Procurement outsourcing market size set to be $1.8 billion in 2012: Everest Report

According to a report published by leading research firm, Everest Group, the Procurement outsourcing market will grow at a rate of 15% in 2012. As per the Procurement Outsourcing Annual Report 2012, the Annual Contract Value (ACV) of new deals signed in 2012 will reach $1.8 billion. The report suggests that the Total value of contracts including new and renewals increased by 17% from 2010 to reach $11 billion in 2011.

Procurement Outsourcing. Image source

The market has witnessed an increase in the number of contracts being signed in the year 2011. Last year, the ACV value grew up to 14 % to reach $1.6 billion. According to the report, mid-sized companies with revenue of $1-5 billion are the major contributors to the volume of the contracts in the PO market.

The report claims that it is the second time the market is setting the record in signing new deals, renewing contracts and winning an increasing deal from mid-sized companies. Thrust to reduce process cost, to bring in efficiency and expertise in the operations are the main drivers for the companies to outsource their procurement process. By outsourcing, the companies are able to achieve 5-10 % cost reduction in their process.

Excerpts from the report:

  1. 57 % of contract’s term are about to end within next four years. The contract values for these deals are estimated to be $6 billion.
  2. The average size of the contract that will be signed is expected to be same as that of last few years.
  3. It was seen that companies from Asia-Pacific, Central America and South America are increasingly outsourcing their operations.
  4. About 43% of PO contracts came from North America, 27% from Europe and 14% from U.K.
  5. The report also find there is a growing trend in finance and accounting outsourcing contracts with accounts payable being outsourced at large.
  6. The report found that manufacturing, consumer goods, retail sector and financial services together contributed 80% of Total Contract Value (TCV) in 2011.
  7. In 2011, about 60 new contracts were signed and about 53 contracts were renewed.
  8. More and more mid-sized companies will adopt procurement outsourcing.
  9. There will be a trend where public sector companies would be adopting PO.
  10. Competition will be intensive in the market as companies start investing in their capabilities.
  11. IBM, Accenture  and Xchanging are the leading players in the market and currently contributed about 60% of the TVC signed in the year 2012.
  12. The market has started classifying expenses as core and non-core expenses.

As the market is growing, the analysts hope to see major acquisitions and mergers in the market contributing more to the total contract values in the forth coming years.

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