Did you know that the IT industry is one of the most complex markets in the world, largely driven by a three-tiered global IT supply chain?
There can be a million price changes in a single quarter, up to 19,400 new product introductions a day and a plethora of innovations to keep track of?
Supply chain dynamics and product lifecycle play a critical role in driving this volatility and yet research has found 81% of IT buyers aren’t aware of the scale or frequency of market movements. So, in this guide we’ll tell you the key elements to be aware of that impact price and stock changes in the UK, so that you can become more strategic in securing good deals every time you buy.
Defining the supply chain
Achieving best price is a difficult task when faced with a three tiered supply chain that includes manufacturer, distributor and reseller, and it is worth remembering that each is looking to make money at every step of the supply chain. Plus, every step can have a knock-on effect on everything from delivery times to stock availability between manufacturer and end consumer.
Also, consider that the IT marketplace is made even more complex thanks to some vendors like HP, Dell and Acer choosing to supply products direct to the end user as well as via the reseller channel. But, beware, there’s no hard and fast rule that says you’ll get better pricing going direct to a brand as a reseller may have bought-in volume at a huge discount to undercut everyone else in the market.
On a global level
It is worth improving your understanding of what components go into final products, as parts are often manufactured and sourced globally and impactors at that level have a knock-on with end product prices before they are even shipped across geographies. Higher volatility of pricing in finished ICT products is a reflection of manufacturers consistently being challenged by their costs.
Raw materials for the complex ICT component supply chain are sourced from hot spots all over the world, including Australia, Africa, South America and China. Many components are built in Japan, Taiwan, Korea and Thailand. Final product assembly often takes place at plants in China and a number of products destined for the UK are shipped in two pieces for assembly in Germany before being shipped to the UK.
Keep an eye out for news on labour, oil and raw material costs such as copper, as well as exchange rates across these geographies. Consider seasonal trends; Chinese New Year has a significant impact on the supply chain, with factories shutting for as long as a month. Resellers often forward buy to ensure mid-February doesn’t yield stock shortages.
Also, recent years have shown us the impact of natural disasters; Japan Tsunami cut the Hard Disk Drives (HDD) supply chain stock ‘buffer’ to just 80 days and so UK prices rose sharply.
The Thailand floods then hit an area producing 70% of the world’s HDDs, stopping all production for 56 days and a forecast shortfall vs demand of 20M units per month. HDD prices 25% and end product prices rose down the line.
More on that dollar rate
As most products destined for the UK are first bought in dollars, the rising strength of the US dollar dramatically impacts on product prices on domestic shores.
In June 2014, £1 was worth $1.71. One year later GBP value had fallen by 10% to $1.57. This sustained strengthening of the dollar has had significant impact over time and brands like HP hit UK resellers with a 6.5% hike before Dell and Lenovo followed suit with 5-10% rises to mitigate damage to their margins.
Knowing the product lifecycle
On the demand side, 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. And, importantly, the tech sector is driven by new product introductions and innovation. This dictates an average of 300 daily new product introductions but there can be as many as 19,400. As new devices enter the market, so existing items reduce in demand, which prompts the price of this now slower moving stock to reduce over time in a bid to continue sales and clear stock towards End of Life (EoL).
So, next time you’re thinking about buying the latest Core i7 Tablet that’s been released, ask yourself if you could save a bundle of budget by going for a more mature Core i5 laptop product that will perform almost as well but be considerably cheaper. An example of EoL pricing in action; in the space of 24 hours the price for a HP EliteBook fell 30%.
Knowing you, knowing price
Some say it all comes down to price. With all these global factors influencing what we pay for IT, when it comes to price, many turn to good old Google to ascertain what price is fair. However, be warned, whilst research, research, research is the right thing to do, search engines rarely deliver true product pricing that can be compared manually. Worst still is using the manual telephone approach and relying on your friendly sales contact to give you a price to compare against three of his competitors. Whichever your manual process of choice, the biggest challenge you face is time. No sooner have you found what you think is validated data than it is out of date.
Put simply, the market is too volatile for you to secure best value on every purchase. Yes, you might get a good deal on a bulk buy of toners or laptops but seriously, consider the fact that the price of a single model of VOIP phone changed 50 times in three months, you don’t stand a chance. In fact, your friendly contact has probably capitalised on the declining buy price versus the sell price he quoted you last month.
IT suppliers capitalise on the fact that most organisations can’t keep track of supply chain dynamics or product lifecycles that impact price and stock movements. Understanding and reading the scenarios that the IT supply chain throws at you can go a long way to helping you navigate and negotiate better deals consistently.
But this requires dependable real-time data. Moreover, wouldn’t it just be easier to discover an online marketplace where multiple suppliers automatically compete for your business and you get to buy at preferential pricing personalised to your sector directly from distributors and vendors?