Recent IDC research estimated that Procurement BPO services revenue will grow from $2.7 billion in 2010 to $4.2 billion in 2014, with Everest predicting in early 2010 that the market would grow 25% over the year. In the last 12 months we have seen two high profile acquisitions, with Accenture acquiring the BPO assets of Ariba for $51 million to strengthen their position in leading the Procurement BPO market and CapGemini acquiring IBX. Combined with the focus on Procurement BPO by Indian providers based on the buy side, one can understand the growth predictions.
However, Procurement BPO has long been identified by those in the industry, as an area that has not grown at the pace expected in recent years, and this can be explained through three key reasons:

1. COMPLIANCE: A large proportion of the savings achievable in Procurement is driven through compliance of the organisation to spend policies. You can agree a value for money contract with a stationary provider, but if the organisation uses a different provider, then this was as useful as a white crayon. Whilst certain organisations ensure compliance very well e.g. IBM with their “three strikes and you are out!” policy for non compliant spend, many do not have the appetite to face the behavioural change required across the organisation to deliver the savings desired.

2. ORGANISATIONAL DYNAMICS: The role of a Chief Procurement Officer (CPO) is much different to that of a CFO or the Head of HR. It is focused on ensuring compliance and providing value for money on direct and indirect spends. Too often, it is portrayed that outsourcing elements of Procurement will only weaken their strategic position in the company. Hence, when the CPO is a key decision maker or influencer, we find that more often than not, the suggestion to the board is that they can deliver the savings themselves!

3. SUPPLIER RELATIONSHIPS: Organisations fear that by outsourcing their procurement services, they lose control of their supplier relationships, and worry that whilst delivering some savings in costs, these may be offset by deterioration in service. Whilst this is important in indirect spend, it is critical in direct spend.

That said, the success of Procurement BPO for the provider community does not necessarily require adding a large number of customers, it is more about adding customers that have enough spend and trust in their outsourcing partner to enable them to review various categories.
We expect that the growth will not be as high as predicted by IDC, but providers will increasingly challenge clients on their comfort in outsourcing procurement activities.

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