Procurement Outsourcing (PO) Market Update: February 2008 Preview Deck Topic: Outsourcing the Procure-to-Pay (P2P) Process

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1 Procurement Outsourcing (PO) Market Update: February 2008 Preview Deck Topic: Outsourcing the Procure-to-Pay (P2P) Process

2 Background and methodology of the research Background of the research: The Procure-to-Pay (P2P) process represents a point of convergence between the finance and the procurement functions. FAO buyers who have traditionally outsourced the transaction-intensive Accounts Payable (AP) process are now looking at extending the value by expanding the scope of their engagements to P2P. At the same time, buyers considering outsourcing their procurement function are approaching P2P outsourcing as a stepping-stone towards full-service or Source-to-Pay (S2P) outsourcing. As a result, we are witnessing a rising demand along with an expanding supply-base for outsourced P2P services In this research study, we investigate the business value and the market state of outsourcing the P2P process. The objectives are to analyze the following: Value proposition for outsourcing P2P Solution characteristics of outsourced P2P Impact on supplier landscape Implications for buyers and suppliers The research methodology is based on three key information sources: An executive level Web-based buyer and supplier survey Proprietary Everest database of multi-process PO contracts signed as of August 2007 Focused interviews with a diverse set of suppliers including Accenture, Genpact, IBM, Infosys BPO, IQBackOffice, VWA, and Wipro 2

3 Table of contents (page 1 of 2) Topic Page no. Section I: Summary of key messages 5 Section II: Value proposition 6 Summary 7 Process definition 8 Typical savings from a PO contract 9 Outsourcing value proposition by process scope 10 Satisfaction levels of buyers that have outsourced AP 11 Five-step roadmap to realize savings in S2P outsourcing 12 Pain-points in buyer s financial supply chain 13 Buyer interest in outsourcing P2P and demand by sub-process 14 Key challenges in moving from a piecemeal to an end-to-end outsourcing approach 15 Section III: Solution characteristics 17 Summary 18 Convergence between F&A and procurement functions 19 Applicability of value creation levers for PO by process scope 20 P2P offerings by industry focus and category focus 21 Degree of offshoring in PO contracts by process scope 22 Existing and potential degree of offshoring in P2P 23 Technology solutions/services required from suppliers 24 3

4 Table of contents (page 2 of 2) Topic Page no. Section IV: Supplier landscape 25 Summary 26 Supplier market shares 27 PO supplier capability across outsourcing value levers 28 Shifts in PO supplier landscape driven by demand for P2P outsourcing 29 Supplier interest and maturity in outsourced P2P services 30 Investments in delivery capability 31 Acquisitions 32 Partnerships 33 Internal investments 34 Section V: Implications for key stakeholders 35 Implications for buyers 36 Implications for suppliers 38 Appendix 40 Supplier profiles 41 Buyer case studies 55 Web-based survey: response profile 57 Glossary of key terms 58 Research references 62 4

5 Overview and abbreviated summary of key messages (page 1 of 2) This report examines the expanding market opportunity around the outsourcing of Procure-to-Pay (P2P) processes. It focuses on identifying the emerging value proposition of an end-to-end approach in addressing converging buyer requirements between the F&A and procurement processes. Based on extensive primary research, including a buyer survey and in-depth supplier interviews, this study explores perspectives on adoption trends, solution components, supplier capabilities, and the supplier landscape. The study concludes with Everest s assessment of implications for buyers and suppliers, addressing both opportunities and challenges. Finally, this report also provides over a dozen profiles of the P2P offerings of specific suppliers, along with case studies. Some of the findings in this report, among others, are: Value proposition Outsourcing P2P can create business impact beyond a direct-cost impact by addressing the pain-points in a buyer s financial supply chain Despite the value proposition, organizational, technological, solutioning, and contractual challenges impact adoption rates of P2P outsourcing Solution Characteristics Moving beyond labor arbitrage, process efficiency and effectiveness, along with technology applications are increasingly emerging as key value creation levers in P2P outsourcing Technology is fast becoming a pivotal component of most PO engagements. End-to-end technology solutions are gaining more importance as the scope expands from AP to P2P 5

