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The IT Procurement Savings Trap – Report from Procurement Leaders APAC Congress 2019 

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We’ve been banging the value creation drum for over a decade now, since 2003 to be precise and it’s not only us. Steve Hrubala, chief property & procurement officer at the National Australia Bank Group, is one of a number of procurement thought leaders who’s thinking is in tune with ours – or vice versa :) Steve was speaking at The Asia Pacific Procurement Congress 2019 in Singapore recently.  Markit was supporting the event and Gregor Fürst, Markit Austria’s Country Manager, went along to hear him speak and was impressed.  

He gave a great presentation entitled “Capturing and keeping the C-suite through value creation” which looked at the journey of savings and why procurement cannot rely on delivering them forever. 


So, we invited Steve to share his thoughts and answer a few questions on the “savings trap” and value creation potential in IT procurement. He kindly agreed: 

Q: What are the key challenges you see in indirect IT purchasing?
A: The main challenge in indirect IT purchasing is one of definitions. Back when I was
first negotiating purchase arrangements, there was hardware, software, and services / support. These
were discrete categories or product / service lines. Nowadays, where "aaS" is a standard approach, the
dividing lines are no longer so clear, since what might have been hardware or hosting infrastructure,
licensed software, and support / maintenance are all SaaS ("Something as a Service"). Keeping straight
what the equivalencies are so that like-for-like comparisons are preserved is very important to assessing
whether what we need is actually what we are buying.


Q: What's the savings trap and how does it apply to indirect IT procurement e.g. for hardware and
accessories?

A: In brief, and please forgive my poor attempts to represent it in a short presentation, the savings trap
is set (and eventually sprung) when we talk about sourcing & procurement as achieving "savings" rather
than "delivering and unlocking value". Savings will necessarily decrease as your sourcing and
procurement approaches mature -- but savings are a part of overall value, which should be increasing as
the function moves beyond cost-reduction to cooperation, collaboration, and integration with strategic
partners across the supply chain. Given my observations above, noting how "aaS" approaches can
muddy the waters about how what's being bought meets the needs of the enterprise, I'd say that the
savings trap is as relevant now in the indirect IT space as it's always been across sourcing & procurement
more broadly. The challenge becomes, the sourcing function must be clear on how the basket of
services and goods in indirect IT meets the needs of the internal customer, but also, how the enterprise
should thoughtfully engage with suppliers to identify and foster longer-term cooperation and
collaboration opportunities. If each views the other as a "punter" only, then there's a barrier to creating
more value beyond mere savings.


Q: What sorts of value can closer IT supplier/partner cooperation, collaboration and integration
deliver?

A: There are plenty! If I reduce them to their essence, I'd say these are grouped around timing and
responsiveness; innovative solutions and access to cutting-edge ways of doing more with less spending;
and just being better at meeting and exceeding functional, technical, and operational requirements.
That sounds really wonkish and academic, yet at its heart, it's all about creating resiliency through
robust solutions where each partner considers what the success factors are in that relationship -- value
beyond savings doesn't happen in a zero-sum environment.


Q: Looking back over the last 10 years in procurement, what has been the biggest change in your
opinion?

A: Ah, that's a tough one! It used to be, we would run RFIs to get information about what's in the
marketplace and who's offering what products and services. Now, we have information overload, and
we drown in it. I think we haven't invested sufficiently as consumers of indirect IT in our capacity to
process and understand that information. Often, we overlook the fact that within our organizations, we
haven't gotten better at articulating our needs -- how solutions should work, to what technical standard,
and what they need to do. KPIs/SLAs are left to "procurement" to sort out during the negotiations,
though these are rarely driving the sort of value conversations the enterprise should be having across its
supply chain with key partners when we set strategy and manage categories. Individual contract
KPIs/SLAs will really just nibble around the edges if these are not consistent across suppliers and truly
focused on where value is going to be created -- or threatened.


Q: Our data shows the number IT products sourced has increased 10x times in the last decade
while the price of IT products has decreased 2.5 times. Have you felt that? How has the impacted your
purchasing approach?

A: That sounds right, though it would be useful to normalize that data: we've moved away from "big
iron" purchasing to different focus areas and spend has followed that trend too. It used to be that
expertise to design and implement solutions was more of an in-house capability, where deep experience
with a small set of providers meant the superset from which you chose the building blocks was limited.
We've really come a long way as disruptive innovation has leveled the field! Competition is more than
price, it's about winning approaches that mesh into the fabric of what companies need. Similarly, the
role of enterprise architects has grown, as these are the people who design and validate what's needed
and how to incorporate the rich offerings available from the market into a more efficient, effective,
"better" solution set. Accordingly, the emergent approach to sourcing I've endorsed is one of close
partnering with colleagues who have embraced accelerated change and the need for flexibility and
resiliency vis-a-vis the market. By extension, that means that flexible, resilient, innovative, value oriented
partners get increased mindshare (and wallet-share) as we seek longer-term partnerships
beyond the next RFP or Purchase Order. If we cannot speak the same language of enabling value creation,
there are natural barriers to moving beyond transactions to a true partnership.


Considering what Steve shared at the event and his insightful responses to our follow up questions, we
think these themes resonate with what we've observed at Markit after 16 years IT procurement
experience, namely that product savings are (very) important in IT purchasing that’s not where the long term
value lies. External collaboration with “IT suppliers” should lead to a transparent and mutually
respectful partnership where the client trusts the supply partner to diligently, ethically and proactively
seeks out ways to optimise the IT sourcing and buying processes to deliver an increasing amount of
value based on the client organisation’s goals.


With IT hardware and accessories becoming (if they aren’t already) commodities value can be created
by:
• Reducing the sourcing and purchasing process times to create extra time for other activities
(through systems that offer real time stock availability and live tendering with real time pricing)
• Reducing the number of suppliers (for both invoice handling and contract maintenance reasons)
• Speeding up delivery times and accuracy (by using a partner who can deliver & invoice on a local
to local basis, and in local currency, in every country where the client operates)
• Offering transparent spend data and automated spend optimisation tools to assist in savings
generation and create actionable insights for new value creation
And so on.

Having said that, since 2003, we have, on average, delivered 12.5% annual product savings which is impressive in IT purchasing where many companies, prior to using Markit, have experienced 2-5%. We will continue a twin-approach – a strong focus on delivering product savings matched with a proactive, flexible and transparent approach to delivering value in other key areas that our clients demand. 

Image: Markit’s Head of International Sales, Janek Veermäe and Gregor Fürst, Country Manager at Markit Austria discussing IT purchasing challenges on the Markit stand at The Asia Pacific Procurement Congress 2019