Recruitment sector found to be paying three times too much for IT purchases
The study showed that a lack of awareness and transparency concerning product mark-ups means that the industry is still under the illusion that it is getting a good deal.
The research from KnowledgeBus reviewed IT spending across 20 sectors including recruitment, retail and manufacturing. This revealed that the recruitment sector have paid average margins of 24% and in extreme cases up to 341% above the trade price for IT products.
The scale of these margins is a clear cause for concern when the industry best practice - as outlined by the Society of IT Managers (SOCITM) – states that margins should exceed no more than 3% of the trade price.
KnowledgeBus is now calling on IT managers and procurement teams to become more proactive in reviewing their IT spending, and to closely monitor the market in order to ensure they are achieving best price.
Al Nagar, head of benchmarking at KnowledgeBus, said “The size of some of the margins is a concern. In all likelihood these will be products that fall below the scrutiny radar – the one-off or low volume purchases, which may be a distress item or spontaneous buy. They may also be smaller items like extension cables, USB flash drives and SD cards.
“The scrutiny of spending on these items cannot be neglected, however, as they often make up a larger than expected percentage of the budget - in some cases as high as 25%.”
On IT equipment generally, organisations did show that they are gradually reducing the average margins paid overall.
Housing Associations, for example, have managed to reduce the average margin paid on IT products from 36% in 2012, and 24% in 2013, to 20% in 2014. In general, the average across all industries dropped from 21.1% in 2013 to 19.6% in 2014. However, this is still well above the industry benchmark of 3%.
“A slight drop in average margins across all sectors suggests that many organisations are getting better at scrutinising their IT purchases,” said Nagar.
“Achieving the best price on IT products can be difficult, with trade prices in a constant state of flux, and yet product lifecycles send prices down over time. Securing optimum price requires careful monitoring of the market situation and data analysis. In the main, IT managers and procurement teams are becoming more vigilant but the research has shown better value and savings could be achieved.”
Some sectors were, however, shown to be going in the wrong direction. The education sector, which had average margins of 12% in 2012, has since seen its margins creep up to 19% in 2013 and 23% in 2014. The most extreme one-off margin paid saw an NHS organisation pay 920% on an item.