Procuring IT in the retail sector

6 March, 2015
by: Cripps Pemberton Greenish

Retailers continue to invest in their IT infrastructure as they recognise that there are many benefits to procuring the right technology and staying ahead of the competition, from improving efficiencies and reducing costs, to improving the way they interact with customers.   Furthermore, the rise in the number of online shoppers and the fact that consumers are increasingly using different devices and channels to interact with retailers online (such as tablets, smartphones and various social media sites) mean that it is becoming increasingly important for retailers to ensure the availability and performance of their IT services.


Service levels: how to make them work for you

With the above in mind, when purchasing a new IT system or renegotiating the contract with your IT supplier, give some careful thought to the service levels and how they can be tailored around your business in a way that works for you.


Flexible and creative service levels

To get the service levels working for you it is important to be creative and flexible, as long as the service levels agreed upon are objective and measurable.


Service availability or uptime is often a key service level, with 99% uptime (approximately 10 minutes of downtime every week) increasingly becoming the norm. For the majority of the year such service levels may be acceptable, but in busy periods, maybe the week leading to Christmas or this year’s Black Friday, 10 minutes of downtime or more could result in a noticeable fall in online sales and ultimately on your revenue. Therefore, rather than purchasing all-year-round ‘platinum support’ with a corresponding price tag, consider alternative options, for example:


  • explore the possibility with your IT supplier of varying the service levels across the year in line with your peak sales periods. In exchange for 99.99% service availability in the week leading to Christmas, you may be comfortable accepting lower service levels during periods which tend to be significantly quieter;


  • placing a freeze on non-essential maintenance work during peak periods (which would otherwise result in the service (or part of it) being down); or


  • under your support plan your supplier should be agreeing to different response and fix times depending on the severity of the fault or issue – the more critical the fault, the faster the response and fix times. Consider the value of negotiating quicker response and fix times for the busier times of the year.


It is also important to consider the consequences of failing to meet the service level, rather than the service level itself.   If the service levels are not achieved, often the IT supplier is required under the support contract to offer the customer a service credit (in order to provide the customer with some reasonable compensation). However, as we have discussed, the consequences for you if the supplier fails to achieve the service levels may be vastly different depending on the trading period. Therefore, we see some of our clients seeking to attach a multiplier to their service credits with the effect of increasing the service credit accruing as a result of any service level failure if the failure occurs during a defined peak period.    


Consider incentivised / motivational service level models

During peak trading times or seasonal periods you may be able to realise a tangible and significant benefit if your supplier can achieve higher service levels. For example, if the supplier could achieve 99.99% availability during the Christmas period (e.g. just under 1 minute of downtime per week) then you may be able to identify a quantifiable increase in your sales.   Therefore, in order to incentivise the IT supplier in achieving higher service levels during these important trading periods, you might consider structuring the service levels to provide the supplier with the ability to earn a modest bonus payment if they can achieve higher service levels during such important sales periods.


Escalation procedures when things go wrong

Most IT services agreements contain an overview of how disputes and concerns can be raised and to whom they can be escalated if they are not resolved within a specified time. However, the importance of these escalation procedures is sometimes overlooked and it is important to consider whether the timeframes in which disputes or concerns are escalated work for you and you are comfortable that the persons to whom the disputes are to be escalated have sufficient authority to deal with the issue promptly and efficiently. You may also wish to consider, in a similar vein to increasing service level commitments for busy trading periods, whether the speed at which disputes or concerns need to be escalated should be increased during seasonal trading periods.


The above provides some examples of how you can structure your service levels to help them work for your business, but is by no means an exhaustive list. Every business is different and therefore the key message is to be creative and flexible when negotiating service levels with your IT suppliers, considering how the service levels could be structured in a way that works best for you and your business.