Budgeting for IT software, hardware, services, and support costs has become a bigger challenge for businesses in 2022. IT buyers must contend with inflationary pricing, supply chain challenges and increased labor rates, which makes strategic sourcing more important than ever.
Developing the right strategy is critical to protecting your IT budget and heading off any disruptions to your company’s purchasing plans. Below are some key questions to help prioritize projects and get the most out of your budget dollars.
What is the proposed cost of the IT purchase or renewal?
The answer to this question determines whether a full Sourcing engagement is justified or just standard business owner consulting that requires fewer Sourcing cycles. Setting an internal dollar threshold for Sourcing engagements can be key for maximizing your procurement team resources and assuring that the larger purchases get the right attention and runway.
Tip: For existing renewals, always request the previously executed legal and order forms as this helps establish your baseline spend.
Is the proposed spend budgeted?
This is a simple question but very important in determining the appropriate Sourcing action. Working on sizeable unbudgeted projects could ultimately end up in a lot of time spent evaluating offers and risk management reviews only to be put on hold and possible never executed. Working closely with your IT executive team will help provide assurances that the project is going to be approved once final negotiations are completed.
Tip: Reviewing the IT Budget once it’s finalized each year to identify potential Sourcing projects is a best practice for Sourcing resource planning.
What is the renewal date or proposed implementation date for the new spend?
The answer to this question helps determine timing of Sourcing engagement with the appropriate business owners. Proper planning to include sufficient time for legal review and financial negotiation will help achieve the most desired results. If the IT budget has renewal date detail, it will be very helpful in the planning and prioritizing of your annual Sourcing project plan.
Is the proposed new spend or existing spend right-sized?
Has the business evaluated its existing needs versus what the sales rep might be trying to push in a renewal or upsell in a new sales proposal? Knowing what you have, what is being utilized, and what your future needs are when evaluating proposals is key to optimizing the cost of IT purchases and avoiding overbuying.
What is the optimal term for a renewal?
Knowing the long-term plans when evaluating IT proposals is key in evaluating options for a potential longer-term agreement. Longer terms renewals can drive more favorable discounts while also providing fixed annualized payments to budget over the term of the agreement.
Tip: Proceed carefully with a clear picture of your (and your vendor’s) IT roadmap in mind. Depending on your requirements, a longer agreement term may not be the best option.
What is the billing and ship to address on the proposed Order Document?
This question is not often thought of as a Sourcing question, but it’s one that can pay dividends if a vendor is overcharging in sales tax. Once the final deal has been negotiated and you have your final order, calculate the appropriate sales tax. If you have a Sales & Use Tax Department, it would be good to have them review to ensure accuracy before processing the order.
There are states that have sales tax exemptions for subscription purchases, but vendors might still include sales tax on these purchases. Capital purchases are typically taxed based upon shipping location, a quick search and recalculation can ensure you are being taxed appropriately. You would be surprised how often this is overlooked and over assessed! Unnecessary sales taxes can add up and could mean the difference of staying within budget or going over.
Strategic IT Sourcing with NPI
The answers to these questions can be used as a planning guide to help develop a calendar of upcoming Sourcing projects and estimate day to day needs to provide Sourcing consulting to business stakeholders. They also feed into your Sourcing strategy to negotiate the best deals for your IT organization. When used in conjunction with IT price benchmark analysis, you can achieve something even greater – you can be confident your organization is getting the lowest possible price on your IT purchase or renewal.
Wondering if you’re getting the best possible deal from your IT vendors? NPI’s SmartSpend Subscription can ensure you’re paying the lowest possible price on your tech purchases and renewals. Contact us to learn more.