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What are the biggest struggles for procurement departments?

Procurement and IT professionals face increasing pressure to make more strategic decisions that will drive value for money. To complicate this somewhat, buying teams have to contend with a three-tiered global supply chain, daily price and stock fluctuations, as well as keeping in sync with the speed of new technology introductions, which can hit the thousands each month.

Benchmarking helps to underpin large, high value purchases yet organisations are regularly overpaying when it comes to small items that are being bought in an ad hoc fashion.

There’s a common belief that it’s the larger, higher-value purchases that require the greatest scrutiny. A huge refresh of 1,000 desktop PCs across a number of different sites will often be well planned, interrogated and executed. This is not just due to the size of spend but also because it is likely to form a larger part of an organisation’s overall IT strategy.

The greater the spend, the greater the pressure to ensure that value for money is being achieved. Procurement experts will achieve this through tenders, negotiations with preferred suppliers, and with the help of benchmarking tools.

Given the sensitivity and scale of this larger type of purchase, it’s easy to see why procurement professionals may invest more time when managing this type of purchase. However, the same cannot be said for one-off or lower-value products which are often a distress or spontaneous item – a toner cartridge when the organisation runs out, and a department cannot work. It’s here that IT and procurement teams are falling down on achieving best value.

These smaller items are often deemed too small to register on the radar, but will actually often make up around 25% of the overall IT budget. It’s these unscrutinised little-and-often purchases where supplier margins inflate prices the most.

Research carried out across 20 public and private sector verticals, by KnowledgeBus, revealed that organisations are often paying prices several times higher than the cost to the supplier. It found that one organisation in the NHS had paid a margin of 920% above the trade price.

Commonly, these high margin products are smaller items such as extension cables, USB flash drives and SD cards. Suppliers are well aware that the cost of organisations trying to work out the trade price of these low-ticket items often outweighs the time spent to barter the price down to what is perceived as value. Suppliers use and exploit this fact, inflating margins on these smaller purchases, in the knowledge that they are unlikely to get caught out.

Even if public sector IT procurement experts are aware this goes on, they’re unable to act on it. Spending hours scrutinising lower priced orders doesn’t make business sense when they’ve got to make sure that large ticket orders are delivering value for money. But those smaller purchases still add up, and over the course of a year, regular low-cost orders soon form a large percentage of an organisation’s IT budget.

The challenge for buyers is to introduce a process that enables scrutiny of every purchase and transparency of supplier relationships. This is where supply chain benchmarking tools can provide a simple, scalable solution to deliver absolute transparency into what margins suppliers are charging before, during and after procurement.