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Topic: Procurement Outsourcing (PO) – Annual Report 2013: Expertise and Technology Driving Growth
Procurement Outsourcing (PO) Annual Report – June 2013
EGR-2013-1-R-0889
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Healthcare
Information technology
Finance & accounting
Procurement
Banking, financial services, insurance
Global sourcing
Cloud Vista
Human resources Recruitment process
Transaction Intelligence PricePoint Service provider
Intelligence
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How to read this document
A section is devoted to each dimension of summary of key messages (listed above) Each section contains detailed charts on relevant topics within each dimension Refer to the table of contents (pages 4 and 5) to identify relevant topics covered
within each section Summary pages at the beginning of each section cover the key trends
The section provides Everest Group’s outlook on the PO market for 2013
Acronyms or technical outsourcing terms are defined in the glossary of terms (appendix)
Refer to the related Everest Group’s PO research publications listed in references (appendix)
Where/how to locate the information Information desired
Outlook for 2013
Summary of key messages
Key facts or analyses related to a specific topic
Definition for unfamiliar terms and related research
The section on key insights summarizes the PO market insights The key insights are categorized along four dimensions:
– Market size and buyer adoption – Value proposition and buyer satisfaction – Solution characteristics – Service provider landscape
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Table of contents (page 1 of 2)
Section I: Introduction and overview 6 Section II: Summary of key messages 12 Section III: Market size and buyer adoption 17 Summary 18 Market size and growth 19 Inorganic and organic growth trends 21 Contract size and duration 25 Adoption trends by:
– Buyer industry, size, and geography 26 – Geographic scope 29 – Contract sourcing process 30
Section IV: Value proposition and buyer satisfaction 31 Summary 32 PO drivers and value proposition 33 Buyer satisfaction 36 Contract terminations and challenges in contract renewals 38 Section V: Solution characteristics 40 Summary 41 Solution characteristics
– Process scope 42
Topic Page no.
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Table of contents (page 2 of 2)
Section V: Solution characteristics (continued) – Category scope 49 – Global sourcing 53 – Role of technology 55 – Pricing structure 57 – Performance metrics 58
Section VI: Service provider landscape 60 Summary 61 Market share 62 Market share acquired in 2012 64 Service provider investments in 2012 65
Section VII: Outlook for 2013 67 Appendix 70 Publicly announced contracts in 2012 71 Glossary of terms 72 PO research calendar 74 References 75
Topic Page no.
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Contents
Introduction and overview
Summary of key messages
Market size and buyer adoption
Value proposition and buyer satisfaction
Solution characteristics
Service provider landscape
Outlook for 2013
Appendix
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Our research methodology is based on four pillars of strength to produce actionable and insightful research for the industry
Market thought leadership Actionable and insightful research Syndicated and custom research deliverables
Proprietary contractual database of 620+ PO contracts (updated annually) Year-round tracking of 20+ PO service providers Large repository of existing research in PO Dedicated team for PO research, spread over two continents Over 20 years of advising clients on PO related decisions Executive-level relationships with buyers, service providers, technology providers, and industry associations
Robust definitions and frameworks (Procurement pyramid, multi-process PO definition, TVE – Total Value Equation, PEAK Matrix, and market maturity)
1 Primary sources of information (Annual contractual and operational RFIs, service provider briefings, buyer interviews, and web-based surveys)
2 Diverse set of market touchpoints (Ongoing interactions across key stakeholders, inputs from a mix of perspectives and interests, supports both data analysis and thought leadership)
3 Fact-based research (Data-driven analysis with expert perspectives, trend-analysis across market adoption, contracting, and service providers)
4
F&A strategy
Internal auditBudgeting/forecasting
Treasury & risk management
Capital budgeting
Accounts receivable
TaxFixed assets
Payroll Accounts payable and T&E1
Regulatory reporting & complianceManagement reporting & analysis
General accounting
Impact on value proposition to market
Impact on efficiency or effectiveness of process
Impact on cost of process
Low High
High
Low
Strategic focus
Proc
ess
expe
rtis
e
Domain expertise
1x
0.1x
10x
Services Industry
Service Enablers
Service ProvidersEnterprises
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Procurement pyramid (non-core spend)
Everest Group distinguishes between Source-to-Contract (S2C) and Procure-to-Pay (P2P) processes
S2P strategy
5. Day-to-day purchasing
7. Accounts payable
6. Performance management
8. Procurement systems
1. Spend data mgmt. 2. Strategic sourcing
3. Vendor management
4. Demand management
Strategy
Judgment-intensive
Transaction-intensive
Everest Group’s analyses include multi-process PO contracts with a minimum of three procurement processes, over US$1 million in Annualized Contract Value (ACV), and a minimum contract term of three years. Typically, managed spend is greater than US$50 million
Everest Group’s analyses include all multi-process PO contracts signed as of 2012
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The Source-to-Pay (S2P) process spans the entire procurement function
Procurement pyramid (non-core spend)
S2P strategy
5. Day-to-day purchasing
7. Accounts payable
6. Performance management
8. Procurement systems
1. Spend data mgmt. 2. Strategic sourcing
3. Vendor management
4. Demand management
Strategy (done in-house) Mission/corporate strategy Business strategy Geographic strategy Technology strategy
Strategy
Judgment-intensive
Transaction-intensive
Strategic sourcing Sourcing strategy Vendor selection Contracting Sourcing implementation Category management
Spend data management Baseline analysis Data “cube” construct Opportunities definition
Day-to-day purchasing Approval workflow Material requisition Purchase order Expediting/
troubleshooting Material/invoice receipt Invoice payment
1
2
5
Vendor management Vendor relationship
management Contract administration Service level/standards
monitoring
3
Demand management Specifications/standards Transformation/change
management Process and systems
implementation
4
Procurement systems E-auctions Catalog management Solution hosting
8 Performance management Financial performance Compliance management Policies and procedures Performance and results
reporting
Accounts payable Master data maintenance Process payment request T&E claims processing EDI/P-card administration Month-end closing Vendor inquiries Reporting
6 7
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Beyond the process dimension, PO contracts also have “procurement-spend category” dimension
Direct spend
Indirect spend
Core spend
Non-core direct spend
Non-core spend
Goods and services that are key ingredients to manufacture/deliver the final product/service
They are proprietary or specific to the organization For example: Iron-ore for a steel manufacturer and
rubber for a tyre manufacturer
Source-to-contract (S2C)
Procure-to-pay (P2P)
Source-to-pay (S2P) cycle
Goods and services that are commonly required to manufacture/deliver the final product/service
They are commodities in that industry For example: Lubricants, packaging, and
Maintenance, Repair, and Overhaul (MRO)
Non-production goods and services that are not required to manufacture/deliver the final product/service but are required to operate the organization
For example: Spend categories such as facilities, office supplies, travel and logistics, marketing/sales-related spend, and IT/telecom
Prevalence of third-party outsourcing
Low prevalence of third-party outsourcing
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Everest Group’s proprietary database of 390+ multi-process PO contracts (updated annually)
The database tracks the following elements of each multi-process PO contract: – Buyer details, including industry, size, and signing region – Contract details, including TCV, ACV, term, start date, managed spend, and pricing
structure – Scope, including coverage of buyer geography, process, and category – Technology, including core procurement technology, service provider’s add-on tools
(if any), ownership, and maintenance – Global sourcing, including delivery locations and level of offshoring
Everest Group’s proprietary database of operational capability of 20+ PO service providers (updated annually)
