Some organisations paying massive mark-ups on IT due to 'lack of awareness' – study

Will Green is news editor of Supply Management
12 May 2015

Some organisations are paying more than 900 per cent above the trade price for IT products, according to research.

A study by KnowledgeBus of IT spending across 20 sectors found an NHS body bought a product with a margin of 920 per cent in 2014, while a charity paid a mark-up of 850 per cent and a housing association one of 711 per cent.

KnowledgeBus said the research showed “a lack of awareness concerning product mark-ups means that businesses are still under the illusion that they are getting a good deal”.

The consultancy sector paid the largest average margin for IT products in 2014, at 35 per cent, followed by recruitment (30 per cent) and manufacturing (24 per cent).

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 per cent.”

Across all sectors the average margin paid on IT products fell to 19.6 per cent in 2014, compared to 21.1 per cent in 2013.

But some sectors saw average margins in 2014 increase compared to 2013, including councils (12 per cent to 21 per cent), telecoms (12 per cent to 19 per cent) and education (19 per cent to 23 per cent).

Nagar said: “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.”

Largest average IT margins by sector in 2014:

1.    Consultancy – 35 per cent
2.    Recruitment – 30 per cent
3.    Manufacturing – 24 per cent
4.    Education – 23 per cent
5.    NHS – 22 per cent
6.    Charity/councils – 21 per cent
7.    Insurance/FMCG/housing associations – 20 per cent
8.    Telecoms/pharmaceuticals – 19 per cent
9.    Utilities – 17 per cent
10.  Banking – 16 per cent

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