GEP Value Trends Procurement Outsourcing

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Which procurement activities are larger and mid-sized companies most likely to outsource and which ones do they prefer to keep in-house? Procurement research firm ISG and GEP provide you answers and insights in a new research report on procurement outsourcing in North America and Europe.

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<ul><li> 1. NEWRESEARCHREPORT </li> <li> 2. GEP Value Trends: Procurement OutsourcingThird in a Research Series on Procurement from Information Services Group and GEP September 2012 ISG research conducted in conjunction with: Copyright 2012, Information Services Group, All Rights Reserved </li> <li> 3. IntroductionISG undertook a research in June 2012 in with support from GEP to provide insights to CPOs and otherProcurement executives in an effort to assist them in understanding some of the key issues facing otherprocurement organizations. Additional goals were to provide insights to steps that they might take to addresssome of these issues and to move their organizations to the next level in delivering value to their companies.Respondents to the survey were primarily based in North America with 28 percent of respondents representingother geographies. Respondents included leaders from the financial services, healthcare and pharmaceuticals,business services, manufacturing, energy, government and public sector, media and telecom, retail and traveland transportation sectors. Fifty-nine percent of respondents were from businesses of more than $5B in annualrevenue and respondents were generally CFOs, CPOs or their direct reports.The research focused on three key aspects affecting the procurement function: Procurement Strategy: Key Challenges and Transformation Drivers Procurement Technology and Implementation Procurement OutsourcingIn this three part series, we bring to you insights from the research covering these three aspects, one at a time.These insights reflect the voice of numerous procurement leaders across several industries and can be aneffective tool in benchmarking your own procurement organization.In the first report, we focused on key challenges faced by procurement executives today, areas they perceive asopportunities for improvement and top priorities for procurement executives at this time. The second reportprovided insights into Procurement Technology and Implementation trends including type of procurementsoftware most actively used today, trends in procurement software adoption, trends in software deployment modeland the importance of brand in software provider selection.This report, the last in the three-part series provides insights into: Adoption trends in procurement BPO Procurement outsourcing drivers and preferences Satisfaction with procurement BPO offerings Cross-functional participation and key decision makers for procurement outsourcing Executive relationship role in procurement outsourcing decisions and Importance of brand in service provider selection 2 Copyright 2012, Information Services Group, All Rights Reserved </li> <li> 4. Survey Approach and RespondentsRespondents to the survey were primarily based in North America with 28 percent of respondents representingother geographies. Respondents included leaders from the financial services, healthcare and pharmaceuticals,business services, manufacturing, energy, government and public sector, media and telecom, retail and traveland transportation sectors. Fifty-nine percent of respondents were from businesses of more than $5B in annualrevenue and respondents were generally CFOs, CPOs or their direct reports. It should further be noted thatrespondents tended to be from organizations that participate in forward-thinking professional societies and aretherefore likely to have a higher degree of awareness of more advanced trends in procurement. Organizationsthat do not actively participate in such societies may therefore be underrepresented in the survey. 3 Copyright 2012, Information Services Group, All Rights Reserved </li> <li> 5. Procurement BPOProcurement BPO has matured significantly since the earlier focus on it as primarily an F&amp;A activity. Increasingly,solutions have become more focused on capability growth and expansion rather than being driven by significantreplacement of internal staff to reduce the expense of procurement operations. By focusing on better managing acompanys spend, Procurement BPO providers have been able to attract clients interested in expanding theirmanaged spend capabilities to other geographies and lines of business. The key drivers of this trend are primarilyfocused around acquiring scarce skills, improving processes and better support for internal business units. Inother research conducted by ISG