The database tracks the following capability elements for each service provider: – Key leaders – Major PO clients and recent wins – Overall revenues, total managed spend, and PO employees – Recent PO-related developments – PO revenue-split by geography, industry, and client size – PO delivery locations – PO service suite – Quality certifications – Procurement-related technology capability
Everest Group’s PO research is based on various sources of proprietary information
1
2
Service providers covered in the analysis
Ongoing buyer surveys and interactions – Everest Group’s executive interview and data collection from 20+ PO buyers – The data contains the following detailed buyer perspective about PO contracts: Drivers for adopting PO and assessment of service provider performance The level of buyer satisfaction and the underlying reasons
3
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Contents
Introduction and overview
Summary of key messages
Market size and buyer adoption
Value proposition and buyer satisfaction
Solution characteristics
Service provider landscape
Outlook for 2013
Appendix
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Summary of key messages (page 1 of 4)
Market size and buyer adoption
The PO market in 2012 grew at 10%, reaching US$1.72 billion in ACV representing around US$220 billion of managed procurement spend. Cumulative TCV reached US$13.1 billion
52 new multi-process PO contracts and 46 extensions / renewals were signed in 2012 demonstrating a healthy market
Renewals and extensions accounted for nearly 60% of the PO growth in 2012. Contracts worth nearly US$6 billion (in terms of TCV) will be up for extension in the next four years
The average contract size (around US$14 million in TCV) continued to remain similar to the last few years
Manufacturing, financial services, hi-tech & telecom, and Consumer Packaged Goods (CPG) & retail were the top four industries in terms of PO adoption in 2012
While large buyers continue to dominate adoption, 2012 witnessed increased adoption from Small and Medium-sized Businesses (SMB)
United States accounted for nearly 50% of all PO contracts signed in 2012. The share of Continental Europe and Asia Pacific increased in the last two years. Germany and Australia were the leading adopters in these geographies
Nearly 40% of the new TCV signed in 2012 had a global coverage compared to around 30% in past years
Most PO contracts are competitively bid. Advisor-led contracts are typically large-sized contracts
Components of PO ACV growth in 2012 US$ billion
Contracts that completed
term in 2012
1.31
0.25
0.19
1.72
2011 Terminations Renewals and extensions
New contracts 2012
10% YoY growth
Inorganic growth
accounted for 40% of the 2012 growth
3% of the contract
value was terminated
in 2012
Organic growth
contributed 60% to ACV
growth in 2012
1.56
0.25
<0.1
<0.1
Mid-term terminations
End-of-term terminations
Distribution of PO contracts by buyer regions served Number of contracts
58%
33%
35%
31%
19%
6%
64%
33%
30%
22%
14%
3%
North America
UK
Continental Europe
Asia Pacific
Latin America
Middle-east and Africa
Up to 2010 2011-2012
Sign
ifica
nt in
crea
se
in c
over
age
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Summary of key messages (page 2 of 4)
Value proposition and buyer satisfaction
Drivers: Spend reduction in S2C and operational cost reduction in P2P continue to be the main drivers for PO. Other important drivers include scalability/flexibility, category expertise, process standardization, and access to better technology
Business case: The cost base addressed by PO is constituted primarily by non-core procurement spend. This cost base represents 5-15% of an organization’s revenue and the typical savings of 5-10% results in significant bottom-line impact. However, an end-to-end S2P scope is required to maximize value creation
Buyer satisfaction: The overall satisfaction level is high (over 80% buyers rated their service provider with 4 or more on a 5 point customer satisfaction score). However, nearly 40% of the clients interviewed seek more category expertise and better stakeholder management from their service providers
Contract terminations: Nearly 20% of PO contracts that came up for renewal in 2012 were terminated. Consequently, clients and service providers are considering several approaches to capture value from second/third generation PO contracts. Beyond expansion of process, category, and/or geographic coverage, stakeholders are also evaluating other adjacencies such as Finance and Accounting (F&A) and supply chain
Costs influenced as a percentage of revenue
Percentage
PO
FAO
HRO
5.0-15.0
0.5-1.5
0.5-1.0
Contracts extended/renewed
45
Contracts terminated
(end-of-term)
100% = ~0.3
82% 89%
18% 11%
Number of contracts ACV (US$ billion)
End-of-term activity for PO contracts in 2012 Percentage of contracts ending term in 2012
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Summary of key messages (page 3 of 4)
Solution characteristics
PO buyers are increasingly starting with an end-to-end S2P scope (~18% in 2012 versus ~10% in previous years). PO engagements that started from S2C are also expanding into end-to-end S2P during renewals/extensions
The Finance and Accounting Outsourcing (FAO) and PO markets are starting to converge. Nearly a third of FAO contracts signed in 2012 had procurement processes in scope
Analytics is playing an invasive role in PO. Beyond spend analytics, adoption of other analytics offerings such as profit recovery, category intelligence, and demand analytics is increasing
While PO continues to focus on non-core spend, inclusion of direct spend in PO contracts is on the rise. MRO is the most commonly outsourced direct/core category. Outsourcing of tail-end spend management is also increasing
PO contracts are also expanding to adjacent supply chain processes such as order management and fulfillment, logistics, inventory management, returns management, and master data management
Level of offshoring in PO is increasing. Offshorability of P2P is higher (~70%) than S2C (~30%)
Service providers are creating/expanding capabilities across the globe. In 2012, Central & Eastern Europe and China & Southeast Asia are the regions that exhibited highest growth in delivery headcount
Augmentation is the predominant technology model in S2C while most P2P outsourcing leverages a tie-and-run technology model. The demand for BPaaS and platform-based PO solutions is starting to increase
A combination of managed service fee with some skin-in-the-game (or gain sharing) for the service provider is the most common pricing model
Performance metrics for P2P are more efficiency focused versus S2C that are more focused on effectiveness
38% 16%
53%
66%
9% 18%
2007-2011 2012
233 52 100% =
Source-to-Pay (S2P)
Source-to-Contract (S2C) focused
Procure-to-Pay (P2P) focused
Snapshot of PO contracts over time by process focus Number of new contracts
Direct spend
Indirect spend
Core spend
Non-core direct spend
Non-core spend
Source-to-Contract (S2C)
Procure-to-Pay (P2P)
Source-to-Pay (S2P) cycle
Typical scope of PO engagements
1.Outsource non-core direct spend
2.Outsource transactional or P2P-related activities for
direct spend
3.Outsource tail-end of direct spend
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Summary of key messages (page 4 of 4)
Service provider landscape
IBM and Accenture continue to lead the PO market with more than 50% market share (by ACV)
However, the competitive landscape is intensifying. The market share of the top two service providers declined from 61% in 2008 to 52% in 2012
Accenture, GEP, IBM, Infosys, Procurian, and Xchanging added nearly 90% of the TCV added in 2012
BPaaS / platform-based solutions, building sourcing expertise, and delivery footprint expansion are the top three investment themes for PO service providers
More detailed analysis of the PO service provider landscape including PEAK Matrix will be published in the near future, in upcoming reports
Market share of the top two PO service providers (Accenture and IBM) over time Percentage of market size (active ACV)
Multi-process PO contract signings in 2012 Percentage of contracts
61% 56%
52%
2008 2010 2012
52 new contracts 100% =
15%
8%
10%
13%
12%
10%
2%
8%
4%
6%
13%
24%
11%
11%
17%
13%
2%
4%
2%
15%
IBM
Accenture
Procurian
Infosys
GEP
Xchanging
Proxima
Corbus
Optimum Procurement
Others
Extensions/renewals New contracts
46 extensions/renewals
Genpact
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Introduction and overview
Summary of key messages
Market size and buyer adoption – Summary – Market size and growth – Inorganic and organic growth trends – Buyer adoption by industry, size, and geography – Geographic scope – PO contract sourcing trends
Value proposition and buyer satisfaction
Solution characteristics
Service provider landscape
Outlook for 2013
Appendix
Contents
