Risk & Procurement Analytics: A Promising Future. July 2013

& Procurement : A Promising Future July 2013 1

Presentation Plan Key Takeaways Module 1: Module 2: Procurement The Indian Context 2

Key Takeaways The Global & Procurement market offers immense potential for service providers worldwide By 2020, is expected to be a USD 50-51 billion market globally, while Procurement is expected to be a USD 16-17 billion market India to be the preferred location for outsourcing of & Procurement services, outpacing global growth and retaining its #1 position through 2020 The Indian industry is expected to quadruple to USD 2.5 billion by 2020 The Procurement industry in India, although at an embryonic stage at present, is expected to reach USD 780-800 million in revenues by 2020 The IT services segment is likely to be the major contributor, accounting for more than 75% of revenues, with analytics accounting for the remaining 25% & Procurement is increasingly being adopted by several sectors While financial service firms have already been using, driven by regulatory requirements, other sectors are increasingly adopting to grow their return on investments The widespread cost savings realised by manufacturing and retail industries using Procurement has prompted nontraditional sectors such as travel and tourism, media and financial services to adopt the same Both the spaces are becoming more predictive and prescriptive, given the play of unstructured and real-time data The global shortage of analytics professionals presents a big opportunity for India Given its large pool of PhDs, actuaries and statisticians, India is well placed to capture the USD 2.8 billion offshoring opportunity risk and procurement analytics from the US alone India currently employs 5,200-5,300 & Procurement professionals, which is expected to rise to ~15,000 by 2020 Concerted efforts from all arenas service providers, academia and facilitators to make India an undisputed leader in this space 4

: Defines, understands & manages risk; well integrated into business functions and is future-focused as a practice is an effective tool to: Make systemic risks, credit risk and market risk to operational, reputational and cyber risk visible Use risk assumption, risk avoidance, risk retention and risk transfer for managing uncertain events Value Chain Data Collection Integration, Validation & Storage Reporting & Presentation Action Internal proprietary data External data Data verification Data warehousing Re-calibration and redevelopment of models Statistical clustering Information Normalisation Simple such as: Alerts Pattern recognition Data mining Advanced such as: Predictive modelling Credit risk scoring Fraud detection Stress testing Structured reports Customised Dashboards Scorecards Visualisation Tools Analysing and interpreting results Decision-making Policy changes Mitigation and optimisation strategies Data Management MIS DSS ERP/SAP Network Systems Security Systems CRM Systems Surveys Social Media Information from Competition, Partners and third Parties Technology Enablers Software Extract Transform Load Calculation Engines/Modelling Applications/Analytical Tools Reporting Tools Hardware Storage Devices High Computing Devices User Interface IT-BPM (Project management, System Integration, Consulting) 6

Level of Complexity and Maturity is evolving to identify risk exposures from social media, cyber security and real-time trading systems High Low Predictive Causal What caused it to happen? What actions should be taken? Evaluative Reports Loss Events Recognition Visualisation Alerts Supply Chain -based Customer Segmentation Delinquency Modelling -based Pricing Scoring Catastrophic Modeling Why did it happen? When will it happen again? What can be done to avoid it? Regulatory Extreme Event Modelling Credit Scoring Data Mining What happened? When did it happen? What was its impact? Systemic Operational Value-at- Portfolio Forensics & Fraud Detection Basel I & II Catastrophe Modelling Loss Forecasting Sensitivity Analysis Real Time Updates Scenario Testing Loss Reserving & Valuation Time Cyber Security On-demand Social Complex Event processing Media Static Stress Testing Brand Visual Customer Behavioural Multi-variable Stress Testing Market/Credit Stress Testing Group/LoB Stress Testing Audit 1995 2003-04 2009-10 onwards Phase Identification & Scoring Modelling Integrated Management for Meeting Growth Objectives 7

The global market is likely to more than double to reach ~USD 50-51.0 billion by 2020 The global market, which is expected to generate revenues of USD 20-21.0 billion in 2013, is projected to become a USD 50-51 billion industry globally by 2020 IT services and analytics represents the largest share of the market and is expected to grow the fastest, contributing USD 27-28 billion to the market by 2020 Global Market Size, 2013-20E, USD billion Global Market Size, by category, 2020E 50-51.0 100% = USD billion Hardware Software 50-51.0 10-11.0% 34-35.0% IT giants such as IBM, HP, Microsoft, SAP, SAS and Oracle are likely to take a sizable share of the hardware and software market 20-21.0 Services (IT and ) 55-56.0% The opportunity for India lies in capturing the slice of IT and analytics services, including data warehousing, data management and consulting 2013 2020E 2020 8

