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June 30, 2011

Organisations overpaying for IT purchases because of market volatility: research

81% of organisations pay more than pre-decided deal, some pay margins up to 474%

By CBR Staff Writer

Market volatility, ignorance and negligence are costing millions of pounds in IT purchases to organisations in both private and public sector, according to a survey by ICT benchmarking tool Mercato ITelligence.

The study found that organisations are wasting millions of pounds on IT purchases as buyers struggle to achieve best value and transparency on purchases.

The research found that 81% of organisations fail to get the deal they had decided on, with of them paying margins up to 474% on specific items. The total UK IT spend is estimated at over £100bn,

In retail, a top sports fashion house paid an average cost +76% and cost +474% on some very specific, high value rare purchase items, said the report. A Midlands Council surveyed paid up to 54% above cost on a budget of £6M.

The Mercato ITelligence survey evaluated over 1,000 organisations with a budget over £50,000 and perceived supplier relationships of between cost +3-5%.

The research found that the public sector is a regular loser when it comes to securing genuine best value. It also found that organisations across sectors were paying more than pre-agreed or perceived margins.

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Mercato ITellignce said that buyers need to be vigilant about their supplier agreements and go for spot-check purchases to ensure best value purchases. It added that high market volatility has made it difficult for buyers to negotiate price effectively.

Mercato Head of Benchmarking Al Nagar said negotiating best price on every purchase is a necessity in the modern economy but a volatile market where price and stock change regularly is challenging buyers looking for value on every purchase.

Nagar added, "At the core of this issue is that buyers rarely manage to find and use validated trade price as a ‘bartering’ tool with suppliers.

"As a champion of fair deals for IT buyers, Mercato ITelligence has demonstrated that IT deals are not as sharp as buyers want or perceive them to be. ICT bought at better prices will enable a buyer to stretch the reach of their budget to get more or better ICT for the same money. This means higher volume for the supplier and better fairer deals for the buyer. A win win.

"Organisations are overspending on their IT as a result of the radically fast moving market and this is hitting bottom lines at a time when many are fighting to become more efficient.

"For genuine best value, buyers need to police and benchmark purchases. This is particularly the case in the public sector, where we found almost all of those surveyed were paying over their agreed margins."

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