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Market size and buyer adoption – summary
The United States leads PO adoption (53% contracts in 2011-2012 by signing region)
Adoption is dominated by large organizations (60% contracts in 2012)
The manufacturing industry continues to be the largest adopter of PO (25% TCV in 2012)
Competitive sourcing process is favored over sole-sourcing (71% contracts in 2012 were competitively bid)
Average deal length varies between three and five years
Stable growth of ~10% (52 new contracts signed in 2012); 2012 market size – US$1.72 billion ACV
Both organic growth (extensions/renewals) and inorganic growth (new contracts) contribute to ACV growth
Average ACV continues to be stable at around US$3.3 million
Adoption by emerging geographies such as Asia Pacific, Continental Europe, and Latin America is rising
Nearly a third of PO contracts are advisor-led. Average TCV of advisor-led contracts is ~25% higher than the average for non-advisor led contracts
Adoption by the SMB segment increased (13% contracts in 2012 compared to 9% in 2009-2011)
Adoption by financial services and hi-tech & telecom industries increased
Global coverage of PO contracts increased (37% of the new TCV signed in 2012 is for contracts that serve buyer operations in multiple continents compared to ~30% in the past)
Continuation of historical PO trends observed over the last
10-15 years
Continuation of emerging PO trends observed over the last
2-3 years New developments in 2012
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177 200
23 20
2011 2012
9.6 11.5
1.9 1.6
2011 2012
281 344
63 52
2011 2012
December 2011 December 2012
The PO market (ACV) exhibited steady growth of 10% in 2012, with cumulative TCV growing at 14%
New PO contract signings decreased in 2012 Number of contracts
Active ACV in 2012 increased by 10% to reach US$1.72 billion Active ACV in US$ billion
Cumulative TCV reached US$13.1 billion – an increase of 14% from 2011 TCV in US$ billion
PO managed spend increased to US$220 billion, however, YoY growth decreased to 10% Managed spend in US$ billion
22% 344
396 15%
13%
200 220
10%
20% 11.5
13.1 14%
13%
10%
Sample size: 396 new multi-process PO contracts signed as of 2012 Source: Everest Group (2013)
1.56
1.72
Activity in 2012
Cumulative activity till date
xx% Annual growth
Activity in 2011
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1.7 2.5 3.3 5.7 7.3 8.3 9.6 11.5 0.7 0.9 2.4 1.6 1.0 1.3
1.9 1.6
2005 2006 2007 2008 2009 2010 2011 2012
44 75 121 146 159 177 200
220
2005 2006 2007 2008 2009 2010 2011 2012
Snapshot of active ACV for PO contracts over time ACV in US$ billion
Snapshot of cumulative TCV for PO contracts over time TCV in US$ billion
New TCV signed in 2012
Snapshot of spend managed in new PO contracts over time Managed spend in US$ billion
Sample size: 396 new multi-process PO contracts signed as of 2012 Source: Everest Group (2013)
0.34 0.57 0.94 1.13 1.26 1.38 1.56 1.72
2005 2006 2007 2008 2009 2010 2011 2012
The multi-process PO market reached US$1.7 billion in 2012 (in terms of active ACV) representing nearly US$220 billion of managed procurement spend
Cumulative TCV through 2011
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Both organic and inorganic factors contributed to ACV growth in 2012
Components of PO ACV growth in 2012 US$ billion
Contracts that completed
term in 2012
Sample size: 396 new multi-process PO contracts signed as of 2012 Source: Everest Group (2013)
1.31
0.25
0.19
1.72
2011 Terminations Renewals and extensions
New contracts 2012
10% YoY growth
Inorganic growth
accounted for 40% of the
2012 growth
3% of the contract value
was terminated in
2012
Organic growth
contributed 60% to ACV
growth in 2012
1.56
0.25 0.2
<0.1
<0.1
Mid-term terminations
End-of-term terminations
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8
19 19
39 42 34
44 50
63
52
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Snapshot of new multi-process PO contracts over time Number of new contracts
Some publicly-announced new contracts in 20121
Accenture – Amprion Genpact – Sanofi S.A. Optimum Procurement – GSH Group Procurian – CoreLogic, Diebold, McCain
Foods, and Zurich Financial Services
1 For further details on the contracts, refer to the appendix Sample size: 396 new multi-process PO contracts signed as of 2012 Source: Everest Group (2013)
Fifty-two new contracts were signed in 2012 – lower than the record number of contracts signed in 2011, but still representing a healthy market
1.31
0.25 0.19
1.72
0.25
2011 Terminations Renewals and extensions
New contracts 2012
1.56
<0.1
<0.1
Components of PO ACV growth in 2012 US$ billion
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Forty-six PO contracts were extended/renewed in 2012
Snapshot of extended/renewed multi-process PO contracts over time Number of new contracts
Some publicly-announced extended/renewed contracts in 2012
IBM – Unilever Procurian – Hertz and Timken Xchanging – BAE Systems (UK) and United
Biscuits
Sample size: 396 new multi-process PO contracts signed as of 2012 Source: Everest Group (2013)
1.56
<0.1
<0.1
Components of PO ACV growth in 2012 US$ billion
1.31
0.25 0.19
1.72
0.25
2011 Terminations Renewals and extensions
New contracts 2012
4 2 3 6
18 20
31 39
59
46
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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End-of-term situations in the next four years will significantly influence the market growth
36% 23%
13%
11% 8%
9% 100%
Up to 2012 2013 2014 2015 2016 On or after 2017
Total
Contracts worth US$6 billion (in terms of TCV) will be up for extension in the next four years
Share of PO relationships up for extension Percentage of contracts
Sample size: 396 new multi-process PO contracts signed as of 2012 Source: Everest Group (2013)
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Average TCV of new PO contracts 2009-2012; US$ million
Average ACV of new PO contracts 2009-2012; US$ million
Average term of new PO contracts 2009-2012; Number of years
14.9 13.1 13.5 15.0
2009 2010 2011 2012
Average = 14.1
3.4 2.9 3.2 3.8
2009 2010 2011 2012
4.3 4.2 4.2 3.9
2009 2010 2011 2012
Average = 3.3
Average = 4.1
Average contract size continued to remain similar to the last few years
Sample size: 396 new multi-process PO contracts signed as of 2012 Source: Everest Group (2013)
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PO adoption by buyer industry Adoption by financial services and hi-tech & telecom increased in 2012
Distribution of new PO contracts by buyer industry TCV in US$ billion
Manufacturing
CPG & retail
Energy & utilities
Financial services
Hi-tech & telecom
Others1
5.5 100% = 2.1
25% 32%
16%
11% 5%
26%
16% 9%
21%
22% 28%
15% 5%
15% 3%
21% 11%
19%
Up to 2008 2009-2011 2012
1 Include hospitality, public sector, media, travel & logistics, pharmaceuticals, and other services Sample size: 384 new multi-process PO contracts signed as of 2012 Source: Everest Group (2013)
0.8
Examples of buyers adopting PO in 2012
Miami University, CoreLogic, Sanofi, NHS, and GSH Group
Zurich Insurance
Diebold
P&G, Sun Products Corporation, and McCain Foods
Amprion
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PO adoption by buyer size Both large and SMB markets witnessed increased adoption in 2012
Distribution of PO contracts by buyer size Number of new contracts signed
1 Revenue greater than US$5 billion 2 Revenue between US$1-5 billion 3 Revenue less than US$1 billion Sample size: 369 new multi-process PO contracts signed as of 2012 Source: Everest Group (2013)
Large market1
Mid-market2
SMB3
100% =
65% 54% 60%
27% 37% 27%
8% 9% 13%
Up to 2008 2009-2011 2012
168 153 48
GSH Group
CoreLogic and Diebold
Amprion, Harley Davidson, McCain Foods, Sanofi S.A., and Zurich Financial Services
Examples of buyers adopting PO in 2012
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59% 53%
17% 14%
15% 17%
7% 10%
3% 4%
Up to 2010 2011-2012
PO adoption by buyer geography PO activity in Asia Pacific, Continental Europe, and Latin America is rising
Distribution of PO contracts by buyer signing region Number of contracts (new and extensions/renewals)
1 Middle East and Africa Sample size: 564 multi-process PO contracts (new and extensions/renewals) signed as of 2012 Source: Everest Group (2013)
North America
UK
Continental Europe
100% = 197
Asia Pacific Latin America
364 MEA1 (1%)
France
Others
PO market adoption in different geographies 2010-2012; Percentage of contracts by signing country
Germany
Switzerland
Spain 60% 20%
10% 10%
Argentina
Brazil Chile
Mexico
41%
38%
6% 9%
6%
India
Australia
Others
China
Korea
Europe (excluding UK) Latin America
Asia Pacific
27%
24% 18%
15%
15%
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58%
33%
35%
31%
19%
6%
64%
33%
30%
22%
14%
3%
North America
UK
Continental Europe
Asia Pacific
Latin America
Middle-east and Africa
PO contracts with global scope has shown an increase in 2012
Distribution of PO contracts by geographic scope TCV in US$ billion
