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The hidden cost of the pandemic for technology buyers, and 3 tips to avoid paying inflated margins

06/17/2021 By

Spend Matters welcomes this guest post and its insights from Ian Nethercot, MCIPS, Supply Chain Director at Probrand, a tech services provider.

Procurement practitioners are under constant pressure to maximize budgets and do more with less. All the while, every cost has to be accounted for and made transparent. Despite the best intentions, monitoring fair price levels on IT products is no easy feat, with several elements to consider at any one time — including fluctuating exchange rates, overseas delivery charges and new products arriving on the market.

And then there’s the social, economic and political factors — which include the devastating impact of the coronavirus pandemic. The global supply chain all but collapsed in 2020, while demand for “work from home” equipment skyrocketed and buyers became desperate to get their hands on whatever they could, at whatever price, to enable their teams.

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The impact this had on organizations was revealed in Probrand’s latest technology product margins report. This annual study analyzed $6.6 million of tech spend across 14 sectors and compared it against true trade prices to understand the scale of the margins being paid on technology products.

Analysis carried out before the first Covid lockdown found that IT buyers were paying a 9.4% margin on products on average. However, as the first national lockdown was announced and the market became unpredictable, the average margins being paid rose to a staggering 50.84%.

While it’s true that whenever demand outstrips supply, you’re always going to see prices rise, what suppliers were asking of their customers during lockdown far exceeded the increase seen in the trade prices. It seems likely that there was more than one scenario where suppliers took advantage of the chaos to inflate their margins.

Guidance from the Society of IT Managers recommends 3% as a best practice margin for IT purchases. In the seven years we’ve been running this study, however, no sector has managed to achieve that as an average figure. Some have improved over time, but this year’s study showed that, once again, buyers were regularly paying margins that far exceeded what’s recommended, even before the pandemic hit.

Some of the more extreme cases included a government organization paying a 1456% margin on HDI cables bought for $224 and a construction business paying $22 for MicroSD cards, which had a trade price of $3.30.

While the technology market is recovering from the impact of the pandemic, we’re still likely to see the ripple effects of this crisis for some time. So, to ensure buyers don’t continue to get stung by inflated margins over the next year, there are a number of steps they should take:

  • Communicate with suppliers — This is something I cannot stress enough. Regular conversations with suppliers are essential if buyers are going to understand the constraints in the market, where delays are likely and when products may become available. It might be that buyers need to be more flexible — in the short-term at least. Procurement departments may need to broaden their list of approved suppliers too. Casting a wider net means companies spread the risk and could possibly acquire the necessary equipment faster.
  • Plan further ahead than you may think — With so much uncertainty still hanging in the air, buyers should not trust any ETAs. For example, if companies start bringing staff back into the office en masse, they may want to deploy thermal imaging cameras to test people’s temperatures on arrival. But, if demand for the thermometers rises sharply, they might be left waiting several weeks for those products. While the supply chain has improved, it may still be difficult for resellers to guarantee when certain products will arrive with any great accuracy.
  • Price management — Where stock is limited, it’s important not to default to panic buying, but to continue carrying out normal due diligence. If you need additional advice or support, speak to independent experts who can give you a clearer picture of what’s reasonable. You may still end up paying a premium, but it should not be 50% above the trade price, even in strange times. It’s advisable to agree on a margin you are willing to pay and stick to that figure.

While the pandemic will continue to impact the supply chain for some time, buyers can still be proactive and keep unnecessary expenditure down. And by making these more informed procurement choices, they will help their IT budgets go further.

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