Did you know that the IT industry is by far one of the most volatile market places with price and stock of IT equipment often fluctuating on a daily basis?
The relationship between product lifecycle and supply chain plays a crucial role in enforcing volatility in the IT market. End-of-life and new technologies drive vendors to decreases prices to clear stock.
In a single day the price of a HP EliteBook dropped by £343.86 - a whopping 30% drop. The greatest fiscal increase saw a HP Ethernet security appliance increase by £49,000, while a Quantum storage product dropped in price by £20,000.
It’s common knowledge that any product from any sector passes through a lifecycle, from development right through to introduction and then into decline. However, what is generally forgotten is the fact that as technology ages, its price dramatically declines in a bid to level out sales as newer technology is introduced.
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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, the dynamic nature of the technology sector means that IT hardware and software costs vary hugely, thus making the cost plus agreement anything but transparent.
With IT price and availability changing on a regular basis it's increasingly problematic for buyers to keep a real-time grasp on just what they are purchasing and whether they are getting the right and best price.
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Product Life cycle
Classically, prices decline as new products are introduced and old products finish their lifecycle. However, whist a fixed margin assessment appears sensible on say one, who says resellers are passing on the right reductions as product moves through its lifecycle?
Price drift occurs whenever a supplier maintains ‘sell price' whilst trade price declines, allowing the supplier to leverage margin by failing to trade price reductions to customers. A tactic that enables trade and sell price to ‘drift' from one another and buyers are often kept in the dark.
Beat the supply chain
IT suppliers capitalise on the fact that most organisations can't keep track of supply chain stock levels, new product launches or seasonal trends that all contribute to changing prices. And the complexity of the IT supply chain doesn't help. Read related report on how complexity makes the prices you pay higher.
The bottom line is that a three tiered supply chain and its associated complexity with human intervention at every step helps to drive pricing and stock volatility upwards.