Sample size: 625 multi-process PO contracts (new and extensions/renewals) signed as of 2012 Source: Everest Group (2013)
Local/ regional
11.1 1.6
Contracts serving buyer operations in multiple continents
Contracts serving buyer operations in one country/ continent
Global
Distribution of PO contracts by buyer regions served Number of contracts
Up to 2010 2011-2012 100% =
69% 63%
31% 37%
Up to 2011 2012
Sign
ifica
nt in
crea
se
in c
over
age
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Most PO contracts are competitively bid. Advisor-led contracts are typically large-sized
Distribution of PO contracts by sourcing method Number of new contracts
Sample size: 180 new multi-process PO contracts signed in 2009-2012 Source: Everest Group (2013)
Competitive-bid
Sole-sourced
100% = 42
66% 71%
34% 29%
2009-2011 2012
138
Distribution of PO contracts by sourcing support Number of new contracts
Non-advisor led
100% = 37
67% 70%
33% 30%
2009-2011 2012
123
Advisor-led
Average TCV of advisor-led contracts is in general 25% higher than the average for non-advisor led contracts
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Contents
Introduction and overview
Summary of key messages
Market size and buyer adoption
Value proposition and buyer satisfaction – Summary – PO drivers and value proposition – Buyer satisfaction – Contract terminations and challenges in contract renewals
Solution characteristics
Service provider landscape
Outlook for 2013
Appendix
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Value proposition and buyer satisfaction – summary
Spend reduction for S2C and operational cost reduction for P2P continue to be the main value drivers
The cost base addressed by end-to-end S2P outsourcing is significantly larger than most other BPOs as PO addresses the non-core procurement spend (and not just the operational costs)
S2C constitutes 60-80% of the overall savings from PO but a truly end-to-end S2P scope is required to capture the full value from a PO initiative
Access to category expertise, flexibility/scalability, and integrated end-to-end view are emerging as important outsourcing objectives
The overall satisfaction level across PO buyers is high (over 80% buyers rated their service provider with 4 or more on a 5 point customer satisfaction score)
Contract renewals in PO offer challenges. Nearly 20% of PO contracts, which came up for renewal in 2012, were terminated
Access to better technology is emerging as an important driver for PO
Clients seek more expertise and better stakeholder management from their service providers
Clients and service providers are considering several approaches to capture value from second/third generation PO contracts. Beyond expansion of process, category, and/or geographic coverage, stakeholders are also evaluating other adjacencies such as F&A and supply chain
Continuation of historical PO trends observed over the last
10-15 years
Continuation of emerging PO trends observed over the last
2-3 years New developments in 2012
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8%
8%
33%
34%
46%
38%
33%
15%
18%
58%
54%
54%
34%
85%
82%
Cost and spend reduction continue to be the main drivers for PO. However, the extent of value creation varies with the process scope
Strategic impact
Direct-cost impact
Dimensions of Everest Group’s Total Value Equation (TVE)
Process/ business
impact
Increased scalability/flexibility
Access to expertise
Standardization and harmonization
Access to better technology
Operating cost reduction
Spend reduction
Key drivers to outsource procurement Percentage of responses from PO buyers
Less important Important Critical
PO value creation by process scope
Low High Medium
Sample size: 21 PO buyer responses Source: Everest Group (2013)
Examples of value creation
A leading aircraft engines manufacturer was able to integrate operations of acquired companies seamlessly due to its longstanding PO relationship with the service provider
A U.S.-based telecom company acquired sourcing expertise from subject matter experts by outsourcing
An APAC-based telecom company integrated procurement systems and processes, enhancing its ability to negotiate and leverage contracts across the enterprise
A UK-based consumer goods company switched to a hosted platform managed by a service provider, acquiring e-sourcing functionalities
A UK-based private utility company saved US$105 million by reducing the cost of field force operations by 7%
A global manufacturer of electrical products got access to pre-negotiated catalogs reflecting 10-20% unit cost savings
Sourcing-focused P2P-focused
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The cost base for PO is significantly larger than other BPO segments, thereby, making the business case for PO very attractive
Potential savings from an end-to-end PO contract Percentage
P2P-focused S2C
-focused
End-to-end S2P
40-60
10-15
15-25
15-25
Spend unit reduction
External compliance
Total Internal compliance
Operating efficiency
Cost base typically includes procurement spend on non-core categories
Cost base typically includes costs of procurement operations
Costs influenced as a percentage of revenue
Percentage
PO
FAO
HRO
5.0-15.0
0.5-1.5
0.5-1.0
Everest Group’s benchmarking of PO contracts reveals that organizations that leveraged PO realized 5-10% savings on their outsourced procurement spend
Given the large cost base that PO addresses, this translates into a significant RoI – making PO an attractive business case
PO addresses the non-core procurement spend as opposed to only the operational costs addressed by most BPOs
Consequently, the cost base for PO is significantly larger
The business case for PO is attractive
55-85
25-40
Source: Everest Group (2013)
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Savings leakage in a procurement organization Percentage
Spend baseline
Savings profile (potential)
Year 1
Inde
xed
annu
aliz
ed s
pend
Year 5 Life of contract (years)
Savings profile (actual) Realized savings: Actual savings less than potential due to leakage
Savings leakage: Spend creep occurs because of maverick spend, budgetary and demand issues, lack of vendor compliance, and/or operational issues such as duplicate payments
An end-to-end S2P scope is required for maximum value creation
P2P-focused contracts deliver operational efficiency while S2C-focused contracts are able to deliver unit-price reduction
However, the lack of integration between upstream and downstream processes more often than not results in significant savings leakage
Source: Everest Group (2013)
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The overall satisfaction level across PO buyers is high. Most buyers are willing to recommend their providers to others and envisage a long-term relationship
Satisfaction level among PO buyers on a scale of 1-5 (1 = poor and 5 = excellent) Percentage of responses from PO buyers
81%
14%
5%
High (rating of 4 or more)
Low (rating of 2 or less)
Medium (rating of 3)
Buyer willing to recommend their incumbent service provider to other buyers Number of responses from PO buyers
16
1 4
Yes No Undecided
Buyer envisaging a long-term relationship with the service provider Number of responses from PO buyers
15
2 4
Yes No Undecided Sample size: 21 PO buyer responses Source: Everest Group (2013)
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38%
38%
24%
19%
14%
14%
While buyer satisfaction in PO is high, buyers seek more expertise and better stakeholder management from their service provider
Key improvement areas for service providers Percentage of responses from PO buyers
Sample size: 21 PO buyer responses Source: Everest Group (2013)
As buyers gain maturity, they demand deeper expertise in sourcing and category management, along with broader multi-lingual capabilities from service providers
There is a high turnover in the service provider staff, especially at the analyst level
Service providers lack customer focus in their delivery, and do not invest enough in building and managing stakeholder relationships
Domain expertise / language capabilities
Stakeholder management
Internal talent management
Strategic value addition
Unclear scope of contracts
Delivery accuracy
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Contract renewals in PO are challenging. Nearly 20% of PO contracts, which came up for renewal in 2012, were terminated
End-of-term activity for PO contracts in 2012 Percentage of contracts ending term in 2012
Contracts extended/renewed
45
Contracts terminated
(end-of-term)
100% = ~0.3
82% 89%
18% 11%
Number of contracts
ACV (US$ billion)
18% 20%
18%
2010 2011 2012
End-of-term PO terminations over time Percentage of contracts terminated (end-of-term)
Sample size: 141 new multi-process PO contracts reaching end-of-term during 2010-2012 Source: Everest Group (2013)
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Several approaches are emerging to capture value from second- / third-generation PO contracts
