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Procuring information technology services – too much choice?

Sourcing equipment and contracting for services in the information technology (I.T.) field is becoming a minefield for the uninitiated. What has changed?

It's not just about buying hardware, software licenses and peripherals, now it’s also about the outsourcing of key managed services and integrating telecommunications.

I.T. managers have been experiencing a sea change in their areas of responsibility - adding functions that did not exist ten years ago – we can blame the digital revolution. It is clear that, based on the sheer breadth of commodities and services in this spend category and the values involved, there is a need for dedicated resources to support the I.T. procurement activity. Collaboration with sourcing professionals is becoming a critical part of running an I.T function.

The category of I.T. spend has grown to include areas that are unfamiliar such as mobile technology services, cloud computing and help-desk services. Sourcing strategies for I.T. that were developed more than five years ago are now out-of-date. The trend is very much towards outsourcing of key services both to contain costs, minimize risk and to ensure continuous delivery of the right level of service. This requires sourcing the right partners, contracting with them and managing relationships.

What about strategy?

So, we need a revised strategy. How do we best go about establishing this if we haven’t sourced goods and services in this category for a while? This is a classic case of we don’t know what we don’t know. Category management in I.T. and telecommunications requires the combination of both technical expertise in the category and commercial experience to achieve the best result for the enterprise.

The first step is to document the status-quo. Sounds easy, but this must include an analysis of all current costs including internal resources, maintenance and parts, licenses and external support services.

The diagnostic exercise

This short, but systematic, mini-project is really an evaluation of current activities and costs. The result that emerges needs to be reviewed against best practice in the marketplace. This is effectively a gap analysis, i.e. what you are doing vs what you should be doing. The challenge is to find out what others are doing well and how that potentially can be applied in your organization.

A high-level, but focused analysis of your third party spend can identify areas of opportunity for both cost savings and adding value to your business. It may be an investment to use the services of an external consultant to bring knowledge of the supply market, best practices and the use of new technologies. Sometimes fresh thinking comes from those who have a transversal view of your business and who have direct I.T. experience within your industry.

Procurement of technology services - two best practices

  • Total Cost of Ownership

Certain best practices in global procurement are particularly relevant here. One is to understand the concept of Total Cost of Ownership (TCO). In the technology area, it is generally understood that only about 20% of costs are immediately visible when sourcing, up to 80% of costs are invisible.

Your evaluation of current costs may uncover some hidden costs that you may not have been aware of. These may include training, maintenance, warehousing, environmental, quality, and transportation costs as well as disposal costs. Gaining insight into all costs, both visible and invisible reveal your TCO for a specific service.

An iceberg for cloud hosting services

  • Partner with your key suppliers

Best-in-class companies work closely with suppliers long after a deal has been signed. On-going supplier relationships require attention and continual focus in order to get the best value. Benefits are:

  • A platform for innovation and continual improvement

  • Open lines of communications at all levels

  • Efficient problem resolution and escalation of issues

  • Performance measures can be agreed and monitored

Your new strategic plan

The analysis of the current status of your I.T and telecommunications spend plus an understanding of best practice allows for the identification of opportunities. These could be, for example, the outsourcing of some IT managed services which could produce cost savings and operational improvements.

Sourcing strategy development includes setting the vision, establishing priorities, understanding the external environment and the supply market for technology goods and services. Not having a clear plan creates both sourcing issues and problems with recruiting and retention of the right skills to ensure effective implementation.

There is a long term cost attached to not having a coherent procurement strategy.

Optimal Cost offers an initial assessment service focused on identifying cost savings opportunities and understanding your organisation's purchasing maturity.

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