| Procurement Outsourcing to witness massive growth |
|
|
| Wednesday, 28 November 2007 | |
|
Page 1 of 2
Genpact (NYSE: G) one of the largest BPOs in India has been named top procurement outsourcing provider by Brown-Wilson Group’s 50 Best Managed Outsourcing Vendors in 2007. Vendors are rapidly expanding their service offerings and scale of operations, as activity in procurement outsourcing picks up.Traditionally, outsourcing in procurement was limited to management of indirect spend and maintenance and repair activities. Direct procurement outsourcing was first attempted in the 1990s when e-consolidators offered procurement service through their web-based portals. However in the absence of basic success drivers in outsourcing such as process maturity, proven outsourcing methodology, and foolproof technology platforms, these vendors could not scale up their offerings. With advancements in technology the procurement function has evolved from being a site based labor intensive function to a centralized knowledge intensive function. Companies have also begun to expect better returns on technology investments in procurement functions. According to IDC, the procurement BPO market is rapidly growing after a notable pick-up in activity in 2004. Estimates by Everest Research in 2005 suggest that the procurement outsourcing market could be over $380 mn in 2006. The report also estimates a spend base of $25 bn, which serves as a potential for procurement outsourcing vendors. The evolution of specialized procurement service vendors along with the trend to outsource knowledge-based activities will drive the growth of procurement outsourcing services. Some other drivers are: 1) Cost arbitrage: According to research by Everest the reduction in cost of labor achieved through procurement outsourcing can be in the range of 10% to 15%. 2) Reduced cycle time: Streamlined procurement processes at the buyer’s end and multiple sourcing by vendor together reduce the cycle time in procurement. 3) Reduced investments in technology Vendor Capabilities: Need for multi disciplinary approach Service providers need to develop a successful procurement outsourcing platform, and this would involve building several distinct capabilities in sourcing, technology, change management and transaction processes. Maturity of procurement outsourcing will further drive confidence building among vendors. Besides, vendors also need to create a global sourcing and delivery footprint along with a mechanism to leverage volumes. Vendors with specialization in procurement, past experience in verticals such as logistics, global collaboration capabilities and IT expertise are better positioned to tap the procurement outsourcing market. Global IT and ITeS service providers can also leverage their existing client base and capabilities. The niche and local players will have to quickly scale up and build partnerships across the globe while expanding the existing client base. The top procurement service providers including IBM, Accenture, ICG Commerce and Ariba garner almost 80% of the current market share. However, the entry of vendors from low cost destinations like India is likely to threaten some of this. Large IT services companies in India; such as Infosys, already offer a range of procurement BPO services like commodity consulting, spend analytics, inventory management etc. Niche vendors like Corbus have delivery centers in India as well as the US. Corbus currently employs more than 400 people and is planning to grow its team to 1000 people by 2010. Indian players already have a low-cost global delivery model in place, which can effectively extended to other ITeS functions such as procurement. Future Outlook Buyers are expected to outsource most of their indirect purchases to procurement BPOs and retain strategic purchase transactions in house. With procurement outsourcing market still in early stages of evolution and vendors on an expansion spree, buyers are quickly moving to capitalize on competitive deals. ValueNotes Outsourcing Watch: Insights for Investors is a unique news and analysis service from the ValueNotes Outsourcing Practice, focused entirely on outsourcing; This weekly publication analyses events in outsourcing, outsourcing companies, trends in the sector, impact of global competition from offshoring to established US companies, and emerging investment opportunities. No responsibility is accepted for errors of fact or opinion. Neither the analyst nor ValueNotes has a position in the stocks covered above, or has received any payment in any form for this report. ValueNotes does not own or trade in the stocks of companies under coverage. ValueNotes does not provide investment banking services or investor relations' services to preserve the independence of its research. Neither ValueNotes nor the analyst incurs any liability arising out of use of the above information/ report. Reproduction in whole or in part without w |
| < Prev | Next > |
|---|
ValueNotes’ research indicates that the domestic BPO industry stands at an inflection point, with the growing scale of Indian buyers as well as the emergence of significant vendors with greater capabilities