Written by Joseph Paquet of Axis Business Solutions

So, you’ve made the transition to providing managed services to provide superior technology support as well as obtain high-margin, recurring revenue.  Often the next business decision for MSP’s and technology support organizations is what to do about technology procurement for their customers.

The trend we have experienced over the last few years is that MSP’s wish to remove, or at least limit their resources from the operational and financial burden associated with product fulfillment.  For many MSP’s, hardware and software fulfillment is an indirect process that affects the bottom-line of profit and margin.  If you are faced with this situation there are three primary options: continue providing hardware and software, direct this business to external suppliers (Dell, CDW, etc), or partner with a product fulfillment expert.

For MSP’s that continue to offer product fulfillment as a trusted service to clients, it is well worthwhile to analyze the true costs and profits associated product fulfillment.  The financial reasons that drove many away from the standard reseller/service model are even more prevalent in today’s technology climate: low margin, commodity based sale, administrative overhead, management of numerous vendors and distributors, direct competition (more on this later), and continuous pressure on cash flow.

If your company is “hands off” when it comes product acquisition, the essential question for MSP’s is; are you really out of the hardware and software procurement loop?  If you are advising your customers and providing technical guidance for their technology purchases, your bottom-line is affected.  Every MSP that I interview experiences this similar scenario on a daily basis.  MSP uncovers client’s need to purchase new technology and MSP advises (billable or not) client on what to purchase.  In many cases, the MSP will actually go to a vendor web site and configure the needed items for the customer.  At that point, whether you get paid or not, it is a transaction – complete with the logistical and resource overhead of any other technology sale.

Additionally, what happens once you have provided a recommendation and left the customer to their own devices to purchase?  Do they purchase the right items(s)?  Do they purchase in a time frame that supports your project scheduling?  Can you instantly obtain information such as software license keys, estimated delivery, and complex product configurations?  At the end of the day, the goal is to provide the best level of service in the most efficient manner to obtain the highest profitability.  Having no “control” during the procurement cycle is not conducive to meeting those fundamental objectives.

That brings us to the “more on this later” part of the article.  So many of the MSP’s I encounter willingly direct their customers to on-line retailers and direct vendors such as CDW and Dell.  Strategically, this is a move that should be considered carefully.  These vendors are making a concerted effort for managed and professional services revenue in the SMB space.  We all may have an opinion on whether these companies will be successful or not in its managed services endeavors.  However, competing with a marketing engine such as Dell for services revenue within an existing or prospective account is not a situation that sounds rewarding.

There is an alternative available.  Procurement as a Service (PaaS) offers a proven way for MSP’s to maintain control of procurement process without investing resources, time, or capital.  Additionally, PaaS allows MSP’s to become “Competition Proof” from direct manufacturers and vendors by insulating their customer’s from these suppliers.  Most importantly outsourcing procurement has enabled MSP’s to focus on their core service delivery of professional services.

Axis Business Solutions has been providing Procurement as a Service since 2003.

Every IT provider deals with it, MSP or not, and most do not have margins healthy enough to sustain the overhead it takes to do it well – purchasing for clients.

Who wants to deal with inventory, licensing, supply chain programs, thin margins, being tied into a specific product line, the list goes on…

In steps PaaS providers. It’s a niche being filled by a handful of firms focused specifically on providing all the back office process, people, and relationships necessary to provide your clients with the purchasing expertise they demand.

Some of the benefits to your business:

• Adding healthy margin to something you are already doing for your client
• No need to spend time trying to establish the right supply relationships
  
• Leveraging the combined purchasing power of multiple organizations – discounts and service beyond what you can get on our own
  
• Add purchasing expertise to your team without increasing head count – head count is huge for us MSPs providing a flat fee model
  
• Gain access to state of the art purchasing systems – tracking, inventory, etc.
  
• One place to go for all things purchased – no more tracking from multiple vendors for every project
• Increased service levels, HUGE, over the dell or (inserter large vendor name here) rep that manages your account – did I mention these relationship guys tend to change on you every 8 months with the large vendors
  
• Add a trusted resource to your team that understand your business, your clients business, and helps you build recurring revenue programs that benefit you and your clients

With benefits like this and the ability to bolt a partner on to your business to provide these services who in their right mind would invest the capital necessary to build a ‘purchasing department’?

One of the best PaaS partners we have found in the country is Axis Business Solutions and you can check them out here: http://www.axisbusiness.com/vendors.htm

As it becomes more and more important for MSPs to invest their time and energy into their core providers such as these will play a large role in allowing us to do so.

JC