Cost Plus 673 Percent? Some Organisations Still Paying Way Over the Odds Procuring IT Products

We are pleased to welcome a guest post from Al Nagar, Head of Benchmarking at Mercato Solutions, highlighting the overspend on IT equipment by some sectors, owing to lack of procurement practice or knowledge. For a full copy of the report ‘IT Product Margins: the avoidable cost to business’ mentioned here please visit KnowledgeBus.co.uk

The rise of tablet and mobile devices has led to a surge in the amount of IT equipment that companies now purchase, with businesses typically working from a range of desktops, laptops, smart phones and iPads at any one time. With this proliferation of devices, there is an increase in demand, that means it’s more important than ever for procurement teams to get value for money on IT spend.

A recent benchmarking survey using KnowledgeBus from Mercato Solutions  has however highlighted that organisations are still paying over the odds for much of their IT equipment. For procurement managers in particular, obtaining market data necessary to undertake validated benchmarking is a constant challenge.

Mercato’s survey highlighted that both private and public organisations are still paying extremely high margins on IT equipment. Average margins were revealed to be between 11 percent and 39 percent over cost price, this points to significant overspend when compared to SOCITM recommended cost plus 3 percent*.

The study benchmarked a variety of sectors, with the banking, leisure, insurance and education sectors amongst the top four industries revealed to be paying too much for their IT. Other sectors scrutinised included retail, finance, construction, law, local councils, utilities and telecoms, with many organisations failing to secure best value when it comes to ICT investments.

Part of the problem lies with a volatile market where price and stock fluctuate hourly, making it difficult for buyers to identify and compare like-for-like trade-level IT product data. Furthermore, there is an attitude in both public and private sector organisations that often results in a ‘buy first, ask questions later’ scenario, with few departments able to invest time researching and obtaining comparative pricing and validated value.

The research found huge fluctuations between the margins paid amongst different sectors with the highest margin paid on a single IT purchase within the public sector made by the NHS, at an astounding 673 percent. Part of this variation comes down to the level of IT procurement support available which varies from industry to industry and indeed, business to business, with a lack of transparency into supplier relationships a major contributing factor.

While average margins paid on IT have diminished overall, there remain a number of sectors that, worryingly, are experiencing a year-on-year increase in prices paid, with certain IT purchases resulting in spectacularly high margins. Without validated comparative data, procurement teams are struggling to achieve a 3 percent margin. Data and access to up-to-date information is key if they are to gather the knowledge they need in order to negotiate better deals with suppliers and get more from their IT budgets in 2014.

*SOCITM Annual IT Trend survey claims a 3 percent margin paid for ICT products is a benchmark of good practice.

 

Voices (3)

  1. Sam Unkim:

    Let me guess
    The 673% margin was a one off single £0.40p widget, required for some 12 year old printer, connected to a old but vital diagnostic bit of kit in a Hospital somewhere. And by sourcing from China we could of got it 3 weeks later for £0.03p……
    Maybe we should start getting quotes, from 3 companies, for any order over £0.01p from now on.

    1. Moneeb Mir:

      Interesting you mention that Sam, as it happens the items which are quoted as being ‘like for like comparisons’ are all sourced from the UK. Having seen similar results first hand (representative of fairly big ticket purchases) I can say with confidence that the inflated margins can be found across a variety of items even those which you least suspect.

      The invitation to carry out a spend analysis is open to all and I would highly recommend this no cost obligation service to everyone who is looking to validate and benchmark their buying practises.

      1. Sam Unkim:

        So a fairly dramatic increase since the last attention grabbing headlines then . Waaaaaaaaay back in 2012

        http://www.telegraph.co.uk/technology/news/9260179/NHS-pays-extortionate-328-per-cent-mark-up-on-printer-parts.html#disqus_thread

        But of course there is no denying that all of the UK Public sector pays “well over the odds” for most items.. We never get sacked for buying IBM (or CSC or even G4S)

Discuss this:

Your email address will not be published. Required fields are marked *