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procurement outsourcing

Analytics—Bedrock of Procurement Outsourcing—is Driving Sustained Double-digit Industry Segment Growth, According to Everest Group | Press Release

By | Press Releases

Analytics, artificial intelligence and robotic process automation see strong adoption as CPOs demand digital-first procurement ecosystem.

The role of chief procurement officer (CPO) has expanded beyond driving down the overall spend and operating costs to delivering greater strategic value to the enterprise, leveraging both technological solutions and supplier-enabled innovation, according to new research from Everest Group.

This imperative is further reflected in the demand for a digital-first procurement ecosystem, which centers on the power of digital tools such as analytics, robotic process automation (RPA), artificial intelligence (AI), the Internet of Things (IoT) and blockchain.

Everest Group reports that analytics, in particular, has become the bedrock of procurement outsourcing.

“Analytics is changing the way that sourcing and procurement happens,” said Rajesh Ranjan, partner, Business Process Services, at Everest Group. “Analytics is now at the heart of procurement decisions, particularly with respect to spend management, vendor management and even procurement operations. We’re also beginning to see integration of IoT and AI with analytics. For example, AI is being used to enable faster contract analysis, fraud and duplicate payment prevention and conversational support. IoT is being used in a variety of ways as well, such as automating order placement and improving traceability in the supply chain. A few visionary enterprises see this as a strategic area for internal development, but the majority of enterprises are looking to service providers to deploy these solutions.”

As a result, the global multi-process PO market is expected to witness a growth of 11-12 percent in the next three years to reach US$3.6 billion in size by 2020. Technologies such as AI and analytics will witness increasing adoption over the next two to three years. RPA also will witness strong adoption, especially in the procure-to-pay (P2P) process. IoT and blockchain are in the early stages of adoption.

 These results and other findings are explored in a recently published Everest Group report: “Procurement Outsourcing (PO) Annual Report 2018: Driving Strategic Value from Procurement.” The report provides comprehensive coverage of the global PO market including detailed analysis of market size and growth, buyer adoption trends, key emerging themes, solution characteristics and service provider landscape.

Other key findings:

  • North America continues to lead the PO global market. Increased scope of deals in Rest of Europe and United Kingdom led to high growth in these regions. APAC grew slightly above market rate while Latin America grew at a very high rate.
  • Two sectors—manufacturing as well as consumer product goods (CPG) & retail—the leading adopters of PO, witnessed flat growth in 2017. In contrast, emerging buyer segments—including financial services, healthcare and pharmaceuticals, and media—were the high growth drivers for the last two years.
  • The degree of onshoring in PO contracts is increasing, as buyers are expanding the scope of work to include more sourcing processes that require significant onshore presence.

 ***Download a complimentary report abstract here.***

Procurement Outsourcing Makes Leap to Digital-First as Market Growth Slides to 9%—Everest Group | Press Release

By | Press Releases

As procurement outsourcing market matures, buyers seek innovation, market intelligence; providers invest in technology and talent.

The global multi-process Procurement Outsourcing (PO) market slowed slightly to a single-digit growth rate of nine percent in 2016, reaching US$2.4 billion in size, according to new research from Everest Group. However, with a market penetration of just 12 to 15 percent, procurement outsourcing continues to be an attractive market, one that is experiencing a significant shift from an arbitrage-first to a digital-first model.

The arbitrage-first model, now receding in use, focuses on reducing manpower requirements and standardizing processes, offering buyers the primary value of cost-savings. However, today PO buyers are demanding more, especially better sourcing and category expertise. The fast-growing digital model addresses these demands. It focuses on improving bottom-line performance by contributing innovation, market intelligence and productivity improvements that directly support business objectives.

In this shift to digital-first, technology is a key enabler. Analytics, automation, cloud, mobile, social media, block chain and cognitive/artificial intelligence technologies are being used to create a touchless procurement ecosystem. Providers that are investing in these technologies are experiencing revenue growth of up to 15 percent by expanding existing accounts, gaining share from other players and winning greenfield opportunities.

Talent strategies are also having a major impact on the PO industry as buyers demand significant improvements from service providers in this area. For example, 45 percent of buyers have indicated that the resource pools employed by service providers do not meet their expectations, and almost half of buyers highlight the need for better training and skill enhancement. Furthermore, more than 40 percent of buyers cite attrition as negatively impacting their business. Service providers are responding to this need in two ways: either looking at acquisitions as a one-shot way to gain the necessary talent and capabilities, or investing heavily in training and development of their employees.

