IT supply chain developments and their impact on buying decisions

We are pleased to welcome a guest post from Al Nagar, Head of Benchmarking at Mercato Solutions, which marks the first in a series of advisory posts on the IT equipment supply chain and the movements that impact buying decisions. 

Al Nagar 1IT spend makes up a large proportion of a company’s capital expenditure, particularly when one considers that the average workforce now requires a range of multiple devices: tablets, iPhones, laptops, desktops and so on. Add to this the constant conveyor belt of new product introductions to market and a three-tiered worldwide supply chain, and you have a very volatile market where price and stock fluctuate daily.

Put simply, the commodity IT market remains very challenging. With this in mind, our series of advisory posts will share with you our knowledge of recent movements and drivers within key product categories, aimed at keeping you abreast of the latest developments which impact purchasing decisions today and tomorrow.

Exchange rates

The build-to-sale IT supply chain has multiple stages across global geographies where exchange rate can influence the price of individual components and finished products.

Products are built and configured in factories predominantly in Asia. Components will be bought in either local currency or dollars. Dollar fluctuation against the Yen or strong Dollar rate will increase the component cost and therefore the cost to build the finished product.  Even at component level the number of parts in most IT products makes a big difference to their total build cost.

Products can take 2 to 3 months to get from the assembly line to the customer and manufacturers can buy-up vast amounts of components in advance, so changes in exchange rates can happen 3 to 6 months before the product is sold.

All manufacturers are different when it comes to the supply chain, but some “sell” products “to themselves” between countries and not always in the same currency, which means that prices can increase or decrease as the product moves through the supply chain, even before it gets to distribution or the reseller.

Distributors then buy in multiple currencies dependent on the manufacturer, where the procurement head office is located and occasionally what the best exchange rate is at the time of purchase. From a procurement perspective, the next step is to align this information with products to become more strategic in identifying which movements in exchange rate impact which product lines and categories.

May stats showed that having declined during April, the Euro steadily improved its standing against the Dollar, whilst remaining fairly static against the pound. Meanwhile, the long-term strengthening of the pound against the dollar appeared to flatten during May.

Printers

3D printing remains something of a hot topic and is increasingly gaining wider visibility, with stationery and office suppliers Staples opening two 3D printing service centres in the US last month. Traction of 3D printers looks set to take off in the next five years with Juniper estimating that consumer sales will surpass 1 million units by 2018 compared to 44,000 this year.

The 3D printing market may be a fairly small sector at present but one that’s set for significant growth. Figures from Canalys reveal that the industry will rise to $3.8 billion by the end of this year, up $1.3 billion from last year. Predictions suggest that people will be spending $16.2 billion on 3D printers by 2018.

Any purchase of 3D printing equipment is likely to be a fairly weighty investment, which is why significant research is essential, particularly when there are new models emerging all the time. For the right industry and environment, finding a printer that suits the needs of your business could be a one-off investment that delivers real results long term. But, as the new technology passes through the lifecycle and increasingly more new product introductions come along, so prices will naturally trickle down. 

Tablets

The IT market declined in the first quarter of 2014 by a value of 0.9% compared to the same time last year. A large element of this has been driven by the tablet market which has fallen 5.4% in value compared to other IT sectors which have performed relatively consistently.

The tablet market value decline is in line with a gradual falling growth rate taking place over the past four quarters. A large element of this has been due in part to a switch to smaller 7-inch tablets as consumers ditch the more expensive 10-inch models in favour of a more compact, lightweight and cost-effective option. The consumerisation of IT may see this trend reflected in B2B demands.

For procurement managers unconcerned with securing the latest model, the current market decline is a key opportunity to invest – particularly when it comes to justifying spend. For those with more specific requirements, however, it may prompt specifiers and procurement teams to look to other devices.

Desktops

While the tablet market has wavered, desktop computing is seeing something of a renaissance, with the sixth consecutive month of growth in March leading to a 13.7% volume growth and 5.3% value growth for the first quarter of 2014.

Interestingly, consumer retail sales are playing a big part in driving growth, with B2B sales actually in decline. The retail market growth is spurred by two factors; the high-end traditional form factors driven by PC gaming and the entry-level all-in-one segment which offers a highly accessible touchscreen hub for family mobile devices. PC monitors are also benefiting from desktop growth, up 7.5% and 13.4% in volume and value respectively.

Lastly, with Microsoft finally discontinuing support for Windows XP, business users and procurers should consider the pros and cons of being tempted by perceived hot deals that offer free or inclusive versions of Windows 8.1 on new hardware.

Opinions expressed in guest posts are those of the author and do not necessarily represent the opinions of Spend Matters UK/Europe.

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