ProcurementIQ estimates that the average price of procurement consulting services has been rising at an annualized rate of 2.2% in the three years to 2017 due to growth in demand. Despite price growth, buyers have been benefiting from low price volatility during the past three years. Suppliers’ primary input cost is wages, which have remained stable as a share of revenue. As a result, there has been little risk of significant input cost fluctuations, and suppliers have been able to maintain steady price trends. Low price volatility makes it easier for buyers to anticipate service prices and budget for purchases.
Growth in the number of businesses has spurred increased demand for procurement consulting services. The rising number of businesses has expanded the customer base for service providers while high, albeit slightly decreasing, corporate profit levels have allowed buyers the financial flexibility to purchase consulting services to improve their operations. In some cases, the industries hit hardest by falling oil prices and economic downturns abroad during the period have been able to turn to procurement consulting in order to gain better cost control and improve their margins.
Additionally, the IPI has grown as industrial output has increased. As businesses across many sectors have boosted production, they have required more direct and indirect materials and services to support their operations. In turn, these businesses’ procurement departments have increasingly sought out procurement consulting services to improve processes and supplement internal functions. This trend has led to demand and, thus, price growth in this market.
Price growth has, however, been tempered by the large number of suppliers operating in the market. Because buyers have many suppliers from which to choose, providers must compete on the basis of price to attract and retain business. In turn, market competition puts downward pressure on price and limits the risk of rapid price increases. Even so, as prices continue to rise mildly, buyers may wish to consider locking in service contracts now, prior to future growth.
Demand growth resulting from further improvement in the economic environment is expected to cause the price of procurement consulting services to grow at an annualized rate of 1.1% from 2017 to 2020.
Corporate profit and the number of businesses in the United States are anticipated to grow in the next three years. As a result, the number of potential buyers of procurement consulting services will rise, and businesses will have more capital to invest in services, leading to higher demand for consulting. In addition, the IPI is expected to increase at a faster rate during the next three years as oil prices rebound, bolstering purchasing activity across businesses in the manufacturing, electric and gas sectors. Together, these trends are anticipated to boost demand for procurement consulting services as buyers search for ways to increase their operational efficiency and achieve greater cost savings on purchases. Rising demand will grant suppliers greater pricing power, hurting buyers. Additionally, rising overhead costs have pressure prices upward.
Fortunately for buyers, price volatility is expected to remain low through 2020. Wages for consultants comprise suppliers’ primary input cost, and wages are expected to continue to remain stable as a share of revenue. As a result, suppliers will be able to budget accurately for their input costs, increasing the average provider’s financial stability and allowing suppliers to keep price growth steady. Moreover, heavy competition is expected to slow price growth through 2020, aiding buyers. Nonetheless, buyers should consider purchasing procurement consulting services sooner rather than later to take advantage of current prices before they rise, especially if they anticipate requiring services on an ongoing basis.