Procurement BPO Still in Infancy

IDC: Companies still exploring concept of procurement business process outsourcing

Framingham, MA  September 24, 2002  While interest is increasing in procurement business process outsourcing (BPO), the reality is that the market is still very small and in its infancy compared with such other BPO segments as logistics or customer care, a new study from technology research firm IDC revealed.

IDC estimated that the worldwide procurement BPO market was $5.3 billion in 2001, and the researchers expect the market to increase at a five-year compound annual growth rate (CAGR) of 18.2 percent over the next four years, reaching $12.2 billion by 2006.

"Companies are beginning to explore the concept of outsourcing procurement functions more and more these days, but most of the deals continue to be small ones and focused on the indirect procurement segment," said Romala Ravi, program manager of IDC's supply chain and logistics management services research. "Larger, more comprehensive procurement outsourcing contracts are likely to emerge in the later years of the forecast period."

IDC said it believes that major factors driving the demand for more holistic procurement BPO services include organizations' relentless focus on cost reduction, the challenges faced with early e-procurement initiatives and recognition of the pitfalls of a technology-only solution.

The researcher firm predicted that most of the procurement BPO offerings will continue to be in the indirect procurement area and that the procurement BPO concept will expand to include former consulting-type activities, such as spending management and strategic sourcing services.