing services. The seven-year deal includes training services as well as procurement.
The services are expected to be implemented within a number of months, according to Accenture. The deal will affect about 180 bank employees, who will either be retrained within the training and purchasing areas, transferred to Accenture, or redeployed within the bank.
In June, Accenture announced a seven-year outsourcing pact with Elpida Memory, a Japanese electronics manufacturer. That deal included a procurement outsourcing component.
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