Despite vendors’ promises to simplify the network and reduce total costs of ownership, visibility into network spending is at an all-time low.
Atlanta, Georgia (PRWEB) April 30, 2014
NPI, a leading spend management consulting firm, warns that enterprise network overspending is expected to increase in 2014. NPI’s team of telecom expense management analysts has cited the top culprits for network overspending in the coming year – including misleading cost savings models, overbuying and poor vendor pricing transparency. These areas underscore the complexity of today’s network cost management and purchasing environment, as well as highlight the need for additional vendor and pricing intelligence throughout the sourcing process.
“Despite vendors’ promises to simplify the network and reduce total costs of ownership, visibility into network spending is at an all-time low. If companies want to rein in network costs in 2014, they need to understand where they are most likely to overspend and manage their vendor relationships and contracts accordingly,” said Jon Winsett, CEO of NPI.
Overspending on network infrastructure and services – including VoIP services, SIP trunking, managed network services, cloud-based Internet gateways and access lines – occurs for a number of reasons, including:
- Limited ability to compare vendor pricing: While pricing for some facets of network infrastructure has become commoditized, other sectors exhibit widespread pricing disparity between vendors for similar offerings. Unfortunately, buyers have no easy way to conduct apples-to-apples comparisons. There is also no “Kelley Blue Book” to consult for fair market value, putting companies at risk for paying unjustifiably high prices.
- Misleading cost savings models: The total cost of ownership (TCO) and cost justification models used by most vendors are inherently flawed. They often rely on pricing that is misaligned with fair market value, and don’t take into account switching costs or the enterprise’s unique usage needs. For example, a carrier that wants an enterprise to switch from TDM to VoIP may claim that VoIP services will save the business 20 percent each month. But, what if the carrier’s TDM prices are 20 percent higher than fair market value? In this instance, the cost savings are null and the customer should make sure any cost comparisons are based on fair market pricing.
- Widening vendor/provider profit margins: Network vendors, especially managed services providers, continue to widen their margins as they increase efficiencies of scale in service delivery. These cost savings are rarely passed on to customers. With this in mind, companies need to understand where carriers are padding margin and how they can negotiate that extra margin out of their contracts.
- Overbuying: Volume purchasing has its advantages in the network, but only when combined with a precise understanding of current and future usage and capacity requirements. Many enterprises overbuy network infrastructure and services to gain volume discounts, only to underutilize these resources throughout the full term of their contract. Companies need to perform deeper analysis to determine if they should leverage volume purchasing to reduce costs.
NPI advises companies to benchmark their network purchases to establish fair market pricing targets. Vendor and provider TCO models should be vetted using fair market value rates for both current network assets and offerings under consideration. Buyers should also use vendor-specific market data to identify pockets of excess margin where additional savings can be achieved during the contract negotiation process. Lastly, companies should think twice about volume purchasing arrangements, performing deep analysis to establish the “just right size” investment.
For more information on NPI’s telecom and IT cost management services, visit http://www.npifinancial.com/cost-management-consulting-services/.
NPI is a spend management consulting firm that protects companies from overspending in specific cost categories – information technology, telecommunication and transportation. Using a combination of market experts, proprietary methodologies and extensive data, NPI ensures that prices and terms are best-in-class. Reviewing more than 14,000 purchases annually, NPI provides objective oversight for billions of dollars of strategic spend for its clients. To learn more about how NPI can help your company start saving today, visit http://www.npifinancial.com or call 404-591-7500.