Procurement Outsourcing is the transfer of specified key procurement activities relating to sourcing and supplier management to a third party — perhaps to reduce overall costs or maybe to tighten the company's focus on its core competencies. Procurement categorisation and vendor management of indirect materials and services are typically the most popular outsourced, however in making the decision to 'Outsource' it is worth asking the question, can I have confidence in delivery, and will the service quality, and timeliness be degraded? ….wiki Procurement Process Outsourcing is, in fact, expected to become a new stream for Indian outsourcing service providers.

Last year the procurement outsourcing market was estimated to touch US$ 1.1 billion. With a current growth rate of around 22 percent, it is expected to log momentum of around 100-150 percent in the years ahead. IDC estimates the worldwide PO market reached $627 million in 2005, and is expected to expand at 22.3% (cumulative growth rate) to become $1.7 billion by 2010. ….nasscom 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. PO includes 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.

The fact is that Procurement Outsourcing can deliver significant efficiencies and cost benefits. 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. Components of PO: ….nasscom ::::Direct Procurement::::—“Procure-to-Pay”: In Direct Procurement, the opportunity for outsourcing is limited to the “Procure-to-Pay” process, which is very much transaction-oriented.

A significant part of this work can be done offshore with roles like Buyers, Contract Administrators, Value Engineers, etc., where a company with enough expertise in the Procurement Outsourcing business can handle this rather well. However, strategic sourcing is unlikely to be outsourced in the near future, as it usually involves the deployment of highly specialized knowledge. ::::Indirect Procurement::::—“Source-to-Pay”: In the case of Indirect Procurement, the opportunity requires the service provider to offer the full breadth of capability including Strategic Sourcing. The work related to strategic sourcing is unlikely to be outsourced to India as that capability does not still exist in the country as yet.

However, most of the work like Cataloging, Procurement Help-Desk and Contract Compliance, etc., can be managed on an offshore basis, which is again “Procure-to-Pay” kind of work other than cataloging. A recent research by the Hackett Group states that Fortune 500 companies can save in excess of US$ 10 million annually by offshoring procurement to skilled manpower and low-cost destinations such as India.

"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. Existing trends and industry research point to a rapid growth Procurement Outsourcing industry over the next decade. The expectation is that this sector can make even bigger waves than the Indian outsourcing industry. The service providers have to gear up to create offerings in this segment and make a convincing case for the PO benefits.