There are multiple modes of scope expansion in PO
8. Procurement systems
5
6
3 Expansion of category coverage
Expansion into other geographies and/or business units
Expansion into F&A processes
Expansion into adjacent supply chain activities
4
S2P strategy
5. Day-to-day purchasing
7. Accounts payable
6. Performance management
1. Spend data mgmt. 2. Strategic sourcing
3. Vendor management
4. Demand management ` 1.
Bre
adth
of
cov
erag
e
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Introduction and overview
Summary of key messages
Market size and buyer adoption
Value proposition and buyer satisfaction
Solution characteristics – Summary – Process scope – Category scope – Global sourcing – Role of technology – Pricing structure – Performance metrics
Service provider landscape
Outlook for 2013
Appendix
Contents
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Solution characteristics – summary
Around 20% of PO contracts in 2012 were end-to-end S2P contracts
PO is predominantly focused on indirect or non-core procurement spend
Offshorability of P2P is higher (~70%) compared to S2C (~30%)
Along with category expertise, technology continues to play an invasive role in PO solutions
Performance metrics for P2P are more efficiency focused versus S2C that are more focused on effectiveness
PO buyers are increasingly starting with an end-to-end S2P scope (~18% in 2012 versus ~10% in previous years). PO engagements that start from S2C are also beginning to expand into end-to-end S2P over time
The FAO and PO markets are starting to converge. Nearly a third of FAO contracts signed in 2012 had procurement processes in scope
Inclusion of direct/core spend in PO is
increasing. MRO is the most commonly outsourced direct/core category
Level of offshoring in PO is increasing. A global delivery footprint is emerging
A combination of managed service fee with some skin-in-the-game for the service provider is the most common pricing model
Spend data management is being leveraged to start a broader PO relationship. Beyond spend analytics, adoption of other analytics offerings such as profit recovery, category intelligence, and demand analytics is increasing
Outsourcing of tail-end spend management is increasing
PO contracts are also expanding to adjacent supply chain processes such as order management and fulfillment, logistics, inventory management, returns management, and master data management
Adoption of platform-based and BPaaS solutions is increasing, especially around S2C
Continuation of historical PO trends observed over the last
10-15 years
Continuation of emerging PO trends observed over the last
2-3 years New developments in 2012
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Snapshot of PO contracts over time by process focus Number of new multi-process contracts
1 P2P-focused contracts are those where coverage of P2P-related processes is higher than sourcing-related processes 2 S2C-focused contracts are those contracts where coverage of S2C-related processes is higher than P2P-related processes 3 S2P contracts are those contracts with broad coverage across both S2C and P2P related processes 4 Multi-process PO contracts include contracts with more than two procurement processes in scope, ACV of at least US$1 million and a minimum contract
term of three years Sample size: 640 new multi-process and single-process PO contracts signed between 2005 to 2012 Source: Everest Group (2013)
38%
12%
53%
71%
9% 17%
2007-2011 2012
233 52 100% =
Source-to-Pay (S2P)3
Source-to-Contract (S2C) focused2
Procure-to-Pay (P2P) focused1
The scope coverage of PO engagements is expanding. More contracts are focused on end-to-end S2P
31% 44% 52%
69% 56% 48%
2005-2006 2007-2009 2010-2012
Nature of new PO contracts Number of new contracts
Multi-process contracts4
Single-process contracts
84 218 335 100% =
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Also, PO contracts that start with a focus on S2C, expand to end-to-end S2P over time
Process scope of PO contracts signed in 2010-2012 Percentage inclusion
New contracts Extensions and renewals
81% 86%
80%
66% 65%
27%
77% 73% 79%
68% 77%
49%
Spend data management
Strategic sourcing
Vendor management
Day-to-day purchasing
Performance management
Accounts payable
Source-to-Contract (S2C) Procure-to-Pay (P2P)
Sample size: 308 multi-process PO contracts signed (new and extensions/renewals) between 2010 and 2012 Source: Everest Group (2013)
On an average, ACV of extended/renewed contracts is 10% higher than the original contracts
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The FAO and PO markets are starting to merge, as buyers start to leverage the synergies between F&A and procurement
Procurement of non-core spend
Finance & accounting
Tax
F&A strategy
S2P strategy
Day-to-day purchasing
Performance management
Procurement systems Accounts payable
Internal audit Budget/forecasting Capital budgeting
Treasury & risk management Management reporting & analysis
Regulatory reporting & compliance Fixed assets
Payroll General accounting Accounts receivable
Spend data management
Strategic sourcing
Vendor management
Demand management
Strategy Judgment-intensive Transaction-intensive
With increasing maturity of the FAO and PO markets, FAO contracts are expanding upstream beyond Accounts Payable (AP), while PO contracts are expanding downstream beyond Source-to-Contract (S2C) to include broader scope of P2P activities. This is resulting in increased convergence between the FAO and PO markets
P2P represents a convergence between the F&A and procurement functions
P2P
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Consequently, an integrated approach to FAO and PO is on the rise
8% 10%
7%
15%
2007-2009 2010-2012
Sample size: 498 multi-process PO contracts (new and extensions/renewals) signed during 2007-2012; 728 multi-process FAO contracts Source: Everest Group (2013)
Inclusion of FAO in PO contracts Percentage of PO contracts
New contracts Extensions and renewals
FAO contracts with P2P in scope Percentage of new contracts
12%
18%
26%
32%
2004-2005 2006-2009 2010-2011 2012
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Analytics is increasingly playing a pivotal role in PO relationships
Role of analytics in PO Most PO service providers leverage COTS tools for spend analytics
Spend analytics
Spend analytics helps in evaluating the spend coverage and determining savings potential
There is an increasing trend to include spend analytics in a PO relationship
Profit recovery
Category intelligence
and demand
forecasting
Use of analytical tools to identify processing errors and proactively prevent lost profits and overpayments
Mindset shifting from post-payment recovery to preventive measure
Knowledge management solutions to capture category intelligence
Analytical tools help achieve higher accuracy in demand forecasting – playing a crucial role in determining procurement volumes and demand peaks
Analytics in PO Examples of offerings Accenture’s profit recovery offering (based
on acquisition of Advantium Inc. and Meridian Informed Purchasing Ltd.)
IBM’s audit recovery services HP’s payment recovery service
Examples of offerings TCS’ category Intelligence Hub
(C-Hub) Solution
1
2
1 Ariba acquired by SAP (2012) 2 Emptoris acquired by IBM in 2011 Source: Everest Group (2013)
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78%
40%
22%
60%
Multi-process PO
Single-process PO
75% 86%
25% 14%
Up to 2010 2011-2012
Spend analytics is an integral part of large multi-process PO contracts. However, starting a PO relationship with spend analytics is a growing trend
Spend analytics in scope Inclusion of spend analytics in PO contracts Number of new contracts
Multi-process PO contracts All PO contracts Single-process PO contracts
Multi-process PO contracts include contracts with more than two procurement processes in scope, ACV of at least US$1 million and a minimum contract term of three years. All other PO contracts are classified as single-process contracts
38% 44%
62% 56%
Up to 2010 2011-2012
Sample size: 715 new multi-process and single-process PO contracts signed as of 2012 Source: Everest Group (2013)
Spend analytics not in scope
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PO contracts are also expanding to adjacent supply chain processes
1 165 publicly-announced contracts signed between 2005 and 2011 Note: Refer to Supply Chain Management (SCM) BPO – Beyond Procurement Outsourcing (EGR-2013-1-R-0840) for more details
Source: Everest Group (2013)
89%
11%
PO contracts with other supply chain activities in scope Percentage of PO contracts
100% = 1651
As the PO market continues to mature, organizations are beginning to realize the potential benefits of outsourcing other supply chain functions, such as order management and fulfillment, logistics, inventory management, returns management, and master data management
Procurement and/or sourcing focused
Broader scope of supply chain processes beyond
procurement and sourcing Strategic sourcing
Requisition to purchase order
Vendor & contract management
Category management
Spend analytics
Return Deliver Make/ manufacture
Source and procure
Supply chain planning
Order management
Logistics administration
Inventory management
Claims/warranty management
Returns management
Service contract management
Production
Asset management Packaging and staging
Lead and quote management
Quality and product testing
Order fulfillment
Master Data Management (MDM)
Customer master Vendor master Item master
Reporting, Analytics, & Compliance support (RAC)
Reporting Supply chain analytics Compliance support
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Sample size: 370 new multi-process PO contracts signed as of 2012 Note: Refer to Supply Chain Management (SCM) BPO – Beyond Procurement Outsourcing (EGR-2013-1-R-0840) for more details Source: Everest Group (2013)
While PO is largely focused on indirect spend, recently, inclusion of direct spend category has shown significant increase
80% 70%
81% 85% 72% 67% 73% 75% 83% 85% 80% 80%
IT/telecom Marketing and sales
Facilities Operations HR related Direct spend
Category scope of PO contracts Percentage inclusion
Distribution of PO contracts by category inclusion Number of new contracts
100% = 330 40
33% 23%
64% 72%
3% 5%
Overall 2011-2012
Indirect-spend
focused
Both direct and indirect
spend
Direct-spend focused
(Hardware, software, IT services, telecom services, and equipment)
(Advertising, print, mail, promotions, tele-marketing, research, and public relations)
(Building materials and services, utilities)
(Travel, transport, courier, and office supplies)
(Contract labor, recruiting agencies, employee benefits, and consulting services)
(MRO, raw materials, and other industry-specific spend)
Overall 2012
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Enterprises typically leverage PO to optimize direct spend management in three ways
Direct spend
Indirect spend
Core spend
Non-core direct spend
