Tech products study reveals panic & profiteering during the pandemic

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Technology services provider Probrand has released a study that reveals the margins being paid to IT suppliers soared during the pandemic.

Analysis, conducted on £4.7 million of tech spend across 14 sectors before the first Covid-19 lockdown, found that IT buyers were paying a 9.4% margin on products on average. However, as supply and demand for ‘work from home’ equipment increased substantially after lockdown was announced – and at a time when global supply chains had collapsed – the average margins being paid rose to 50.84%.

The Society of IT Managers (SOCITM) recommends 3% as a best practice margin for IT purchases. However, the study found that, even before the lockdown, buyers were regularly paying margins which far exceeded that recommendation.

This includes some extreme cases such as a governmental organisation paying a 1456% margin on HDI cables bought for £160 and a tech company paying a 1376% margin on an annual software license bought for £2920.

According to the study, the best performing sector when it comes to securing the best deals was the health sector which paid an average margin of 5.5%. The worst performing, however, was central government, with an average margin of 32.2%.

Ian Nethercot, MCIPS supply chain director at Probrand, said: “When we conduct spending reviews it’s not unusual to find some organisations paying way more than 3% over the trade price of the product – especially if they don’t have price monitoring tools in place. In recent years though, we’ve seen companies getting more savvy when it comes to restricting the margins paid to suppliers – and an average margin of 9.4% is historically low.”

He added: “Covid-19 completely changed the landscape last year. We witnessed both a huge spike in demand and a significant contraction in supply – due to factories closing in Asia and planes being grounded. There is no doubt that this extreme supply and demand scenario resulted in panic buying, with people prepared to buy whatever they could get their hands on at whatever price in order to equip staff working from home.”

During this panic period, on April 4 2020, Probrand conducted a spending analysis across the market and found the average margin being paid had risen to 50.84%.

Nethercot adds: “Undoubtedly some suppliers took advantage of this panic and inflated their margins. It’s true that whenever demand outstrips supply you’re always going to see prices rise. But, what some suppliers were asking of their customers during lockdown far exceeded any increases we were seeing in the channel, and by some distance. The trade prices didn’t increase 50% on average, so there was definitely a hint of profiteering here!

“I suspect there will be a number of procurement teams retrospectively reviewing the prices paid during this difficult period and questioning the relationships they have with their suppliers.”

The Probrand 2021 report includes guidance on how organisations can avoid paying over the odds when purchasing IT products.

See the full report here.