6 Overview and abbreviated summary of key messages (page 2 of 2) Supplier landscape The emerging P2P opportunity is serving as a point of entry into the PO market for FAO centric suppliers expanding solutions bottom-up from AP to P2P and offshore centric suppliers leveraging existing global sourcing capabilities to offer P2P. However, the maturity of end-to-end offerings varies by sub-processes Most suppliers that offer or plan to offer P2P services are making investments in building delivery capability through acquisitions, partnerships, and internal investments 6

7 This study offers five distinct chapters providing a deep dive into key aspects of the P2P market; below are four charts to illustrate the depth of the report ILLUSTRATIVE Pain-points in buyer s financial supply chain Percentage response High manual intervention Large number of paper invoices Lack of data visibility Large working capital Large number of disputed invoices Long lead time to close books Large write-offs due to aging Less important Moderately important Very important Critical XX% XX% XX% XX% Supplier landscape Serving as a point of entry into the PO market FAO centric suppliers expanding solutions bottom-up from AP to P2P Offshore centric suppliers leveraging existing global sourcing capabilities to offer P2P Building broader S2P capabilities Expanding sourcing-focused offerings Enhancing existing S2P offerings Horizontal vs. industry-focused P2P offerings Number of suppliers Horizontal XX% 100% = XX XX% Industry-focused Investments in P2P delivery capability Investments in P2P delivery capability 1 Acquisitions 2 Partnerships 3 Internal investments 1a Scale/expertise driven 1b Technology driven 2a Process driven 2b Technology driven 3a People/process driven 3b Technology driven Source: Everest Research Institute (2008) 7

8 The PO report has over 15 supplier profiles and buyer case studies ILLUSTRATIVE Source: Everest Research Institute (2008) 8

9 Appendix: Additional PO research recommendations The following documents are recommended for additional insight on the topic covered in this Research Report. The recommended documents either provide additional details on the topic or complementary content which may be of interest 1. Outsourcing Order-to-Cash (O2C) and Procure-To-Pay (P2P) Opportunity to Create Business Impact (ERI R- 0201); This research study investigates the business value and the market state of outsourcing O2C and P2P processes. The objective of the study was to identify the opportunity and the constituents of the business case for outsourcing, and analyze the solution components required to offer end-to-end O2C and P2P outsourcing offerings 2. Global Sourcing in PO (ERI R-0217); This study analyzes the key trends emerging in the offshore PO market with a focus on offshore adoption in PO, role of global sourcing in PO, offshore supplier landscape, and the implications of global sourcing trends in PO for buyers and suppliers 3. Roadmap for Realizing the Savings in PO (ERI W-0212); This whitepaper discusses the issues with definition and realization of savings in PO, key features of different mechanisms that exist in the market to address the issues, and best practices to consider 4. Procurement Outsourcing (PO) Annual Report (ERI R-0154); This research analyzes the global PO market and provide insights, detailed analyses and implications for stakeholders along three key dimensions - Market size and buyer adoption, transaction characteristics and value proposition, and supplier landscape For more information on this and other research published by the Everest Research Institute, please contact us: Katrina Menzigian, Vice President: kmenzigian@everestgrp.com Saurabh Gupta, Research Director: sgupta@everestgrp.com PO team: POresearch@everestgrp.com Everest Research Institute Two Galleria Tower Noel Road, Suite 2100 Dallas, TX Phone: info@everestresearchinstitute.com 9

10 Get the answers today that lead to tomorrow s success Everest Research Institute has the resources, experience, and capabilities to provide companies with the strategic intelligence, analysis, and insight that are crucial to making the right decisions in today s outsourcing marketplace. With the vision of our leadership team, the personal commitment, and indeed, the passion of our professionals to deliver real value to our clients, our organization is unsurpassed in its ability to guide your company s future success. Everest Research Institute Two Galleria Tower Noel Road, Suite 2100 Dallas, TX U.S.A info@everestresearchinstitute.com Everest Group 150 E., 52 nd Street, 16 th Floor New York, NY U.S.A Everest India Ground Floor, Tower A Unitech Business Park South City - I, Gurgaon National Capital Region India Everest Australasia Level 6, 90 Mount Street North Sydney, NSW 2060 Australia Everest Canada The Exchange Tower 130 King Street West, Suite 1800 Toronto, ON Canada M5X 1E Everest UK 83 Baker Street London, W1U 6LA United Kingdom Everest Netherlands & Continental Europe Atrium Building 3 rd Floor Strawinskylaan ZX Amsterdam Everest Australia 409a Wattletree Road East Malvern Melbourne, VIC 3145 Australia