Procurement BPO: From "Baby Steps" to Boom

Most companies testing the waters, but business process outsourcing for purchasing function set to hit $12 billion by 2007, IDC predicts

Most companies testing the waters, but business process outsourcing for purchasing function set to hit $12 billion by 2007, IDC predicts

Framingham, MA — December 19, 2003 — Although a relative newcomer to the business process outsourcing (BPO) world, the procurement function holds promise for BPO adoption over the next 12 months, according to a new report from technology research firm IDC.

IDC's study, "Worldwide and U.S. Procurement BPO Forecast and Analysis, 2002-2007," indicates that current adoption of procurement BPO is discrete in nature and will continue to be so over the next year.

Interest in outsourcing procurement activities and sub-segments is strong, IDC reported, particularly among large companies with over $1 billion in revenue. However, interest is also mainly for small-scale engagements, and the overriding goal for procurement BPO is still cost management.

IDC estimated that the worldwide procurement BPO market was $5.9 billion in 2002 and expects the market to increase at a five-year compound annual growth rate (CAGR) of 15.2 percent, to $12 billion by 2007.

"There is a definite surge in interest in procurement BPO in today's business climate," said Romala Ravi, program manager for supply chain, product lifecycle management and BPO Services. "At the same time, companies are mostly interested in 'testing the waters' and taking 'baby steps' with their procurement BPO engagements."

To compete in this market successfully, IDC is advising procurement service providers to take the following actions:

  • Grab low-hanging fruit first and grow from there — the market is not ready for comprehensive procurement BPO, so pitching this will only delay the securing of deals.

  • Use the sourcing sub-segment as a stepping stone as this is the sub-segment most poised for growth in BPO adoption over the next year.

  • Take time to identify relevant trigger events for procurement BPO adoption and match these up against your strengths to identify which deals you should be going after and what levers of influence to use.

  • Understand the difference between "deal-clinchers" and "must-haves" because the two can be very different — demonstrating the right capabilities at the right time will help secure the deal.

"The path to success in the procurement BPO market will be fraught with a mix of opportunities and challenges, necessitating focus, patience and long-term commitment on the part of procurement BPO providers," concluded Ravi.

This IDC study presents the firm's annual update to the five-year forecast for the worldwide market for procurement BPO services. The purpose of this document is to identify and quantify the effects of recent trends and events influencing the procurement BPO services opportunity through the third quarter of 2003 and their impact on the five-year forecast.