IT prices inflated due to lack of market transparency

Suppliers in the IT market are inflating product prices and getting away with it, KnowledgeBus said in its latest report.

They’re getting away with it because the market lacks transparency, it was said in the IT Margins Benchmarking Study, which covers 24 different verticals.

The short product lifecycle, as well as constant fluctuation in trade costs is making price identification difficult, the report says. But, businesses should not be paying more than 3 per cent margin to suppliers.

But check this out: “Despite this guidance, the research revealed that one supplier successfully charged a local authority a 1,095% margin for an order of SD memory cards.”

In the words of the late and great Billy Mays – that’s not all! A company in the telecoms sector paid 989 per cent margin on printer products, while NHS bought IT peripherals with a 962 per cent margin.

The worst of it all is – the margins are actually coming down. In 2014, the average was 19.7 per cent, while last year, it was recorded at 17.6 per cent.

Since the report was first published in 2012, the NHS managed to consistently drop the average – from 28 per cent, to 20. Housing associations managed to do the same – from 36 per cent down to 19. Retail was the best performing sector, dropping prices from 35 per cent in 2012, to 11 per cent this year.

“Organisations are getting better at scrutinising purchases and negotiating better deals with suppliers. But the analysis shows that many purchases are far in excess of industry best practice,” said Al Nagar, head of benchmarking at KnowledgeBus.

“The most extreme example of excessive margins are regularly found on those lower volume, spontaneous, ‘as and when’ purchases. These are typically unplanned purchases consisting of items such as memory sticks, power adapters and cables.”

Al Nagar gave three key tips when trying to get the best prices: give negotiators access to updated and validated trade level information, agree to ‘cost plus’ contracts with the suppliers to make sure no IT product exceeds an agreed maximum margin level, and monitor price trends.

Image source: Shutterstock/Melpomene