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Technology Expenditures

We are a general lines distributorship selling mainly storage & handling equipment. It seems that the cost just to maintain our technology infrastructure (server, network maintenance, software updates, EDI, etc.) has been escalating every year. Is there a budgetary percentage of total sales that you would expect to spend on technology each year?
– Mike Wall, VP Sales, CSI Materials Handling(Westmont, IL)

Dave Griffith: On the assumption you are including people costs—both direct and 1099 folks—as well as your voice and data communications costs, total technology costs will be 3 percent to 4 percent of sales, more if you use it as a leverage point.

Larry Abernathy: This seems to be a never-ending and growing cost. I don’t think that you can put a percent of total sales limit on technology. The more important issue is to make sure that you are getting return on your investment in technology. Technology is supposed to make us capable of doing more with our time and provide quicker, better service to our customers. Training your people to use technology and take full advantage of its capabilities can be more difficult than investing the money. Technology expense is going to continue to grow, and if we are to continue to grow, we must make the proper investments.

Stan Sewell: Since 2001, we typically have spent between 1.5 percent to 2 percent of sales per year on IT. In 2005, these costs include the last year of a five-year depreciation on our SAP system, IT staff costs, hardware investment and network maintenance. This year we will be investing in new laptops with Sprint wireless cards for all field technicians.

Bob Weeks: The cost just to maintain our technology infrastructure is 0.3 percent of sales. An exception would be years that we need to upgrade our servers, which is about every five or six years. The cost to maintain and update our Web site is an additional 0.3 percent of sales.

Chuck Frank: We do not use a percentage of sales. We have an outside contractor handling all our IT needs. All managers are responsible for reviewing their upcoming needs with this person and submitting their budgets to me for approval. We analyze all budgets to determine which expenditures will provide the best return. On the average, we have spent between 1.5 percent to 2 percent of annual sales.

Duncan Murphy: There are several standard measuring sticks for our industry, but none that I know of regarding technology. This year’s DiSC Report will be asking for this information so we will have a starting point soon. We perform a zero-based budgeting process each year and look at our telecommunications at the same time. We begin with fixed and recurring costs for maintenance, communications, fees, etc. Next we identify aged computers and accessories that will be replaced and also list any additions required, such as laptops for technician use. The last piece of the budget puzzle is special projects as identified by our IS Strategic Plan. This could be new system software and support, Web site enhancements or a change to a paperless system. A price tag is developed and timing determined. As we mix the three components together, the budget becomes whatever it adds to. We put this responsibility on one person’s shoulders to gather with a clear understanding that they have a requirement to find cost savings to help pay for improvements. We are not cutting-edge but are ahead of most area firms in technology, spending about 2 percent of total expense.

Material Handling Equipment Distributors Association

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