Everest's Facts and Figures: Procurement Outsourcing

In a feature profiling their recent webcast on Tekrati, Everest shares some useful facts and figures on the procurement BPO or managed services marketplace. According to the article, procurement outsourcing "expenditure has grown at over 35 percent in 2006 and represents an annual managed spend of nearly US$40 billion." Everest's research suggests that the most deal activity has been in manufacturing, consumer products, and financial services in the past 2 years with "Europe [witnessing] substantial PO activity". Based on their coverage of "actual PO deals tracked", Everest believes that, "nearly 65-80% of this indirect spend can be outsourced to an outsourcing supplier. This includes most indirect categories like offices supplies, MRO, advertising and promotion, IT, facilities, professional services, and HR services."

But don't think for a minute that low cost labor is the key driver of procurement outsourcing (though one could argue on the procure-to-pay side, it's better have Dilbert-like clerks anywhere but in expensive Western countries). According to Everest, "while labor arbitrage is the key lever that suppliers utilize in FAO, in PO the most important value creation lever is people expertise." Earlier this month, I heard a second hand story from an executive in the sector who related a tale from a fellow executive at a large outsourcer that their firm's biggest challenge was hiring senior talent -- not signing deals. If anything speaks to the growth prospects of procurement BPO in the coming years, it's the huge demand and thirst for talent to manage such efforts, not simply uncovering and selling procurement outsourcing opportunities.

- Jason Busch