Procurement, Companies, Outsourcing, Accenture, Outsource

Procurement outsourcing taking hold. Accenture finds nearly half of companies will outsource some non-core procurement/sourcing activities by 2006

19 Dec 2003 | (Survey)

Almost one-half of companies in the U.S. and Europe are considering the outsourcing of part of their procurement operations within the next three years, according to findings in a study by Accenture. The figure is greater than twice the 22 percent of companies who presently outsource aspects of procurement today.

Few companies indicated an interest in outsourcing all procurement activities. As one would expect, non-core activities are the greatest initial recipients of third-party services . Forty-three percent of companies are considering outsourcing procurement of indirect materials versus 22 percent for direct.

"Companies have gotten more comfortable overall with other functional outsourcing," says Donovan Favre, president of Accenture Procurement Solutions. "They've moved through the chain, through HR, logistics, transportation outsourcing, all of those have gone well and procurement's time has arrived."

The most commonly outsourced processes are for sourcing and procurement application hosting followed by requisition to pay. Strategic sourcing involving negotiations and other interactions with suppliers were less likely to be handed off. The cost of running procurement can be relatively small -- perhaps 1 percent of a $1 billion spending budget -- in comparison to the opportunity for savings, which could be 5 or 10 percent or greater.

"You can take a billion dollars in spend, have a procurement budget of $10 million for that, but procurement savings could be $50 to $100 million," Favre says. "Clients are focused on getting that $50-100 million, taking some of the spend, outsourcing it and focusing our procurement individuals on the value delivery piece." Cost reduction is a driver for outsourcing, but respondents more often cited the ability to free up time to focus on strategic and key sourcing activity kept in-house.

The report details the tradeoffs between procurement performance and target goals. When buying services from third parties, the most important attribute cited was category expertise, followed by on-time delivery and the ability to tailor procurement for the needs of the business.

Accenture found satisfaction with outsourcing services to be very high. Companies that use third parties for procurement activities are far more likely to increase this use compared to laggards with little or no outsourcing experience. Larger companies are also more likely to outsource aspects of procurement. Among the very largest businesses sampled in the survey, 31 percent use outside partners for part of their activity today, a figure that will rise to 67 percent in three years according to the poll.

Accenture surveyed more than 200 procurement directors from a range of industries across the U.S. and Europe. By nationality, companies in France are seen to be most likely to outsource procurement in the future, with 64 percent of respondents saying they would do so by 2006. Companies in the U.S. and U.K. are next most committed, (58 percent each). Thirty-nine percent of firms in Germany, Australia and Switzerland anticipate outsourcing parts of procurement over the next three years.

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