 “Service providers have a dual imperative to successfully navigate this sea change from arbitration-first to digital-first procurement,” said Megan Weis, vice president, Business Process Services, at Everest Group. “They must adopt new-age technology solutions and also bridge the gap with respect to talent selection and management. Going forward, technology and talent will be the chief factors distinguishing leaders in the procurement services market.”

 These results and other findings are explored in a recently published Everest Group report: “Procurement Outsourcing (PO) Annual Report – 2017 – Leap Towards Digital Transformation. This report describes the changing dynamics of the PO market, provides a market overview, identifies buyer adoption trends and examines the service provider landscape.

***Download complimentary report abstract here***

Other key findings:

  • Emerging markets have seen a robust adoption while there is a slight decline in the adoption rates in maturing markets.
  • Industries such as healthcare and pharmaceuticals as well as energy and utilities (E&U) are witnessing an increase in adoption in North America; in APAC, the traditional industries such as manufacturing are witnessing an uptick.
  • The market is moving away from a lean six-sigma model to a design thinking approach to usher in more innovation.
  • The process scope of contract is expanding as buyers recognize the value of outsourcing judgment-intensive work.
  • Multi-country deals declined as growing geopolitical and economic risks restricted buyers from making bold decisions.
  • Competitive bidding is on the rise, even when incumbents are involved.
  • Offshoring has declined in the wake of global political and economic uncertainty.
  • Hybrid pricing models predominate as buyers have moved away from transaction-based pricing.
  • Although large businesses represent the majority of PO adopters, adoption by the small to midsize business segment is growing and presents significant opportunities.
  • Everest Group has classified 15 PO service providers based on their market success and delivery capabilities:
    • Leaders include Accenture, GEP, IBM and Infosys
    • Major contenders include Aquanima, Capgemini, Corbus, Genpact, HCL, Optimum Procurement, TCS, Wipro and WNS
    • Aspirants include Aegis and Conduent
    • Star performers (charting positive movement year on year) include Accenture, GEP and WNS

Gear up to See Increased Market Activity in the Strategic Sourcing Space | Sherpas in Blue Shirts

By | Blog

Last month, WNS acquired Denali Sourcing Services, a procurement outsourcing company, to further strengthen its broader finance and accounting offering with a specific focus on the sourcing and category management domain. This was a strategic move on WNS’ part to drive enhanced value for its clients. The acquisition will allow WNS to provide an end-to-end Source-to-Pay (S2P) offering without any external dependency. The transition is expected to be mostly smooth, as WNS and Denali have been long-time partners and already have a healthy working relationship.

For the broader market, this acquisition reiterates the importance of people skills, experience, and domain knowledge in procurement services. While technology is important in any business process function, procurement outsourcing relies heavily on individual talent. Several providers have tried to develop these capabilities in-house with limited success. A major obstacle has been the short supply of sourcing talent pool, compounded by the fact that it is very challenging to provide strategic sourcing services from an offshore location.

In today’s procurement world, automation is becoming table stakes, speedily wiping out the transactional part of the work. Intense competition is further driving down pricing, leaving everyone to operate on wafer thin margins. As P2P becomes commoditized, providers are increasingly identifying the need to build sourcing capabilities. They have realized that, in addition to higher revenue and profit margins, sourcing capabilities are necessary for long-term success in this space.

One of the fastest ways to build sourcing capabilities is an acquisition. Service providers have been on a constant lookout for players with strong sourcing capabilities, and have not hesitated in making such acquisitions. For example, Accenture, one of the top players in this space, acquired Ariba’s sourcing and BPO services way back in 2010. In 2013, it further expanded its services by acquiring Procurian, another leading procurement services provider.

Service providers have also made small targeted acquisitions to develop niche capabilities. Before its acquisition by Accenture, Procurian had acquired Media IQ, a media auditing, measurement, and benchmarking company, and Utilities Analyses, Inc. (UAI), an energy management firm. In 2011, Infosys acquired an Australian-based strategic sourcing and category management services provider, Portland Group Pty Ltd. And in early 2016, Genpact, another strong player in the space, acquired Strategic Sourcing Excellence (SSE), a sourcing and procurement consulting firm.

The big question that follows is why other players have not made acquisitions in this space to strengthen their hold on the market. The answer is simple. There are not a lot of strategic sourcing and category management players with considerable scale. Denali falling out of the race means that the list further shortens. Each acquisition puts extra pressure on the remaining players to prioritize procurement and make a quick decision. So WNS’ acquisition of Denali could potentially be a starting point for some hectic market activity.

