Procurement outsourcing market full of hype: Ovum

Hype reigns in the procurement outsourcing arena, said Ovum Thursday when introducing its new report ‘Procurement Outsourcing — The Next Major BPO Growth Area?’.

“The procurement outsourcing market has been described as being on the verge of major expansion a number of times in recent years, yet the promised boom has yet to happen,” said Ed Thomas, analyst at Ovum and author of this report. “However, there remains a great deal of room for growth in the market and Ovum expects it to increase in size at a steady, if unspectacular, rate over the next five years.”

The procurement outsourcing market has a unique competitive landscape, said the research house, adding that it is dominated by four market-leading vendors: two outsourcing giants (IBM and Accenture) and two procurement specialists (ICG Commerce and Ariba).

The other vendors operating in the sector can be split into two broad categories: vendors with a sourcing background and vendors with a transactional process background, according to Ovum.

The main goal for the vast majority of procurement outsourcing providers is to be able to offer clients an end-to-end service, from sourcing through purchasing to payment, in an effort to compete effectively with market leaders IBM and Accenture, the analyst firm said.

For vendors with a sourcing background, this means growing their capabilities around transaction processing and, in many cases, expanding their presence in low-cost locations, while for those firms with a transactional process background, it means attempting to gain domain expertise around sourcing functions, Ovum noted, adding that partnerships enable vendors to address gaps in their offering, and have long been popular in the procurement outsourcing space.

“Service offerings cannot always be expanded organically, and partnerships offer a way of gaining access to key skills without the cost or disruption associated with acquisitions,” said Thomas.

Indirect spending — the amount spent on goods and services that enable a company to operate — remains the primary focus of most procurement outsourcing deals, said Ovum. As the majority of indirect spending categories are applicable to almost every business, vendors are able to operate across vertical markets, Ovum added.

“Nevertheless, certain industries, notably manufacturing and consumer packaged goods (CPG), have been at the forefront of procurement outsourcing adoption”, said Thomas. “Since 2008, there have also been signs of growth in other vertical sectors, including financial services, telecoms and pharmaceuticals”.

Ovum expects to see significant procurement outsourcing activity in the energy and retail markets over the next two years, the research firm concluded.

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