• Product Lifecycle Purchasing - Fair Deal for Buyers?

It is a widely accepted fact that any product from any sector passes through a lifecycle, from development through to introduction and on into decline. However, an often forgotten fact is that as technology ages, so its price quickly comes down in a bid to buoy sales as newer technology is introduced. E-procurement specialist, Peter Robbins asks the question, does this mean that we're all getting a fair deal from cost plus agreements?

The cost plus agreement usually sees a medium to long term transparent arrangement between supplier and buyer, usually between 3 - 5% above the cost price.

However, as the dynamic nature of the technology sector means that IT hardware and software costs fluctuate hugely, the cost plus agreement could become anything but transparent.

With IT price and availability changing on a daily basis it is increasingly difficult for buyers to keep a real-time grasp on exactly what they're purchasing and whether they are getting value time after time.

To that end aggregation technology exists in the marketplace that empowers buyers with the knowledge to police their preferred suppliers to ensure they are getting the deal they agreed.

It is this type of technology that can provide efficiency gains on many levels, from better product in-cost to time savings associated with finding the best priced product on any day, to enable departments to stretch the reach of their IT budgets.

Organisations are successfully using technology that requires no user training, no supplier education and operates on a low investment Application Service Provider (ASP) model - hosted/managed off site.

This type of market intelligence technology offers product lifecycle functionality like stock and price tracking. So, even though an organisation might be buying through a structured e-procurement process or framework, the purchaser has the intelligence to consider trends and forecast price and stock changes.

The result is greater negotiating power but also market intelligence to identify when is the best value time to purchase any given product in the marketplace. Armed with this knowledge means smarter buying.

Like many facets of the IT marketplace, LCD products are under a state of flux but with the help of aggregation technology it is possible for buyers to truly understand the dynamics at large through the reporting functionality offered.

Clearly, if PC screens are next on your 're-order pad' it is important to make sure you are getting the best priced product at the right time - only knowledge can give you this purchasing power.

Probrand's market analyst, Iain Bowles, provides some insight into the market: "There has been a trend of between 9% and 25% price reduction in LCD monitors since Jan 2006 (according to Mercato). The variation is across all sizes of LCD display.

"Currently the manufacturers are in a classic 'over supply' mode. This is expected to run into Q3. In over supply mode, the price war is very evident as stocks build in the supply chain so suppliers become more aggressive to reduce stock and build market share.

"The continuing price reduction trend we are currently seeing in LCD panels is forecast to slow down as we enter the 3rd quarter of 2006. Then I expect to see the supply status change. The effect of this could potentially see a reversal of the pricing trend with all suppliers increasing price or changing products and as a result selling for higher values.

"The component supply will be resolved in the early part of 2007, this will mean we are likely to return to over supply, and again, likely to return to a competitive market where we will see aggressive pricing to gain market share.

"Planned purchasing in a period of 'over supply' is going to provide best value for budgets. But only the latest best practice technology can offer the market intelligence needed to plan for best value IT."

The bottom line is that buyers no longer need to purchase blind or at the highest price. The granular levels of product and market knowledge that new technologies offer, helps purchasers rationalise whether they need to pay a premium for the newest and highest specification products. An example of this technology is Mercato ITelligence, which is one module of a fully integrated Total Commerce solution.

Uniquely, Mercato allows users to input their own suppliers' product prices before the solution automatically conducts a price and stock comparison with over 100,000 products held within the UK's mainline distribution network. Buyers can now negotiate with suppliers from a position of strength.

Furthermore, with Mercato's e-procurement module, which manifests itself in the IT vertical as The IT Index, enables buyers to find and purchase the best priced products from within a secure online environment.

Essentially, there is no need to be left in the dark when it comes to securing value as part of a best practice approach to procuring IT. Tools exist in the marketplace that will add value to a buyers role by empowering them with market intelligence for improved negotiating, purchasing and policing of procurement agreements.

Contacts

Peter Robbins is MD of Probrand Ltd