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Procurement offshoring is next big wave
(Times of India, The (KRT) Via Thomson Dialog NewsEdge) Oct. 15--NEW DELHI -- After BPO and KPO, now it's PO or Procurement Outsourcing that's catching up in India. It began way back in 1995, with the Thames Water-Accenture contract but lost steam somewhere along the way. But now, PO is emerging as another arm in India's successful outsourcing story.
IDC estimates the worldwide PO market reached $627 million in 2005, and is expected to expand at 22.3 percent (cumulative growth rate) to become $1.7 billion by 2010.
With such high growth rates, Indian players are gearing up to take a larger share in the pie. Although still at a nascent stage, experts predict PO is slated to emerge as India's next big outsourcing story. "India's potential to emerge as the favorite destination is not because of labour arbitrage alone. It's due to its highly skilled English speaking labour pool, engineering skills, value enhancement through low-cost country sourcing, competitive advantage, process and quality focus," says Rakesh Mittal, COO and president of Corbus a prominent global PO player.
PO spans a spectrum of procurement related processes like requisitioning of goods, vendor management, invoice processing, order managers, procurement planners, catalogue development roles, supplier development as well as supply coordination in low cost countries.
It started off when Fortune 500 companies started having a more mature buying process. As a result, large vendor management groups were set up and complex bidding processes were introduced. In this rush to outsource, one group continued to enlarge, which is the procurement group.
According to Saurabh Gupta, research director, Everest Research Institute, most India-based suppliers including Infosys BPO, Genpact, HCL are looking at the PO market very seriously now. They are making investments both in terms of people and technology to grow in this space. As a location, India has been established itself as a global offshoring hub and big PO suppliers are beginning to utilise their India-based centres to absorb a bulk of the transactional procurement work.
"Given the strong BPO support infrastructure that India has, it's also an emerging destination for tactical sourcing and spend analytics." explains Gupta.
As for the future of PO in India, experts say it's tightly coupled with the trends around offshoring in PO, which is on an upswing worldwide. "Offshoring in PO enables buyers to better manage their operational costs. So we expect offshoring of procure-to-pay (P2P) services like day-to-day purchasing, accounts payable, etc, bundled with spend analytics to be the main growth areas. PO will also gain significant momentum as an extension of the financial and accounting offshoring," Gupta says.
Managing and hosting of procurement solutions is also a big opportunity for India. However, getting category experts and sourcing managers in India is a major challenge. That's because Indian universities do not have procurement-focused curriculum. Mittal cautions, just any company in offshoring space cannot execute PO successfully, after all it requires several years of experience.
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