Top Two Procurement Outsourcing Drivers: Cost Reduction and Analytics | In the News

By | In The News

“Organizations are seeking to transition to a cost+value model of procurement outsourcing, where the entire procurement function shifts from an operational role to a business enabler role,” said Megan Weis, vice president of business process services at Everest Group. “Service providers play a key role in this transformation effort by providing best-in-class process efficiencies, technology solutions and supplier relationship management that collectively contribute value far beyond cost arbitrage to the organization. Value-added contributions include risk mitigation, market intelligence, supplier-led innovation and faster speed to market of finished products.”

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Top Two Procurement Outsourcing Drivers: Cost Reduction, Analytics | Press Release

By | Press Releases

Procurement outsourcing market matures, with buyers seeking more value, more innovation, broader scope from service providers.

The global multi-process Procurement Outsourcing (PO) market witnessed decent growth of 10 percent in 2015, reaching US$2.3 billion in size, led by strong adoption by North American manufacturing, consumer packaged goods (CPG) and retail segments, according to new research from Everest Group.

PO buyers cite cost reduction and analytics support as their two most crucial needs. In response, service providers are increasingly adopting robotic process automation (RPA) to usher in a new round of cost savings in such areas as administering purchase orders, invoice processing, fraud/duplicate payment detection, claims processing, and conducting arrears review. Similarly, buyers are increasingly asking for analytics solutions because they enable savings and minimize financial and operational risks. Typically, buyers lack in-house analytics capabilities, tools and expertise, so they are increasingly looking to service providers to plug this gap. Buyers list analytics expertise as one of the top three service areas in which they would like to see improvement by their outsourcing partner.

Growth in the PO market can also be attributed to an emerging trend of buyers seeking more end-to-end coverage. PO contracts are moving towards multi-tower scope, with an increasing inclusion of finance and accounting, supply chain management and human resources outsourcing processes in addition to traditional procurement processes. 

“Organizations are seeking to transition to a cost+value model of procurement outsourcing, where the entire procurement function shifts from an operational role to a business enabler role,” said Megan Weis, vice president, Business Process Services, at Everest Group. “Service providers play a key role in this transformation effort by providing best-in-class process efficiencies, technology solutions, and supplier relationship management that collectively contribute value far beyond cost arbitrage to the organization. Value-added contributions include risk mitigation, market intelligence, supplier-led innovation and faster speed-to-market of finished products.”

Other key findings:

  • Both organic and inorganic factors contributed to the growth in 2015; however, the organic activity (renewals, scope expansion) was subdued while inorganic activity (new deals) remained strong.
  • Strong evidence of service provider switching was observed, with growing termination rates and a fall in contract renewals.
  • Contractual activity rebounded in traditional industries such as manufacturing, consumer packaged goods (CPG) and retail.
  • In 2015, market activity picked up in the Small and Medium Business (SMB) segment and the mid-market buyer segment.
  • Adoption remained strong in North America.
  • Increasing investment by service providers to enhance category expertise has resulted in buyers becoming more comfortable with outsourcing additional categories.
  • The top five players (Accenture, Capgemini, GEP, IBM and Infosys) together account for more than 70 percent of the PO market.
  • Accenture and IBM continue to lead the market in all geographies and in all major industry segments except healthcare and pharmaceuticals, where GEP commands the top position.

These results and other findings are explored in a recently published Everest Group report: “Procurement Outsourcing (PO) Annual Report – 2016 – Analytics and Beyond.” This report assists key stakeholders (buyers, service providers, and technology providers) in understanding the changing dynamics of the PO market and helps them identify the trends and outlook for 2016-2017. The report provides comprehensive coverage of the global PO market including detailed analysis of market size and growth, buyer adoption trends, PO value proposition, solution characteristics and service provider landscape.

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Is Your Procurement Department a Top Performer? | Sherpas in Blue Shirts

By | Blog
I recently attended the ProcureCon Indirect East conference in Orlando, Florida, where procurement professionals came to learn how to improve supplier relationships, staff their teams for maximum results, and discover new technology aimed at simplifying their processes and adding value. This year’s 275+ attendees were addressed by keynote speakers, and participated in round table discussions and breakout sessions based on specific areas of focus and interests.

Three issues were prevalent at this event.