Non-core spend
Goods and services that are key ingredients to manufacture/deliver the final product/service
They are proprietary or specific to the organization
For example: Iron-ore for a steel manufacturer and rubber for a tyre manufacturer
Source-to-Contract (S2C)
Procure-to-Pay (P2P)
Source-to-Pay (S2P) cycle
Goods and services that are commonly required to manufacture/deliver the final product/service
They are commodities in that industry For example: Lubricants, packaging, and MRO
Non-production goods and services that are not required to manufacture/deliver the final product/service but are required to operate the organization
For example: Spend categories such as facilities, office supplies, travel & logistics, marketing/sales-related spend, and IT/telecom
Typical scope of PO engagements
1.Outsource non-core direct spend
2.Outsource transactional or P2P-related activities for
direct spend
3.Outsource tail-end of direct spend
Note: Refer to Role of Procurement Outsourcing (PO) in Managing Direct Spend – Not so Indirect Any More (EGR-2012-1-R-0684) for more details
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MRO, a traditional direct spend category, is increasingly being included in PO contracts
30 40
53 66
2005-2006 2007-2008 2009-2010 2010-2012
PO contracts with MRO spend in scope over a period of time Number of contracts
Direct spend Indirect spend MRO spend
Core spend Non-core spend
Services Goods
Standard spares/parts
Specialized goods
OEM1 parts
Benefits from MRO outsourcing
Outsourcing a fragmented and suboptimal function such as Maintenance, Repair, and Overhaul (MRO) certainly brings savings through spend unit reduction
Other than the direct cost impact, the following benefits make a case for end-to-end MRO outsourcing – Improved vendor enablement – Faster delivery of goods and services – Increased up-time – Free-up space for revenue generating activities – Standardization of processes and parts – Access to alternative service providers/materials – MRO category-specific expertise and market intelligence
1 OEM stands for Original Equipment Manufacturer Note: Refer to Succeed with Maintenance, Repair, and Overhaul (MRO) Outsourcing (EGR-2012-1-R-0633) for more details Source: Everest Group (2013)
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30% 25%
25% 6% 5% 3% 3% 2% 1% 100%
Category 1 Category 3 … … …
There is an increasing trend to outsource tail-end spend management
Tail-end spend management
approach
P2P implementation
Ongoing spot-buying
Demand management
Spend analytics and
reclassification
Source: Everest Group (2013)
Spread of procurement spend Tail spend Definition
Spend analytics and reclassification – Tail-spend data collection from the ERP
system, including AP and GL modules – Reclassification into categories using analytics
tools Demand management
– Identifying reclassified spend that can be included into existing vendor contracts with minor changes in non-critical specifications
Ongoing spot-buying – Executing quick spot-buys for low value and
low volume spend using eRFX tools to increase efficiency
P2P implementation – Implementing compliance and driving tail-end
spends through P2P technology tools and use of P-cards to provide greater visibility and accountability
Approach
Tail-end spend accounts for remaining 20% of spend spread across the remaining 80% of suppliers (low value high volume)
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PO contracts with offshore/nearshore component over time Number of contracts
Contracts completely
onshore
Contracts with offshore/
nearshore component
100% = 77
Degree of offshoring/nearshoring in PO contracts Average percentage of work done offshore/nearshore
566
The level of offshoring continues to increase in PO contracts. However, offshoring varies between S2C and P2P
Sample size: 566 multi-process PO contracts (new and extensions/renewals) as of 2012 Source: Everest Group (2013)
37% 31%
63% 69%
Overall 2012
64%
29%
68%
33%
P2P-focused S2C-focused
Overall 2012
Beyond spend analytics, subprocesses within S2C (such as bid evaluation and award, vendor contract compliance, specification development, vendor selection, and vendor enablement) have medium-high offshore potential
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A global delivery footprint is emerging. China & Southeast Asia along with Central and Eastern Europe witnessed the strongest FTE growth in 2012
6,000 7,120
2011 2012
China & Southeast Asia
940 1,520
2011 2012
Central & Eastern Europe
710 984
2011 2012
Can support multiple European languages
Lower-cost region for processing data that is restricted from being sent outside the European Union because of Data Protection Act
Commonly-used locations include Poland and Hungary
India serves as the primary offshore BPO deliver location Availability of large scale low-cost, skilled labor pool for
English language-based processes as well as technology support make it attractive
Emerging domestic India-to-India PO market Key locations are – Noida, Gurgaon, Bangalore,
Hyderabad, Pune, Kochi, Chennai, Jaipur, and Mumbai
Locations, such as Manila and Kuala Lumpur, are leveraged for offshore support
The Philippines has a closer cultural affinity to the United States and has stronger voice capabilities
China is leveraged primarily as a low-cost-country-sourcing destination, as a nearshore destination for Japan, and to service domestic outsourcing
India
PO FTEs by delivery regions 2011-2012
Sample size: Based on operational information of 15 service providers, including Accenture, Capgemini, Corbus, DSSI, Genpact, GEP, HCL, HCMWorks, HP, Infosys, Procurian, Proxima, TCS, Wipro, and Xchanging
Source: Everest Group (2013)
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Distribution of technology models in S2C Number of contracts (New and extensions/renewals)
Platform-based (Pre-configured applications owned
by the service provider, pricing built into the PO contract)
100% = 75 306
Note: PO contracts where the service provider owns the underlying core procurement technology are classified as platform-based contracts Sample size: 396 multi-process PO contracts signed (new and extensions/renewals) as of 2012 Source: Everest Group (2013)
32% 28%
43% 41%
25% 31%
Up to 2011 2012
Augmentation (Service provider delivers
“add-on” tools to address specific gaps)
Tie-and-run (service provider plugs into the
buyer’s existing systems to deliver services)
Platform-based technology solutions are increasingly being deployed. However, augmentation and tie-and-run are still the most popular models in sourcing and P2P respectively
Distribution of technology models in P2P Number of contracts (New and extensions/renewals)
100% = 72 324
54% 54%
25% 25%
21% 21%
Up to 2011 2012
Tie-and-run
Augmentation
Platform-based
With the steady increase in the adoption from SMB segment (refer to page 27), incidence of platform-based PO contracts has also increased over time especially around S2C, where the existing install-base of technology is low
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The demand for BPaaS and cloud-enabled solutions in PO is also increasing
Elements of consideration Advantage of adopting BPaaS / cloud-enabled solution
Total Cost of Ownership (TCO)
BPaaS solutions offer around 40-50% lower TCO (for SMBs) as compared to in-house F&A due to their: – Minimal upfront investment – No/minimal ongoing support, maintenance, and
software up gradation cost Some examples of procurement – focused BPaaS/Cloud investments Accenture – S2P solution Capgemini – procurement
on-demand solution powered by IBX
Sutherland Global Services – CLARITY es
GEP Suite 5.0 IBM’s platform for S2P Infosys – S2P platform TCS – PO platform solution
Due to their standardized nature, the deployment time for both technology and process services in a BPaaS solution is significantly lower than traditional models
Deployment period
The pay-as-you-go model of a BPaaS solution provides flexibility to organizations to scale up or down based on changing business needs
Solution flexibility
The BPaaS model offers a standardized solution by packaging best-in-class process services with best-in-class technology solutions
Access to best practices
A single provider responsible for both IT and BPO relieves a buyer from managing multiple systems and provides organizations with a “single throat to choke”
Single window
Note: For more details on BPaaS, refer to the Everest Group’s research Is BPaaS the Model for You? (ERI-2012-10-R-0667)
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Hybrid pricing (managed service fee + gain sharing) is emerging as the predominant pricing structure
Distribution of pricing models in PO contracts Number of contracts (New and extensions/renewals)
83 427
17% 11%
40%
24%
4%
4%
40%
61%
Up to 2011 2012
Managed service fees/transaction based
Hybrid pricing
FTE-based
Gain sharing
62%
14%
55%
94%
37%
33%
77%
70%
Gain sharing
Transaction based
FTE-based
Managed service fee-based
S2C-focused contracts P2P-focused contracts
Composition of hybrid pricing structures by contract focus Number of contracts (New and extensions/renewals)
Sample size: 510 multi-process PO contracts signed (new and extensions/renewals) as of 2012 Source: Everest Group (2013)
100% =
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Performance metrics in S2C are largely based on effectiveness
Type of performance metrics
S2C
Spend data management Strategic sourcing Vendor management
Effic
ienc
y
Time - Sourcing process turn-around time
RFx process timeliness Contract set-up timeliness
-
Throughput Spend coverage – percentage of spend analyzed and categorized
Extent of service providers categorized
- -
Effe
ctiv
enes
s
Accuracy - - -
Quality - Compliance to strategic sourcing policies and procedures
Contract quality vs. agreed standards
Contract compliance Vendor issue resolution Vendor performance audit
Customer satisfaction - Vendor satisfaction survey Net Promoter Score (NPS)
Net Promoter Score (NPS)
Business impact Identified savings Contracted savings Spend unit reduction
Vendor rationalization
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However, efficiency-based metrics are more prominent in P2P
Type of performance metrics
P2P
Day-to-day purchasing Performance management Accounts payable
Effic
ienc
y
Time Requisition-to-PO turn-around time
Overall PO processing time
Ad-hoc request turn-around time
Policy/procedure review timeliness
Performance reporting timeliness
Invoice processing timeliness Payment processing timeliness T&E claims processing
timeliness
Throughput PO spend coverage Percentage of automated POs Number of POs
processed/day/FTE
- Number of invoices processed/day/FTE
Number of payments processed/day/FTE
T&E claims processed/day/FTE
Effe
ctiv
enes
s
Accuracy PO accuracy
Accuracy of reporting Invoice processing accuracy Payment processing accuracy T&E claims processing
accuracy AP query response accuracy