India s outsourcing market is likely to quadruple over 2013-20 India Outsourcing (1) Market, 2013-20E, USD million India Outsourcing (1) Market, by category, 2020E, Percent 2,550-2,570.0 100% = USD 2,550-2,570.0 million Services, 21-22.0% 700-720.0 IT Services, 78-79.0% 2013 2020E India, a leader in the outsourcing market, is likely to continue to retain its position in 2020, with an increase in its global market share India s market is expected to reach USD 2,550-2,570.0 million by 2020 from USD 700-720.0 million in 2013 IT Services is expected to continue to be the largest segment, contributing 78-79.0% of the total revenues generated in 2020 Note: (1). Excludes software products and hardware as their share is currently miniscule; IT services in risk analytics refers to services around SI, consulting, data integration and management, etc.; analytics services is a sub-segment of the data analytics market within the Knowledge Services industry 9

is a dynamic market globally, due to ever-changing regulations, increased adoption and outcome-based SLAs Increasing adoption by corporates and SMEs is increasingly being adopted by corporates, in addition to the financial services sector Financial services would continue to use, driven by regulatory requirements, while corporates would increasingly adopt it to grow their return on investments Fortune 500 firms are likely to be the primary adopters; mid-tier banks and SMEs are expected to be the fast-growing segments Advent of ondemand Real-time and on-demand are the next big wave of growth in the market, driven by Technology acting as a key enabler, providing live market and trading data Delivering up-to-the minute analytics to decision-makers to analyse the impact of market volatility New commercial models -reward based models to gain traction; service providers revenues and SLAs to be closely linked with business outcomes Service providers to build dynamically configurable platforms as organisations lack the time and capital investments for customised offerings Establishing onshore presence Service providers need to establish their onshore presence to capture the market and build customer confidence BFSI sector continue to remain skeptical on outsourcing as risk-related modeling gives a competitive advantage to banks Onshore presence is also required to help banks meet the high level of scrutiny by regulators 10

Procurement provides insight that helps optimize procurement functions, reduce working capital requirements and cut costs Procurement Encompasses traditional Spend as well as supplier performance measurement, inventory optimisation, and risk & market trending Helps identify areas of low performance, optimise procurement functions and reduce costs Procurement Value Chain Data Collection Integration, Validation & Storage Procurement Reporting & Presentation Action Data Extraction and Transformation Load (ETL) Processes Spend Consolidation Data Mining Data Cleansing Data Categorisation Category Management Data Warehousing Spend Analysis Category Management Strategic Sourcing Contract Management Invoice Management Compliance Reporting Performance Dashboards Scorecard/KPIs CSAT Reports Online Portals Optimise Product and Component Portfolio Item and Vendor Rationalisation Data Management MIS General Ledger ERP Material Data Transactional Data Commodity Price Data Inflation Data Supplier Data Technology Enablers Software Extract Transform Load Analytical Tools/Modelling Applications /Spend Analysis Platforms Reporting Tools Hardware Storage Devices/ Data Warehouse High Computing Devices User Interface IT-BPM (Project management, System Integration, Consulting) 12

Level of Complexity and Maturity Procurement is likely to see a rise in usage of risk frameworks and behavioural analytics High Low Predictive Causal Evaluative Data Management Invoice Analysis Standard/ Ad hoc Reports What spend category represents my highest level of supplier risk? How can I free up my working capital? How changes in consumer preferences are impacting my use of raw materials? Monte Carlo Simulation Queuing Theory Payment Processing Closed Loop Spend Management Simulations PO and Invoice Processing RFI/RFP OLAP Visualisation Tools MIS Reporting Cost Regression Analysis Should-Cost Analysis Country Performance Analysis Category Spend Analysis Category Management Sourcing Contract Management Supplier Segmentation Supplier Relationship Management Low Cost Country Sourcing Sourcing Strategy Negotiation Management Spend Performance Management Spend Categorisation Price Forecasting Price Point Price Forecasting Supplier Performance Monitoring Contract Design & Administration Contract Compliance How many transactions were performed in the procurement cycle? Supply & Demand Modelling Project Assessment What percentages of requisitions are declined and why? What spend category represents my highest bill? Optimization Demand Planning Procurement Vendor Coordination and Review Behavioral Commodity Hedging & Trading Inventory Optimisation Workflow Optimisation Consumer Behaviour Analysis Where are my biggest strategic sourcing opportunities? What are my most significant areas of offcontract spending? 1990s 2000s Time 2012-13 onwards 13

Procurement is expected to become a ~USD 16-17 billion market globally by 2020 The global Procurement market, which is expected to generate revenues of USD 7-8.0 billion in 2013, is projected to become a USD 16-17 billion industry globally by 2020, driven by its wide adoption by industries beyond manufacturing and retail Services segment (IT and ), occupies the largest share and is expected to grow the fastest among all the segments It is expected to contribute USD 9-9.5 billion to the market by 2020 Global Procurement Market Size, 2013-20E, USD billion 7-8.0 16-17.0 2013 2020E Global Procurement Market Size, by category, 2020E 100% = USD billion 16-17.0 Hardware Software Services (IT and ) 5-6.0% 36-37.0% 58-59.0% 2020 Global tech. giants like IBM, HP, SAP, Oracle, SAS and Ariba to play a key role The lion s share of the market to be constituted by IT and analytics services, including data warehousing, data management, consulting and procurement modeling and analysis Indian service providers to get a sizeable share of revenues by offering services across the value chain 14