Struggles to bring spend under management

This was an area of concern and discussion during many of the breakout sessions. Understandably, as doing so enables procurement to negotiate improved pricing and higher discounts. To bring spend under management, there are several steps an organization must undertake. It must clearly define what it actually means by “spend under management” and achieve stakeholder buy-in from the top down so everybody understands that managed spend will be handled via a different, clearly defined process. Then, it’s important to make sure procurement has access to all spend data so it can conduct an analysis of managed and unmanaged spend. Once the amount of spend going through the procurement process has been determined, goals can be set to increase this percentage. Of course, effective change management is crucial to creating new behaviors necessary to achieve these goals. Once procurement makes initial spend management inroads, it should work to minimize suppliers in areas where it makes sense to do so. This not only drives additional pricing leverage among the remaining suppliers, but also frees up procurement’s time to address more value-add activities like tracking and reporting compliance, rather than managing too many suppliers. A final critical component of managing spend is an e-sourcing solution with as many suppliers as possible loaded into it. This e-sourcing solution should be as user friendly as possible for all buyers throughout the organization – not just those within the procurement department – as the easier it is to run spend through the system, the more it will cut down on spend that is occurring outside procurement.

Failure to create an integrated end-to-end process

This was another major source of frustration, as it results in tremendous value leakage between sourcing and payment. For example, one attendee realized recently that a breakdown of communication along the chain and an ineffective contract management function had led to numerous payments continuing long after their associated contracts had expired. Beyond unnecessary spend, lack of a fully integrated end-to-end process can create more work by requiring rekeying of data into multiple systems, and result in the inability to define rules-based workflows across the process. This lack of control and visibility can actually increase the opportunity for maverick spend. A fully integrated end-to-end procurement process will solve these issues, and provide a host of benefits such as improved process efficiency, increased collaboration with suppliers, and more control over demand and spend. There’s an abundance of technological solutions available to help integrate the process, including end-to-end procurement platforms and technologies that augment and fill in gaps in the existing process.

Procurement is gaining traction as a key component of a company’s strategy  

It was clear from the session topics and resulting discussions that procurement’s mandate to transform from a cost center focused on savings to a strategic part of the organization that contributes to top-line growth is moving closer to actualization. Today, many companies seem to be looking to procurement with increasing frequency to make strategic decisions about how the supply chain can be optimized to deliver the greatest returns. Everest Group research shows that leading procurement organizations have 75 percent or more of spend under management, compared to only 50 percent for average organizations, and as low as 25 percent for bottom performers. The top-performing organizations consistently push themselves to find new and creative ways to think about procurement in broader terms, and to collaborate with other areas to extend procurement’s value. They have a vision, and understand how that vision fits into the overall enterprise.

Enterprises have much to gain from an efficient and effective procurement department. Those in which procurement has managed to master some of these skills bring increased innovation into the company, enjoy greater flexibility, and have a competitive advantage over their peers. This conference shed a lot of light on procurement’s aspirations, as well as where it seems to be falling short.
Looking to improve your company’s procurement function? Following is Everest Group’s take on how procurement outsourcing (PO) can help organizations achieve a “Cost+Value” value proposition.
The PO Value Propisition
Has your company’s procurement organization achieved some of the hallmarks of top performers? Our readers would love to hear about your experiences!

The Secrets of Successful Category Management | Webinar

By | Webinars

Wednesday, January 27, 2016 |  10 a.m. CST, 11 a.m. EST, 4 p.m. GMT, 8:30 p.m. IST | 60 minutes with live Q&A

Register for the webinar

__________________________________________________________________________________________________

Rajesh Ranjan, Partner, Everest Group, will be a guest expert speaker on this GEP hosted webinar.

Today, best-in-class procurement organizations are increasingly turning to procurement outsourcing to increase their reach and impact on the enterprise. But that’s not all. More and more procurement leaders are now looking at category management outsourcing as an effective lever to drive higher strategic value and growth.

Everest Group’s research shows that an increasing number of PO engagements — a 16 percent rise in the last five years — now include category management in their scope. What is driving this trend? How can your enterprise benefit from it? And how do you get started?

Join this interactive webinar to understand the key value drivers for category management outsourcing and current market dynamics. GEP executives and featured guest expert from Everest Group will discuss the common challenges that enterprises face in outsourcing category management and the steps to mitigate them. Register for the webinar now.

Inside the webinar:

  • Key value drivers of category management outsourcing
  • Current market trends
  • Best practices in category management outsourcing
  • Common challenges and mitigation strategies
  • Real business examples

It’s a must-attend webinar for all procurement pros looking to deliver higher savings, improve supplier performance, mitigate risks, and drive innovation for the enterprise. Register now.

Speakers:

Rajesh Ranjan
Partner and Head of BPS Research
Everest Group

Biju Mohan
Vice President – Consulting
GEP