Why cheap IT prices often come at a cost: and how to source products the right way

Ian, Nethercot, MCIPS, supply chain director, Probrand

Disruptions across the global supply chain over the past few years have created enormous challenges for IT buyers. As teams have come under pressure to source the right products, they have often needed to pay a premium to secure specific equipment.

There is now a growing need to reduce those costs across the board, and many buyers are exploring their options - often bypassing traditional channels (and the protections they offer) to secure the cheapest deal.

For example, it’s now not unusual to see people head to online marketplaces where they can find sellers labelling themselves as ‘independent distributors’. While these sellers may be offering an attractive price, buyer beware. They are not authorised resellers and, as such, engaging in a financial transaction with them is not risk free.

With a lack of transparency around the purchase, it can be difficult to evaluate the seller’s credentials and if they can guarantee an ethical source of supply. That’s before you consider product warranty and aftercare.

This highlights the fundamental challenge whenever sourcing IT products. It doesn’t matter if you are buying peripherals, like keyboards, or an expensive server, supply chains are complex. Within them, equipment is endlessly bought and resold – and it can make this kind of auditing hard.

However, if buyers remain within the authorised supply chain, they will be assured of certain protections.

Authorisation

If buyers see terms such as ‘independent distributor’ or ‘independent value-added distributor’ it should raise an immediate red flag. The reason for this is simple. The vendor of the equipment, whether Dell, Hewlett Packard or any one of hundreds of other companies, has no responsibility to provide aftercare as soon as you go outside the authorised supply chain.

It’s a bit like buying an iPhone from a market stall and then taking it into an Apple store and expecting them to fix it when it breaks. If you’ve not bought from an official vendor or distributor, they are not then compelled to rectify any faults you may then have.

What solves this problem is doing due diligence on the supplier and their credentials. It may be possible to meet with a representative of the vendor either in person or online to verify that they are who they say they are.

This vetting process should also include checks that the supplier conforms to social and environmental standards, isn’t complicit in perpetuating poor labour conditions and is compliant with legislation including the Modern Slavery Act.

Grey market

Buyers also need to be wary when buying goods on the grey market. This is where brokers buy surplus and clearance stock or stock from other markets, and then sell it on at discounted prices.

Since this stock is being acquired outside the usual supply chain, the seller does not need to worry about incurring financial penalties for selling products that were intended for a different market.

More often than not, their priority will be on shifting that week’s stock to whoever wants it. As a result, it can be very difficult to build up a trusted relationship with them.

They won’t be providing any value-added services. They will not take the time to understand the long-term organisational needs or offer advice on a wider buying strategy – and they certainly won’t be communicating the best times to buy based on changes in the supply that are likely to affect stock and price levels.

Learn how to identify value in IT products in Defining Value: A Guide to Buying IT Products.

Authorised resellers

Buyers can get reassurances and feel more confident in their purchasing if they use a recognised and accredited procurement marketplace platform. This will make it possible to interact with an authorised reseller who is selling legitimate stock that has been sourced directly from distributors that are authorised by the manufacturer.

This makes it easier to audit the supply and carry out checks on the provenance of equipment that is about to be bought. Identifying authorised resellers is relatively easy as most manufacturers will openly share who their supply chain partners are in each country or territory.

There are generally three tiers to that supply chain. The vendor makes the product and moves it on to the distributors whose job is to forward it to the appropriate market and work with the reseller, who acts as the shop front.

This makes it easy to conduct checks on the reseller to make sure they have a legitimate relationship with the manufacturer. And it means, should something go wrong with equipment sold through these tiers, the warranty will be honoured.

Resellers will also possess a broad knowledge of what is happening in the market. This makes it possible for them to compare new products and evaluate the impact this will have on global supply lines and trade prices. This puts them in a position to offer advice on whatever bulk orders need to be placed – helping buyers to find the best products, at the best time to receive the most competitive prices.

While the pressure to reduce costs grows, IT buyers need to be wary of what they may be giving up if they choose to bypass authorised channels. While some prices might be fractionally lower elsewhere, an authorised supply chain comes with assured supply, the protection of a warranty and quality advice available from a customer service representative who is just a phone call or email away.

Explore sustainable IT procurement strategies in Sustainable Procurement: Four Ways IT Buyers Can Embrace a More Eco-Friendly Approach.