Procurement Outsourcing Gains Momentum

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The outsourcing of such functions as vendor management, purchasing and accounts payable is growing at a 30 percent rate.

Procurement outsourcing will generate huge savings and gain ground among customers.

That's the analysis of Everest Research Institute, an outsourcing advisory firm. The company on Monday reported that the multiprocess procurement outsourcing market is growing at a 30 percent annual clip and will exceed $380 million in 2006.

Multiprocess procurement outsourcing refers to transactions in which three or more procurement functions are outsourced. Such functions include strategic sourcing, vendor management, purchasing and accounts payable.

Michel Janssen, managing research director at Everest Research, said procurement outsourcing will achieve five times the savings of other business process outsourcing fields, such as human resources.

The cost savings don't stem from a difference in labor costs between in-house operations and outsourcing suppliers.

"The biggest issue is spend savings," Janssen said. Outsourcers who provide smarter sourcing can reduce a customer's outlay on indirect materials—office supplies and the like.

Organizations are beginning to seek that savings potential. A number of procurement outsourcing pacts have been awarded this year, including a couple of high-visibility deals.

Affiliated Computer Services Inc.'s slice of Walt Disney Co.'s $1.3 billion outsourcing pact includes procurement services, as does IBM's $1.6 billion outsourcing pact with NiSource Inc.

For more on these outsourcing pacts, click here.

"I think this industry is in its formative stage," Janssen said.

The nascent procurement outsourcing sector is currently a buyers' market, according to Everest Research, which noted that buyers should be able to negotiate favorable terms with suppliers seeking reference customers.

Those suppliers include IBM, Accenture, Ariba and ICG Commerce, which, according to Everest Research, represent 80 percent of the procurement outsourcing market.

Procurement outsourcing vendors will need to extend their global reach, according to the company. Procurement outsourcing transactions with a global component have increased from 15 percent of the deals to 44 percent over the past two years, Everest Research said.

Accenture can attest to the global trend. Bank of Ireland on Monday tapped Accenture to provide procurement outsourcing services. The seven-year deal includes training services as well as procurement.

The services are expected to be implemented within a number of months, according to Accenture. The deal will affect about 180 bank employees, who will either be retrained within the training and purchasing areas, transferred to Accenture, or redeployed within the bank.

In June, Accenture announced a seven-year outsourcing pact with Elpida Memory, a Japanese electronics manufacturer. That deal included a procurement outsourcing component.

Sapient to acquire marketing agency.

Sapient to Acquire Marketing Agency

Sapient Corp. on Monday announced a definitive agreement to acquire Planning Group International Inc., a Miami-based marketing agency that focuses on both online and offline marketing initiatives.

Jerry Greenberg, Sapient's co-chairman and co-chief executive officer, said the push into marketing represents a new line of business for the company. Sapient has been offering services ranging from business strategy to outsourcing.

Prior to 2005, the company was "never really in the marketing end," Greenburg said, speaking at a teleconference. Sapient began to build marketing capabilities this year, and the PGI acquisition will double the company's work in that field in 2006, according to Greenberg. Sapient values the transaction at $40 million and expects the deal to close Jan. 2.

Prior to its acquisition plan, Sapient expected to generate $25 million from its fledgling marketing business in 2006. The addition of PGI will boost that figure to $50 million, Greenberg said.

Greenberg said PGI will complement the 40 percent chunk of Sapient's business that is Internet-related. PGI's "marketing know-how" will enable Sapient to "get into some of the things we've not done before," he added.

PGI, based in Miami, brings Sapient 160 people who provide such services as advertising, brand development, direct marketing, data mining, paid search, and media planning and buying. The company also employs a proprietary tracking tool, BridgeTrack, which gauges the effectiveness of media campaigns.

PGI clients include CitiGroup, Burger King and Celebrity Cruise Lines. Sapient will fold PGI into a new business unit, Experience Marketing. That group will be led by Gaston Legorburu, PGI's CEO and managing partner. He will report to Greenberg.

Sapient earlier this year acquired Business Information Solutions LLC, which specializes in SAP-related services.

CIBER, Keane Ink Health Deals

CIBER Inc. and Keane Inc. on Monday both disclosed projects involving health care provider financial systems.

CIBER said it has completed the migration of Clarian Health Partners' business applications to Lawson Software Inc.'s enterprise suite. Clarian operates five hospitals in the Indianapolis area. CIBER implemented Lawson Human Resources, Financials, Procurement, Employee/Manager Self-Service, Financials Self-Service and Requisition Self-Service applications.

The applications are used to support tasks ranging from paying employees and vendors to placing orders for goods and services. The company's CIBER Enterprise Solutions division performed the migration work.

Jim Sagel, a practice director in CIBER's Lawson Practice, said the company has seen an increase in the size of Lawson enterprise resource planning (ERP) projects in the health care arena. He noted that health care providers tend to purchase all Lawson ERP modules rather than making piecemeal purchases.

"These ERP systems help health care providers increase their internal efficiency to provide better patient care and to attract and retain high quality of health care professionals … who are used to having information available to them when they need it," Sagel said.

CIBER has installed Lawson applications at a number of other health care providers. Those include Health Alliance of Greater Cincinnati, Inova Health System, West Virginia United Health System and Hawaii Health Systems Corp.

Keane's Healthcare Solutions Division, meanwhile, said an Indiana hospital has selected its EZ-Access Patcom software, a revenue cycle management solution. Riverview Hospital in Noblesville, Ind., will use Patcom modules for registration management, billing, collections, electronic claims, contract management and health information management, according to Keane.

Patcom will replace the hospital's legacy system from A4 Health Systems, Keane said. The system will be interfaced with clinical systems from Misys Healthcare Systems. In September, Misys announced a multimillion-dollar contract to install its Misys CPR patient record solution at Riverview Hospital.

John writes the Contract Watch column and his own column for the Channel Insider.

John has covered the information-technology industry for 15 years, focusing on government issues, systems integrators, resellers and channel activities. Prior to working with Channel Insider, he was an editor at Smart Partner, and a department editor at Federal Computer Week, a newspaper covering federal information technology. At Federal Computer Week, John covered federal contractors and compiled the publication's annual ranking of the market's top 25 integrators. John also was a senior editor in the Washington, D.C., bureau of Computer Systems News.


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