Running the Numbers February/March 2006

Procurement, Sourcing

Procurement Outsourcing Seen Topping $380 Million in 2006

The $297 million multi-process procurement outsourcing (PO) sector is growing at 30 percent per annum and will exceed $380 million in 2006, with the potential to grow into a multi-billion dollar market over time, according to new findings by Everest Research Institute.

Procurement outsourcing refers to the complete or partial transfer of the business processes, infrastructure and resources associated with purchasing all indirect costs, including contracted services, by a company to a third-party services provider. Procurement outsourcing is one segment of the larger business process outsourcing (BPO) sector.

The Everest report found that the multi-process PO market is starting to gain traction and is moving toward a more rapid growth phase, as both buyers and suppliers test the waters. Key findings indicate that:

  • Procurement outsourcing is currently a buyer's market — Corporate PO buyers are in a position to become marquee clients for prominent outsourcers who are expanding their outsourcing capabilities and together represent 80 percent of the PO market.
  • Suppliers need to build global capabilities — Global PO transactions have increased from 15 percent to 44 percent over the past two years, as multinational buyers seek to extend the benefits of procurement outsourcing across global operations
  • Investors should approach the PO market with a long-term view — Procurement outsourcing, with significant untapped potential and no clear winners, is expected to enter a rapid growth phase within the next two years.

"Procurement outsourcing has the potential to become the biggest 'game-changer' in business process outsourcing," said Michel Janssen, managing research director at Everest Research Institute. "Our findings indicate that PO will achieve five times the savings multiples of other BPO domains, including [human resources (HR)], IT and offshore outsourcing, delivering a potential bottom-line saving of up to 2 percent of sales."

Regulatory Compliance

Sarbanes-Oxley Spending to Exceed $6 Billion in 2006

Companies will spend $6 billion on complying with Sarbanes-Oxley Act (SOX) requirements in 2006, on par with the $6.1 billion that will be spent in 2005. This is according to technology consultancy AMR Research, which conducted a survey of over 300 business and IT leaders about their Sarbanes-Oxley and broad compliance spending priorities.

Overall, AMR expects SOX-related spending to break down as follows:

  • $2.3 billion (39 percent) — Internal labor/headcount (down 8 percent from 2005)
  • $1.9 billion (32 percent) — Technology (up 13 percent from 2005)
  • $1.8 billion (29 percent) — External consulting (holds steady)

"These spending predications support a long-term approach to SOX compliance," said John Hagerty, vice president of research at AMR Research. "Budgets are shifting from headcount to technology so that compliance can become repeatable, sustainable and cost-effective."

AMR Research also found the following about companies complying with SOX:

  • 39 percent of companies currently have an operational SOX solution, while 37 percent are implementing one in 2005. Even so, over 80 percent of companies plan to add to or improve on what they have in place in 2006.
  • 40 percent of companies have a specific budget for SOX compliance; the remainder fund efforts from existing operations.

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