The IT industry is by far one of the most volatile markets with price and stock fluctuating on a daily basis and up to a million price changes in a single quarter.
Under normal circumstances this volume of price and stock changes can be hard to keep track of, but with UK citizens voting to leave the European Union, the question on most IT buyer’s minds is – how will the EU referendum effect this already volatile market and the price we pay for IT?
Consider how the market works
When purchasing IT products, understanding the supply chain behind each product and components that make up that finished product is paramount, particularly when you consider manufacturers often plan their product portfolio up to a year before they hit the shelves.
Final products are made up of different components and pass through a variable supply chain across different geographies, distances and currencies. All this contributes to final product sell price, and the impact of a change in the supply chain can have an immediate or delayed impact on prices depending on the scale of the change. For example, the Japan tsunami immediately caused the price of WD HDD drives to sky rocket due to short supply. Brexit is forecast to impact price and stock in different ways, with exchange rates being the largest impactor.
The Immediate Impact
On 24th June 2016, Britain was left in shock as the pound plummeted to a 31-year low with oil following suit. Global exchange rates reacted immediately pushing up the price of goods. Short term it is certain this will effect the purchase price of IT products. "The price of everything will go up. The pound has dropped by five per cent or more, and it is changing as we speak. Prices will all go up – all reseller prices are in dollars.” - Entatech chairman Dave Atherton.
In addition, some distributors and manufacturers issued price warnings into resellers of immediate price rises on certain brands – citing the value of the pound against the dollar. Others have indicated the current price of in-stock items will be honoured but rises are likely once current stock is sold.
Price and stock data in the supply chain indicated on Friday 24th there were 26,884 price increases, which is high but not abnormally so in this context.
As manufacture costs fluctuate as a result of Brexit’s impact on exchange rates, so price changes are certain to follow suit in line with supply chain timelines. Also, watch for prices of raw materials used in manufacture of computer products. Copper, aluminium and zinc prices often rise and fall with the dollar rate, which impacts on end product prices that IT buyers pay months later.
Separately, once Article 50 is submitted – forecast to be in October – so the UK will begin negotiating more than fifty free trade deals with countries ranging from Canada to South Korea – a major IT component maker. It is undefined how long these agreements will take and the full impact they will have on UK IT procurement . If trade deals cannot be agreed, then the UK will import under the World Trade Organisation’s rules – meaning imported goods will be subject to a levy to cover an admin burden beyond current – a cost that is sure to be added to the end price of IT products.
What should I do?
It is crucial more than ever that IT buyers monitor exchange rates and raw material prices closely when looking to make any purchases to ensure they get the best price possible, today and tomorrow. Exchange rate is the biggest impactor and often dictates a swift change in product prices if large negative movements occur.
Watch for some IT sellers who may use these unstable times to their advantage – unnecessarily increasing margins for short term gain.
3 Top Tips for IT procurers amidst Brexit
The full impact of how the vote will effect the supply chain is currently unknown. However, some within the supply chain have increased their prices already, whilst others are holding price on in-stock items with rises forecast for new stock. If you have planned purchases or regular buy items it might be worth considering bringing them forward to protect budgets into the future.
Scrutinise prices before any purchase
Some unscrupulous suppliers may choose to increase their prices for short term gain. Watch out. Always ensure your suppliers give you transparency across prices.
Monitor exchange rates
Watch those exchange rates like a hawk, going up and coming down. They impact logistics costs, manufacture costs and end product prices, both today and longer term. Consider your options and think about planning purchases for the optimum time for best price if you can.
View more Guides