India s growth to outpace global trend in Procurement India Procurement (1) Outsourcing Market, 2013-20E, USD million 780-800.0 India Procurement (1) Outsourcing Market, by category, 2020E, Percent 100% = USD 780-800.0 million Services, 17-18.0% 300-310.0 IT Services, 82-83.0% 2013 2020E India s Procurement market is expected to rise to USD 780-800.0 million by 2020 from USD 300-310.0 million in 2013 IT services is expected to be the largest segment, contributing 82-83.0% of the total revenues generated in 2020 India is currently a leader in the Procurement outsourcing market, and is likely to continue to retain its position in 2020 Note: (1) Excludes software products and hardware as their share is currently miniscule; IT services in risk analytics refers to services around SI, consulting, data integration and management, etc.; analytics services is a sub-segment of the data analytics market within the Knowledge Services industry 15

TRENDS Procurement space to witness play of new-age technologies such as Cloud and Big Data, moving towards adoption of automated tools Productised revenues: Shift from labour-oriented to automated tools and platforms Simplified data extraction tools for one view of data Visualisation and analytics tools with embedded modelling techniques Adoption across verticals Initial adopters: Manufacturing and retail New adopters: Tourism, media and financial services Advent of Big Data Blogs, emails, web chats, IVRs, M2M, RFID and social media leveraged to identify customer preferences, realtime pricing of raw materials, etc. Play of cloud computing Increased volumes of data, storage capacities, scattered procurement teams and high software costs driving the adoption Benefits of Adoption Procurement enables firms to improve margins by atleast10-15% by providing visibility into spending areas Potential to release 30% of working capital from operations by optimising inventory levels and reducing working capital requirements Leads to 80-90% increase in compliance to contractual obligation 16

Service providers are actively forging partnerships, establishing onshore presence, hiring analysts and undertaking M&As to further penetrate the market Pure-play analytics providers Integrated IT/BPO 1 Opening analytics centres at both onshore and offshore locations Adding analytics capability to their global in-house centres Consulting firms / Procurement Providers* In-house global centres * Represents an indicative list of service providers for or Procurement or both 2 3 4 5 New product launches across the analytics value-chain Introducing dynamically configurable and Procurement platforms Hiring professionals with advanced knowledge of analytics and the industry Partnering with service providers across the valuechain to offer end-to-end solutions Undertaking M&A activities to build capability and enter new markets 18

India is a hot destination for analytics due to gap in demand-supply of analytics professionals globally India s and Procurement Talent Requirement, 2013-20, Number of analysts ~14,500 15,000 Country Capability Comparison Rank Country Industry Maturity 1 Source: India CRISIL GR&A analysis Spectrum of Services Talent Availability 2 China ~5,200 5,300 3 Poland 3 Romania 2013 2020E Annual Potential Talent Pool Available for in India, Number of people 5 Philippines 6 Australia IT Professionals Graduates in Math/science Engineers Graduates in Economics Post graduates in Math/science MBAs PhDs Actuaries Graduates in statistics 700,000 500,000 350,000 300,000 250,000 14,000 8,500 5,000 2,800,000 While total talent availability is high, ready to hire talent for & Procurement would be just ~3%-5% of the total 7 Chile 8 South Africa Nil Low Medium High Very High Over the next five years, in the US alone, there is likely to be a talent shortage of 30,000 high-end professionals for & Procurement Given its large pool of PhDs, actuarial graduates as well as statisticians, India is well-placed to capture the USD 2.8 billion offshoring opportunity from the US alone 19

Proactive industry measures can enable the Indian & Procurement industry to capitalise on the global growth Services Market in India, 2013-20E, USD Scenario A: Current Momentum 700-720 million 2.5-2.6 billion 2013 2020 Procurement Services Market in India, 2013-20E, USD Scenario A: Current Momentum 300-310 million 780-800 million 700-720 million ~3.0-3.1 billion 500-550 million 2.5-2.6 billion 2013 2020 300-310 million Scenario B: Potential Momentum Scenario B: Potential Momentum ~1.0-1.1 billion 260-270 million 780-800 million In an ideal scenario, the Industry can garner additional revenues of half-abillion dollar from In an ideal scenario, the Industry can garner additional revenues of USD 260-270 million from Procurement Steps to enable India to garner a majority share in the global & Procurement space Talent Development: Focusing on: Creating the right blend of knowledge of industry and advanced analytics Developing certifications and professional courses to make analytics a mainstream in curricula Establishing on-shore presence: Expanding in developed markets to capture the market and build customer confidence Investing in innovation and R&D to develop in-house analytics tools and platforms Establishing a foothold across the value chain: Building end-to-end capabilities for data management, integration, analytics and consulting Inorganic growth: Undertaking acquisitions or JVs to expand the geographic footprint and product capability 2013 2020 2013 2020 20

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