Quality Compliance audit T&E claims compliance audit
Customer satisfaction Vendor satisfaction survey Client (internal) satisfaction
survey
Vendor satisfaction survey
Business impact Reduction in maverick spending Increasing compliance
Increasing compliance Working capital reduction Early payment discount capture
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Introduction and overview
Key insights
Market size and buyer adoption
Value proposition and buyer satisfaction
Solution characteristics
Service provider landscape – Summary – Market shares – Areas of investments
Outlook for 2013
Appendix
Contents
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Service provider landscape – summary
Accenture and IBM continue to dominate the market (over 50% market share in ACV)
Competition intensifying (market share of the top two providers reduced from 61% in 2008 to around 52% in 2012)
Continued investments in building end-to-end S2P solutions, global delivery footprint, and technology tools and assets
Accenture, GEP, IBM, Infosys, Procurian, and Xchanging had strong market success in 2012, accounting for nearly 90% of the new TCV
Increased momentum in BPaaS and
platform-based PO solutions
More detailed analysis of the PO service provider landscape including the latest PEAK Matrix will be published in upcoming reports
Continuation of historical PO trends observed over the last
10-15 years
Continuation of emerging PO trends observed over the last
2-3 years New developments in 2012
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IBM and Accenture dominate the PO market with more than 50% market share (by ACV)
6% 1% 1% 2%
1% 3%
2% 2% 2% 2% 3% 3%
9% 8%
26% 30%
10% 2%
4% 1%
3% 4%
6% 5%
4% 6%
4% 7%
9% 5%
17% 16%
US$1.72 billion US$13.1 billion 387 contracts
Active ACV Cumulative TCV Total number of active multi-process contracts
100% =
PO service provider market share (as of 2012)
1 Service providers with less than 1% market share – Aegis, DSSI, HCL, HCM Works, HP, and Optimum Procurement Sample size: 387 active multi-process PO contracts as of 2012 Source: Everest Group (2013)
IBM Accenture
Procurian Xchanging
GEP Genpact
Corbus Proxima
Wipro
Infosys
Aquanima Capgemini
TCS WNS
4% 1% 1% 1% 2% 2% 2% 2% 3% 3% 3%
5% 8% 9%
24% 28%
Xerox
Others1
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However, the competitive landscape of the PO market is intensifying
Market share of the top two PO service providers (Accenture and IBM) over time Percentage of market size (active ACV)
61% 56%
52%
2008 2010 2012
Sample size: 396 new multi-process PO contracts signed as of 2012 Source: Everest Group (2013)
On a global basis, the PO market continues to be led by two service providers (Accenture and IBM), while the other service providers are aggressively expanding their market share
As a result, in the last few years, the market share of the top two service providers declined from 61% in 2008 to 52% in 2012
Service providers are leveraging organic and inorganic paths to build and sustain PO competitiveness
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Accenture, GEP, IBM, Infosys, Procurian, and Xchanging accounted for nearly 90% of new TCV added in 2012
1 Others include Aegis, Aquanima, Capgemini, DSSI, HCL, HCM Works, HP, TCS, Wipro, WNS, and Xerox Sample size: 98 multi-process PO contracts signed (new and extensions/renewals) in 2012 Source: Everest Group (2013)
37%
16%
16%
12%
5%
4%
2%
2%
2%
1%
3%
~US$1.6 billion
Multi-process TCV across new contracts and extensions/renewals signed in 2012 Percentage of TCV
Multi-process PO contract signings in 2012 Percentage of contracts
52 new contracts 100% =
15%
8%
10%
13%
12%
10%
2%
8%
4%
6%
13%
24%
11%
11%
17%
13%
2%
4%
2%
15%
IBM
Accenture
Procurian
Infosys
GEP
Xchanging
Proxima
Corbus
Optimum procurement
Others1
Extensions/renewals New contracts
46 extensions/renewals
Genpact
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BPaaS / platform-based solutions, building sourcing expertise, and delivery footprint expansion are the top three investment themes for PO service providers
Investment theme Examples of investments made in 2012 (not exhaustive)
Platform-based BPO / BPaaS
GEP enhanced mobility features by introducing touch screen functionality to existing technology suite Infosys partnered with Ariba, Combi-Net & Iasta for their e-sourcing platform TCS has invested in building multi-tenant Procurement Analytics Platform, including enterprise BI
integrated with TCS’s proprietary spend data cleansing and enriching tool (DataClean) WNS entered into a strategic partnership with GT Nexus (a cloud-based supply chain service
provider) and Ariba (to leverage its cloud-based collaborative commerce solutions) WNS launched Xponential -- ERP-Card SolutionTM, as a part of its BizAps Procure-to-Pay (P2P)
solutions Genpact launched the S2P-focused tool “Business Impact Simulator tool” Xchanging patterned with Basware to automate P2P processing
Procurian acquired Media IQ, a media audit and benchmarking company, strengthening Procurian’s specialized marketing offering around spend optimization
Procurian acquired Utillities Analyses, Inc. (UAI), an energy procurement company, complementing their earlier acquisition of Neuwing and extending their energy solution
GEP announced acquisition of Enporion, a strategic sourcing and e-procurement technology and services firm focused on utilities, manufacturing, and distribution industry
Building sourcing expertise
Xchanging expanded its onshore presence by starting delivery from Paris, Milan, Madrid, Barcelona, and Sydney
Along with opening a CoE for sourcing in Europe, Infosys expanded its Sourcing and Procurement academy to centers in Lodz, Belo Horizonte, Manila, and Sydney
TCS added Pune and Bangalore to its S2C delivery portfolio WNS also started leveraging Bangalore for its spend data management
Delivery landscape expansion
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More detailed analysis of the PO service provider landscape including PEAK Matrix will be published in the near future, in upcoming reports
Measures success achieved in the market
Measures ability to deliver services successfully captured through five subdimensions – scale, scope, enabling capabilities, delivery footprint, and buyer satisfaction
Delivery capability
Detailed analysis of service provider market shares Relative positioning of service providers on Everest Group PEAK Matrix, and analyses
along the various assessment dimensions Service provider trends and key investments made
Detailed profiles of 20+ service providers playing in the PO space Four to five page profile of each PO service provider Each profile provides a comprehensive picture of the provider’s service suite, scale of
operations, buyer portfolio, recent developments, delivery locations, and Everest Group’s detailed assessment of its capabilities
PO Service Provider Landscape
PO Service Provider Compendium
Emerging Players
Leaders
Major Contenders
Mar
ket S
ucce
ss
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Contents
Introduction and overview
Key insights
Market size and buyer adoption
Value proposition and buyer satisfaction
Solution characteristics
Service provider landscape
Outlook for 2013
Appendix
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PO market outlook for 2013 (page 1 of 2)
Contracts worth US$600 million (in ACV) that are up for renewal in 2013 will significantly influence market growth
Everest Group expects the market to continue to grow at the current pace (10-15%) in 2013, to reach over US$2.0 billion in ACV representing a managed spend in excess of US$250 billion
Average contract size and term may see a marginal increase over 2013 given increasing interest in end-to-end S2P outsourcing
Along with manufacturing and CPG, insurance and hi-tech are expected to be the growth sectors in 2013 The dominance of large market will continue to reduce, with the mid-market and SMB driving growth Global coverage of PO is expected to increase. Multinationals will look to expand existing PO contracts
beyond U.S. and Europe, while organizations within Asia Pacific and Latin America are expected to seriously evaluate PO
Market growth and buyer adoption
Category expertise and access to technology will drive PO adoption in 2013 and beyond The scope of PO contracts will expand across various dimensions:
– From a category perspective, direct but non-core categories, such as MRO, will increasingly become part of PO contracts. Interest in tail-end spend and spot buying will continue to increase as buyers exhaust the low hanging fruit
– Increasingly, new contracts will have S2P scope, or existing contracts will expand to have end-to-end S2P scope
– Combined FAO and PO scope will continue to be rising trend in 2013 – Interest in leveraging PO service providers for Low Cost Country Sourcing (LCCS) is expected to
increase Global sourcing of S2C processes is likely to increase, as service providers continue to offshore
processes such as spend data management, strategic sourcing intelligence, and research Adoption of Cloud-based BPaaS solutions in PO is expected to grow, especially for S2C Hybrid pricing (managed fees + gain sharing) is expected to be the predominant pricing model. However,
gain sharing is expected to take the form of performance bonus versus a percentage of savings. Also, increasingly, the savings targets will be based on realized savings versus contracted savings
Solution characteristics
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PO market outlook for 2013 (page 2 of 2)
Competition is expected to intensify in the PO market Service providers are likely to adopt three investment strategies:
– Geographic expansion of existing capabilities – Building end-to-end S2P capabilities (building category expertise for P2P players and creating
payables processing capabilities for S2C players) – BPaaS and analytics
M&A activity will increase, as it is hard to scale up PO capability purely by organic investments
Service provider landscape
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Contents
Introduction and overview
Key insights
Market size and buyer adoption
Value proposition and solution trends
Service provider landscape
Outlook for 2013
Appendix – Publicly-announced contracts in 2012 – Glossary of terms – PO research calendar – References
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NOT EXHAUSTIVE
Publicly-announced 2012 PO contracts New contracts
Quarter Buyer Service provider
Buyer industry
Buyer signing region
Buyer size (US$ billion) Brief description
Q4 2012 Harley-Davidson Inc
Procurian Manufacturing U.S. 5-10 A multi-year contract to provide S2P solution
Q4 2012 McCain Foods
Procurian CPG U.S. 5-10 A multi-year contract covering several spend categories
Q4 2012 Amprion Accenture Energy & utilities
Germany 5-10 A five-year deal utilizing Accenture delivery centers in Prague and Bratislava
Q3 2012 Diebold Procurian Manufacturing
U.S.
