Spend Matters welcomes another guest post from Jon Winsett of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom, and shipping.
This time of year is a slippery slope for retail IT and sourcing professionals. With much of their effort going to preparing for the holiday retail season, few have time to think about the IT and budget challenges that will be waiting for them in Q1 2015. So, what can retail IT and sourcing leaders do now to make sure they have the funding available to take on next year’s innovation challenges?
One best practice is to formally identify – and eliminate – overspending, which frees up existing budget dollars to be re-purposed to unfunded projects. Here are the first four (of 13) specific places to look for overspending. A structured and focused approach to optimizing pricing, licensing, and business terms across your IT portfolio can free up millions of budget dollars.
Get smart about SMAC component pricing.Social, mobile, analytics, and cloud computing (SMAC) represent the Wild West of retail IT purchasing, as well as a top priority. New players and consolidation among established players are driving greater inconsistency in pricing and terms, while vendors like Microsoft and Oracle have made significant changes to their licensing and product use rights to monetize SMAC-related access to their software and hardware. It’s imperative that retailers become experts on what constitutes fair market value pricing and terms for SMAC purchases, the myriad licensing options available to them, and how evolving product use rights will affect their spend.
When it comes to e-commerce, pay only for what you need. Pricing and pricing models for e-commerce solutions are all over the map. When purchasing solutions such as content delivery networks (CDN) or optimization for mobile devices, retailers should only pay for what they use. Vendors often quote a platform that is based on 2x, 3x or as much as 10x the capacity that’s actually required by the retailer. Why pay for 10 million page views if you only need 4 million? Why pay for 2Gbps of CDN bandwidth all year if you only need it during the peak shopping season? Not only should retailers make sure they’re paying a fair price for the service, they should also make sure fees are in line with actual e-commerce project needs.
Renegotiate maintenance and support, and explore third-party support alternatives.Maintenance and support costs are at an all-time high – but that doesn’t mean retailers have to oblige. Retailers need to renegotiate and right-size their support agreements across their IT portfolio, starting with their largest software/hardware deployments. This includes benchmarking support costs to make sure they are in line with best-in-market peers, as well as considering forgoing or downgrading support on non-critical applications. Last but not least, retailers should explore third-party support options that offer a competitive level of service (in some cases, better) for a fraction of the cost. My colleague, Kim Addington, wrote a Spend Matters blog post last week on this topic – check it out here.
Double-check your storage pricing.NPI estimates that 25 to 40 percent of companies overpay for storage. In 1985, the average cost per gigabyte was $105,000. Today, that cost is a mere $0.05. From 2010 to 2014, the cost of storage dropped a whopping 44 percent. Whether it’s an on-premise purchase or a cloud hosting agreement, retailers need to review – and in some cases, renegotiate – storage rates.
Consider renting hardware during peaks.Depending on the time of year, the demands on retailers’ servers, storage and networking hardware vary greatly. A retailer may fully use their hardware investments for two months of the year, while underusing (and paying support on) those investments the remaining 10 months. Rather than purchase hardware to accommodate a seasonal surge in online traffic and supply chain activity, retailers should consider renting through reseller partners. For maximum savings, bundle short-term leases with third-party support.
What else can you do to drive more budget to new IT projects and less to overspending? Next week, I’ll share several more tactics that retailers can use to fund IT innovation in 2015.