Procurement 29 September 2016

Navigating a complex IT supply chain

IT supply chain
Experts advise that margins paid on IT equipment should exceed no more than three per cent of the trade price

The IT market is like a continual conveyor belt with hundreds, if not thousands, of new products entering the market each day. For SMEs and entrepreneurs who may not have a dedicated procurement department, navigating this complex IT supply chain is no easy feat. It requires knowledge of trends and an understanding of what to prioritise.

Faced with shrinking budgets, businesses need to be smarter when it comes to tech purchases. Yet, despite the best of intentions, organisations can unwittingly end up paying more than is needed on everyday IT equipment. This is because suppliers often take advantage of a lack of clarity in the market to insert a large mark-up on the products they are selling. The extraordinary levels that some suppliers charge are revealed annually in the KnowledgeBus’ IT Margins Benchmarking Study.

According to The Society of IT Managers (SOCITM) the margins paid on IT equipment should exceed no more than three per cent of the trade price. Yet the IT Margins Benchmarking survey shows that, in extreme cases, suppliers are charging organisations mark-ups which are almost 11 times higher than the trade price.

With every business keen to achieve growth, why are we still throwing money away when it comes to IT purchases?

Navigating a complex IT supply chain

To be confident that you’re getting the best price for IT products it requires you to consider several elements at any one time. Alongside supply chain factors, such as overseas delivery charges, geopolitical issues, like Brexit, are unknown variants that make exchange rates, and therefore import prices, difficult to predict.

With prices jumping up and down on a daily basis, it can be near impossible to keep track of the best price. You could easily while away several hours scouring the internet, requesting several quotes before analysing the data, only for things to change the next day. Buyers need to be wary of these changes and the potential impact on prices, from both positive and negative perspectives.

Watch out for the small purchases

As manually benchmarking technology prices is so time consuming, it usually only happens with high-value or bulk orders – where inflated margins could result in thousands of pounds’ worth of additional cost. It’s easy to see why teams may invest more time on these larger purchases – the consequences appear much greater, and the procurement teams face more intense scrutiny accordingly.

Yet it is actually often on the smaller items where the biggest margins are charged. These are the numerous “everyday” purchases that you may often find yourself popping down to your local shop for – a USB stick, laptop stands or a new keyboard. Although little purchases, they all add up and can, in some cases, total around 25 per cent of an annual IT budget.

Benchmarking

Organisations can, however, deploy a benchmarking tool that automates a large part of the procurement process. A benchmarking tool will remove the guesswork and provide full visibility over trade prices. This allows businesses to negotiate with confidence and speed up the IT procurement process. This transparency also means that organisations can access up-to-date, validated information that will highlight the exact margins that suppliers are charging. With this information at your fingertips you can monitor existing contracts (or re-negotiate new ones) and prevent suppliers from taking advantage of an opaque supply chain in order to boost their margins.

If businesses are to keep unnecessary expenditure to a minimum, it’s crucial each take an intelligent approach to technology procurement. By combining benchmarking tools with a more in-depth knowledge of the IT supply chain, buyers can make more informed procurement choices and stretch IT budgets further.

Al Nagar is head of benchmarking at KnowledgeBus.

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