we have observed significant growth in the use of Procurement BusinessProcess Services since 2008. While many companies are not currently considering Procurement BPO, we havealso observed this percentage decreasing over time as Procurement BPO becomes better understood in themarketplace.Currently, Contract Management and Transactional Procurement have a higher adoption rate for procurementBPO with 14 percent of respondents reporting that they have fully implemented these services. Procurement BPO Adoption Trends Current Planned 14% 24% Contract Management Transactional Procurement 9% 53% 14% 21% Transactional Procurement Contract Management 9% 56% 12% 20% Spend Analysis Spend Analysis 11% 57% 7% 18% Sourcing Sourcing 16% 59% 7% 18% Vendor Management Vendor Management 5% 70% Fully implemented Currently implementing Considering implementing Not considering implementing Source: ISG Procurement Technology and Outsourcing Trends Survey March 2012 n = 57 # To what level has your organization implemented the following procurement BPO activities? 4 Copyright 2012, Information Services Group, All Rights Reserved </li> <li> 6. We observed considerable similarity in adoption of various procurement BPO solutions by industry, notably asignificantly lower use of vendor management in financial services, healthcare and pharmaceuticals andmanufacturing. Procurement BPO Adoption Trends by Industry Financial Services (n = 18) Healthcare &amp; Pharmaceuticals (n = 10) Spend Analysis 11% 11% 0% 78% Spend Analysis 20% 10% 10% 60% Contract Management 22% 0% 17% 61% Contract Management 20% 0% 10% 70% Vendor Management 11% 6% 11% 72% Vendor Management 0% 10% 90% Sourcing 6% 6% 23% 65% Sourcing 0% 20% 20% 60% Transactional Procurement 5% 0% 28% 67% Transactional Procurement 30% 10% 10% 50% Business Services (n = 10) Manufacturing (n = 6) Spend Analysis 10% 20% 20% 50% Spend Analysis 0% 33% 67% Contract Management 10% 30% 10% 50% Contract Management 0% 16% 17% 67% Vendor Management 10% 10% 20% 60% Vendor Management 0% 17% 83% Sourcing 10% 10% 20% 60% Sourcing 16% 17% 0% 67% Transactional Procurement 30% 0% 20% 50% Transactional Procurement 0% 33% 0% 67% Fully implemented Currently implementing Considering implementing Not Considering implementing Source: ISG Procurement Technology and Outsourcing Trends Survey March 2012 # To what level has your organization implemented the following procurement BPO activities?Third party procurement management services (Procurement BPO) are increasingly being adopted for a variety ofreasons. Chief among them is improved focus on sourcing and other subject matter expertise, followed by bestpractice processes to better support the business. Adding capacity was also relatively highly ranked, butachieving savings through labor arbitrage was a relatively weaker driver. This is consistent with trends that wehave seen in the industry, where procurement BPO is primarily being implemented as a method to improve orexpand capabilities. While organizations are certainly focused on managing their costs of delivery of theseservices, the net trend is one of investment in procurement, with an increasing tendency to buy vs. build additionalcapabilities. 5 Copyright 2012, Information Services Group, All Rights Reserved </li> <li> 7. We also looked at preferences in the types of service providers being used to deliver Procurement BPO. Ingeneral, the greatest percentage of buyers preferred multifunction service providers who provide procurementand other services. We saw clear patterns emerge depending upon whom in the organization we asked and whattheir primary priorities were. Those who leaned toward multifunction providers tended to have a higher focus onreducing the cost of procurement and a lower focus on achieving sourcing savings. Procurement specialistproviders were the clear preference among respondents who ranked the achievement of sourcing savings high.The chief driver among CPOs was adding staff/capacity, while the chief driver at the manager level was processbest practices.The following series of graphics highlights the procurement outsourcing drivers and preferences of respondentsaccording to their organizational size, role and industry segment. Procurement Outsourcing Drivers and Preferences Drivers Improved focus and skills needed on sourcing and other subject 23% matter expertise Need for process best practices to better support business 23% Adding capacity to existing team vs. hiring 21% Savings in resource costs/labor arbitrage 19% Accelerate sourcing savings 14% n = 57 Preferences Multi-function service providers who support procurement and 37% other business functions as well Provider of procurement software and services 23% Provider of procurement software and services as well as multi- 20% function service pr...</li></ul>