1-5 A multi-year contract covering HR, IT, capital, travel, legal, marketing, and financial services categories in North America
Q3 2012 GSH Group Optimum Procurement
Services UK <1
Three-year contract to manage £100 million across Europe (including UK) and North America
Q3 2012 Sanofi S.A. Genpact Healthcare France 10-50 A multi-year contract also including Finance & Accounting services
Q2 2012 CoreLogic Procurian Services U.S. 1-5 A five-year contract to optimize spending in consulting, benefits, temporary labor, postage, and marketing
Q2 2012 Zurich Financial Services
Procurian Financial services
Switzerland >50 A contract covering categories, such as IT, professional services, marketing, HR, facilities, and travel, delivered in partnership with Genpact
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Glossary of key terms used in this report (page 1 of 2)
Term Definition
ACV Annualized Contract Value is calculated by dividing the Total Contract Value (TCV) by the term of the contract
BPO Business Process Outsourcing (BPO) refers to the purchase of one or more processes or functions from a company in the business of providing such services at large or as a third-party provider
Buyer The company/entity that purchases outsourcing services from a provider of such services
Contract term The duration of the outsourcing contract. It drives the schedule over which the buyer or service provider amortizes capitalized costs or the period over which Net Present Value (NPV)/Internal Rate of Return (IRR) is calculated
FAO Finance and Accounting Outsourcing is the transfer of ownership of some or all finance and accounting processes or functions to a service provider. This could include administrative, delivery, or management-related processes or functions
Managed spend Managed spend refers to the expenditure incurred by a company to procure goods and services that is actively managed by the PO service provider
Managed-service fee
Pricing structure where buyer pays the service provider a fixed fee for a predetermined volume of purchasing activity with a “dead band” cushion
MRO spend The spend covering Maintenance, Repair, and Overhaul. It includes both goods and services
HRO Human Resources Outsourcing is the transfer of ownership of some or all human resource processes or functions to a service provider. This could include administrative, delivery, or management-related processes or functions
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Glossary of key terms used in this report (page 2 of 2)
Term Definition
Managed-service fee
Pricing structure where buyer pays the service provider a fixed fee for a predetermined volume of purchasing activity with a “dead band” cushion
Non-core spend Non-production goods and services that are NOT required to manufacture/deliver the final product/service but ARE required to operate the organization. Spend categories, such as facilities, office supplies, travel and logistics, contract labor, marketing/sales-related spend, IT/telecom, and MRO, are typically classified as non-core categories
Offshorability Offshorability is defined as the percentage of in-house scope that can be delivered from an offshore location and is calculated as the percentage of in-house process FTEs that can be transitioned offshore
P2P Procure-to-Pay process is an integrated end-to-end process that includes sourcing support, catalog management, day-to-day purchasing, performance management, accounts payable, T&E processing, and spend analytics
P-card P-card is a bank card issued to streamline small-value purchases and the payment and tracking of those purchases
S2P Source-to-Pay process is an integrated end-to-end process that includes spend data management, strategic sourcing, vendor management, demand management, day-to-day purchasing, performance management, accounts payable, and T&E processing
T&E Time & Expense
Tail-end spend Tail-end spend accounts for remaining 20% of spend spread across the remaining 80% of suppliers (these are typically low value high volume)
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PO research calendar
Topic Release date Published Current
Q3-2013 PO – Service Provider Profile Compendium 2013
Q3-2013 Sourcing Contingent Workforce – Rise of MSP model
Q3-2013 PO – Service Provider Landscape with PEAK Matrix Assessment 2013
Q3-2013 Growth of Horizontal BPO in LATAM
February 2013 Unlocking Value From End-to-End Process Outsourcing: Focus on Procure-to-pay (P2P)
March 2013 Supply Chain Management (SCM) BPO – Beyond Procurement Outsourcing (PO)
From Strategic Sourcing to Contracting – Source-to-Contract (S2C) a High Value Driver in PO
Q4-2013 The Rise of Procurement and HR Collaboration – Effectively Managing HR-spend
Q4-2013 Evaluation of BPaaS Solutions for FAO/PO/HRO
Q4-2013 Tail-end Spend Management
June-2013 Procurement Outsourcing (PO) – Annual Report 2013: Expertise and Technology Driving Growth
Q3-2013
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Additional PO research recommendations
The following documents are recommended for additional insight into the topic covered in this research. The recommended documents either provide additional details on the topic or complementary content that may be of interest 1. Supply Chain Management (SCM) BPO – Beyond Procurement Outsourcing (PO) (EGR-2013-1-R-0840); 2013. This report goes beyond PO to
explore buyer adoption and solution characteristics in other supply chain areas and profiles the capabilities of several SCM BPO service providers. It analyzes the SCM BPO market across key business drivers, market growth, buyer adoption trends, and solution characteristics
2. Procure-to-Pay (P2P) Outsourcing: Unlocking Value from End-to-End Process Outsourcing (EGR-2013-1-R-0819); 2013. This report analyzes the key trends in P2P outsourcing within the FAO and PO market. It provides an understanding of the business value, adoption trends, solution characteristics, and service provider capability in P2P outsourcing
3. Role of Procurement Outsourcing (PO) in Managing Direct Spend – Not so Indirect Any More (EGR-2012-1-R-0684); 2012. The study analyzes the role of PO in managing direct spend categories, focusing on key differences between direct and indirect spend, market size, adoption trends, service provider investments related to direct spend outsourcing, models for leveraging PO to optimize direct spend, drivers, challenges, and best practices
4. Procurement Outsourcing (PO) Annual Report 2012: The PO Market – Steadily Marching Forward (EGR-2012-1-R-0683a); 2012. This report provides an overview of the overall PO market in 2011, including the size and growth of the market, adoption trends, contract characteristics, value proposition, service provider landscape, and market outlook for 2012
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For more information on this and other researches published by Everest Group, please contact us: Saurabh Gupta, Vice President: [email protected] Abhishek Menon, Practice Director: [email protected] Avinish Mittal, Analyst: [email protected] Vikas Menghwani, Analyst: [email protected] PO Team: [email protected]
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