Spend Matters welcomes another guest post from Jon Winsett of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom, and shipping.
While the rest of us are wrapping up summer vacations, retail IT and sourcing executives are barreling towards the holiday retail season. As we’ve discussed before, few have time to get ahead of the IT and budget challenges that are waiting for them in Q1 2015, one of which is finding the money to pay for new IT projects. It’s a challenge for every industry, but especially for retail where IT innovation weighs heavily on margins and competitive differentiation.
Here are the four final areas where IT overspending is occurring within most retail organizations (check out the other nine here and here). By taking a hard look at these areas, retail IT and sourcing professionals can turn overspending into funding – often millions of dollars that can be re-directed to IT innovation.
Lock in discounts.The bigger the purchase, the more leverage you have. This may fall into the “Contract Negotiations 101” category, but it’s surprising how many retailers don’t get the most out of their buying power. For large IT purchases, don’t settle for a one-time purchasing discount. Use your leverage to lock in competitive discounts over the term of your contract.
Conduct multiple POCs for new purchases. In an effort to keep up with retail’s hyper-competitive environment and consumer demands, sourcing new IT projects is often rushed. As a result, retailers fail to capitalize on healthy competition. Vendors are well trained to know when they are the only player in the game and adjust their pricing and negotiation tactics accordingly. To send a message of competitiveness, retailers should conduct multiple POCs (even if you have a strong preference already for one supplier). Conducting them simultaneously doesn’t take any longer and the long-term health of the project will benefit in terms of both cost and quality.
Stop sole-sourcing. In certain areas of retail IT – wireless, wireline, servers, and storage, in particular – sole-sourcing is fertile grounds for overspending. By spreading spend across multiple qualified vendors, retailers can keep vendors motivated to provide the best pricing, discounts, and terms. It also provides risk management benefits.
Benchmark pricing and terms for every IT purchase and renewal over $50K. Finally, it’s critical for retailers to confirm they’re paying a competitive price and receiving best-in-market business terms for their IT purchases and renewals. Tapping into third-party benchmarking and vendor intelligence can yield major savings. Here are a few examples of recent, real-world transactions that were optimized:
- Oracle ULA – Saved 19 percent on a $5M purchase
- Cisco – Cut the cost of a $600K purchase by 22 percent
- Microsoft EA – 35 percent savings on $11M purchase
- Disaster Recovery – Reduced costs by over 50 percent
- Microsoft EA – Reduced renewal costs by $4M
- Retail Supply Chain Platform – $1.5M shaved off $5M purchase
A final word: in 2015, retail IT executives will have their work cut out for them. Whether it’s implementing new mobile commerce initiatives or moving more IT operations into the cloud, the pressure will be on to increase efficiency, margins, and market share. It’s a tall order, and one that will require substantial funding.
Is it possible to lay a financial foundation for innovation without sacrificing profits? Absolutely. The 13 tips described in this series of posts form a roadmap to achieving that goal, as well as setting the stage for more responsible IT contract and vendor management in 2015.