The global multi-process procurement outsourcing (PO) market witnessed decent growth of 10 percent in 2015, reaching $2.3 billion in size, led by strong adoption by North American manufacturing, consumer packaged goods (CPG) and retail segments, according to new research from Everest Group.
PO buyers cite cost reduction and analytics support as their two most crucial needs. In response, service providers are increasingly adopting robotic process automation (RPA) to usher in a new round of cost savings in such areas as administering purchase orders, invoice processing, fraud/duplicate payment detection, claims processing and conducting arrears review. Similarly, buyers are increasingly asking for analytics solutions because they enable savings, and minimize financial and operational risks. Typically, buyers lack in-house analytics capabilities, tools and expertise, so they are increasingly looking to service providers to plug this gap. Buyers list analytics expertise as one of the top three service areas in which they would like to see improvement by their outsourcing partner.
Growth in the PO market can also be attributed to an emerging trend of buyers seeking more end-to-end coverage. PO contracts are moving toward multi-tower scope, with an increasing inclusion of finance and accounting, supply chain management and human resources outsourcing processes, in addition to traditional procurement processes.
“Organizations are seeking to transition to a cost+value model of procurement outsourcing, where the entire procurement function shifts from an operational role to a business enabler role,” said Megan Weis, vice president of business process services at Everest Group. “Service providers play a key role in this transformation effort by providing best-in-class process efficiencies, technology solutions and supplier relationship management that collectively contribute value far beyond cost arbitrage to the organization. Value-added contributions include risk mitigation, market intelligence, supplier-led innovation and faster speed to market of finished products.”
Other key findings:
- Both organic and inorganic factors contributed to the growth in 2015; however, the organic activity (renewals, scope expansion) was subdued, while inorganic activity (new deals) remained strong.
- Strong evidence of service provider switching was observed, with growing termination rates and a fall in contract renewals.
- Contractual activity rebounded in traditional industries such as manufacturing, CPG and retail.
- In 2015, market activity picked up in the small and medium business (SMB) segment and the mid-market buyer segment.
- Adoption remained strong in North America.
- Increasing investment by service providers to enhance category expertise resulted in buyers becoming more comfortable with outsourcing additional categories.
- The top five players (Accenture, Capgemini, GEP, IBM and Infosys) together account for more than 70 percent of the PO market.
- Accenture and IBM continue to lead the market in all geographies and in all major industry segments, except health care and pharmaceuticals, in which GEP commands the top position.
These results and other findings are explored in a recently published Everest Group report: Procurement Outsourcing Annual Report—2016—Analytics and Beyond. This report assists key stakeholders (buyers, service providers and technology providers) in understanding the changing dynamics of the PO market, and helps them identify the trends and outlook for 2016 through 2017. The report provides comprehensive coverage of the global PO market, including detailed analysis of market size and growth, buyer adoption trends, PO value proposition, solution characteristics and service provider landscape.
