Procurement, BPO, NelsonHall, Outsourcing

Procurement is the fastest growing area of BPO

In July, NelsonHall, a BPO analyst firm, presented a webcast on the state of the global Procurement BPO market, and revealed that this is now the fastest growing area of back office BPO, which also includes Finance & Accounting and HR outsourcing.

Procurement BPO is still essentially a small market, with not that many major procurement outsourcing contracts having been awarded to date, with these going to a handful of vendors.

Nevertheless, Procurement BPO is the fastest growing back office area of BPO. There was a lag in new contract signings in 2005 but there have been some interesting new awards in the first half of 2006 with more deals are in the pipeline.

NelsonHall's market sizing does not include all the contracts awarded for single categories of spend such as energy, IT, telecoms, or print procurement. Large as some of these may be, they do not fit NelsonHall's strict definition of Procurement BPO which represents a strategic decision by an organization to look at indirect procurement as a major back-office outsource.

In Procurement BPO, the external service provider has responsibility for managing some or all of a client's procurement activities for an agreed set of indirect spend categories, and the contract requires the vendor to manage categories, processes and the procurement infrastructure.

NelsonHall research indicates that the ramp up will really accelerate in 2008. A very recent survey has reaffirmed NelsonHall's predictions that growth over the next few years will continue to come from North America and Europe. Some vanguard contracts are also being signed in Asia Pacific. Also expect to see the procurement of some direct goods being included within the scope of major outsourcing awards.

The current immaturity of Procurement BPO and the lack of established major players presents vendors already in the marketplace with a major opportunity to develop market share, and opportunities for other services providers to enter the field, notably firms with supply chain and sourcing capabilities looking to expand their offerings.

Vendors will need to offer sourcing and category management capabilities across a wide range of indirect goods/services, and will increasingly need to emphasize a business value-based proposition, beyond the savings in the cost of goods and services acquired. Ultimately, vendors demonstrating ability to deliver sustained cost savings combined with operational excellence will emerge as market leaders.

Source: NelsonHall