Procurement Outsourcing (PO) – Annual Report 2013 ... · Direct spend . Indirect spend . Core...

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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

Copyright © 2013, Everest Global, Inc. EGR-2013-1-R-0889

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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


4

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.


6

Contents

Introduction and overview


Market size and buyer adoption

Value proposition and buyer satisfaction

Solution characteristics

Service provider landscape

Outlook for 2013

Appendix


7

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


8

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


9

The Source-to-Pay (S2P) process spans the entire procurement function

Procurement pyramid (non-core spend)

S2P strategy


7. Accounts payable





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


10

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







Outlook for 2013

Appendix


13

Summary of key messages (page 1 of 4)


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


14



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


15



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 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


16



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


17



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




Outlook for 2013

Appendix

Contents


18

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


19

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


20

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


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


21

Both organic and inorganic factors contributed to ACV growth in 2012


Contracts that completed

term in 2012


1.31

0.25

0.19

1.72


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


22

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


New contracts 2012

1.56

<0.1

<0.1



23

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


1.56

<0.1

<0.1


1.31

0.25 0.19

1.72

0.25


New contracts 2012

4 2 3 6

18 20

31 39

59

46

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


24

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



25

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



26

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


27

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


28

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%


29

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


30

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


31

Contents




Value proposition and buyer satisfaction – Summary – PO drivers and value proposition – Buyer satisfaction – Contract terminations and challenges in contract renewals



Outlook for 2013

Appendix


32

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


10-15 years




33

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


34

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)


35

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



36

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)


37

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


38

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)


39

Several approaches are emerging to capture value from second- / third-generation PO contracts

There are multiple modes of scope expansion in PO


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


7. Accounts payable




4. Demand management ` 1.

Bre

adth

of

cov

erag

e


40





Solution characteristics – Summary – Process scope – Category scope – Global sourcing – Role of technology – Pricing structure – Performance metrics


Outlook for 2013

Appendix

Contents


41

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


10-15 years




42

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% =


43

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


44

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


45

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


46

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)


47

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


48

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


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

https://research.everestgrp.com/Product/12032


49

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



50

Enterprises typically leverage PO to optimize direct spend management in three ways

Direct spend

Indirect spend

Core 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



51

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)



52

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


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)


53

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


54

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



55

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


56

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)



57

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% =


58

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


59

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


60


Key insights




Service provider landscape – Summary – Market shares – Areas of investments

Outlook for 2013

Appendix

Contents


61

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


10-15 years




62

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


63

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


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


64

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


65

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


66

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


67

Contents


Key insights





Outlook for 2013

Appendix


68

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



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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



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Contents


Key insights


Value proposition and solution trends


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

Phone: +1-214-451-3110 Email: [email protected]

Everest Group Two Galleria Tower 13455 Noel Road, Suite 2100 Dallas, TX 75240

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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