December 2013 | Commentary | IT Matters

Seeking Innovation? Stop IT Overspending

Tags: Logistics I.T.

Jon Winsett is CEO, NPI, 404-591-7505

Today's supply chain is one of the most exciting arenas for business innovation. Mobility, cloud computing, big data, and new production techniques such as 3-D printing are breaking down barriers between retailers, consumers, manufacturers, and suppliers.

The technology trends driving supply chain innovation are also driving IT costs through the roof. Eighty-nine percent of IT executives cite cost reduction as the greatest challenge for technology buyers, according to a recent survey by Inbound Logistics.

To fuel supply chain innovation, chief supply chain officers and CIOs must extend the IT budget further. The good news is, proactively identifying and eliminating day-to-day overspending frees up budget dollars for new projects.

Here are a few key strategies to help you avoid overspending on logistics IT:

  • Benchmark IT product and service costs. If you can't confirm that you're paying a fair price for IT products and services, chances are you're overspending. There isn't a public list price available for these purchases, which has led to widespread pricing disparity in the vendor community. The rate at which IT licensing and pricing models change—not to mention their complexity—further complicates matters. The only way for buyers to know if they're receiving fair pricing, discounts, and terms from their vendors is to benchmark their agreements against what their peers are paying for the same offerings.
  • Get everybody on the same page. Supply chain IT buyers must achieve internal alignment before they sign off on any major purchase. This requires visibility into departmental needs to better predict costs and ensure they choose a best-fit solution. Failing to maintain internal alignment opens the doors for vendors to approach specific departments, expand the scope of work, and gain leverage in negotiations.
  • Cast a wider net. Trusted, established vendor relationships are valuable assets. But while working with the same provider over time offers advantages, there are also risks. Too often, companies fail to invite other IT vendors to the table to keep pricing, terms, and performance competitive. Keeping pressure on the incumbent is necessary to maintain an optimized vendor relationship.
  • Lighten up on support. In today's integrated supply chain ecosystem, an IT glitch can have a serious financial impact. The solution for most companies is to sign up for premium, top-tier support on most or all of their supply chain IT systems. Yet, the truth is that not every asset requires such a high level of support. For less-critical systems, IT buyers should consider downgrading support or outsourcing it to a third-party provider. It's an easy way to cut support costs by 50 percent or more.
  • Avoid fixed-fee engagements. Overages are common, and contracts are fraught with loopholes that allow for additional costs. Supply chain IT buyers should bid their professional services engagements on a time and materials basis and, if necessary, request a "not to exceed" clause. The insight gleaned from how the vendor scopes the project will be invaluable for predicting and controlling future costs.
  • Give IT sourcing special treatment. Supply chain IT procurement is too complex to lump in with other types of sourcing. It also requires sourcing best practice knowledge that the average IT executive doesn't have. That's why many best-in-class companies are creating vendor management officer and IT controller roles specifically designed to optimize technology purchasing. While not every company may be ready to designate a specific title or department for IT buying, they should at least consider embedding a sourcing expert within the IT organization.