Below is an abstract of “Enterprise IT hardware procurement-Cracking the code” a GEP whitepaper. Click here to download the complete paper.
Hardware spend is a key indicator of overall IT spend. After a steep decline in enterprise IT Spend in 2009, the industry recovered to a modest growth rate in 2010, primarily driven by investments in computer hardware. The focus on cost and performance optimization along with efforts to reduce carbon footprint are making enterprises invest in server consolidation and virtualization. Additionally, as companies explore ways to streamline IT operating spend and align themselves with the 'green agenda', the focus on resolving inefficiencies with printers and other peripherals is continuously gaining significance.
Though the overall spend is expected to grow year on year, the growth rate will decline. Focus on adopting bundled solutions which include, hardware, software and service components will gain prominence. Large enterprises with global scope of implementation can reap substantial benefits by entering into single global contract leveraging volume and focusing on reducing total IT lifecycle costs, not just the cost of purchase. The option to lease rather than outright purchase has proven to be beneficial to companies considering the fast pace of technology change.
Towards on-demand IT – Server Consolidation
Declining cost of server hardware over the years has sometimes led to a proliferation of boxes across locations. Server consolidation initiatives undertaken by companies were one of the first steps to reduce enterprise data center costs, infrastructure and labor. The cost efficiency brought in through server consolidation (Stage1, Exhibit 1) in terms of greater capacity utilization also reduced the carbon footprint through decreased power consumption. Growth in mission critical applications, which require high server performance and availability, together with need from users to have universal access led to the development of server virtualization (Stage 2, Exhibit 1). While user mobility increases productivity of the workforce, from a cost management perspective, it introduces challenges in charge backs across different cost centers within the company. Private cloud deployment (Stage 3, Exhibit 1) addresses the challenges of charge backs by providing a platform for on-demand usage based metering and results in an integrating application stacks with virtual environment to further increase end user consistency.
In developing a technology roadmap, evaluation of total cost of computing, networking and storing is essential as the market will see an increasing number of integrated unified solutions. Considering the changing demand-side and supply-side dynamics, adopting meticulous sourcing strategies by having a good supplier mix, negotiating on labor charges, evaluating non-traditional approaches such as outsourced infrastructure and ensuring rate consistency in global implementations would result in cost advantages to companies.
Outsourcing has become a viable option to consider – unlike client virtualization, server virtualization can directly reduce server costs. As data center companies develop higher economies of scale, periodic evaluation of in-house versus out-sourced solutions is necessary. Customers increasingly want “solutions” rather than servers. High speed networks are also enabling server hosting to be outsourced to dedicated data center companies, reducing the need for customers to buy their own servers. The focus on storage systems is increasing rapidly, as more data is hosted in the cloud.
Enterprise PC – Evolution towards mobility
Better, cheaper, faster and lighter – PCs have evolved through constant innovation. The industry has transformed from being a set of continuous flow manufacturing companies to a job shop, catering to individualized preferences on weight, mobility and feature set. An average year-on-year decline in PC prices percent over the last decade has made PCs more affordable, transforming PCs into consumer goods rather than specialized corporate computing equipment. While this commoditization of PCs has benefited companies to procure standard PCs at lower prices, the trend has severely dented supplier margins. Large suppliers have therefore started diversifying their offering from being just PC manufacturers into services and storage servers to sustain and grow their margins. Therefore, PC procurement is no longer limited to purchase of the best equipment at lowest possible cost. The total cost of purchase, accounting for bundled services and life cycle management costs of PC as an asset, should be a key consideration in choosing the right supplier.
The Key to driving costs down is to make an accurate assessment of demand. Demand assessment is easier in case of turnkey implementations at a single geography. The complexity increases when PC upgrade takes place over a period of time, based on end-of-life assessment of the equipment and with an added complexity of a global rollout. A single repository of PC asset information across all company locations is a good investment to gain significant cost savings over the years. Therefore, companies should negotiate with suppliers and have asset tracking included in the bundled PC offering. The long benefits of this measure for companies which are in nascent stages of gaining control over enterprise IT equipment costs is tremendous.
The PC Supplier industry is highly consolidated with the top five suppliers accounting for more than 50 percent of the market share. Despite low supplier density, a greater consumer share sets a downward trend in price differential. Companies should leverage commoditization of PC equipment across suppliers and use e-auctions to get the best value in PC upgrade. It has been also observed that the best available configuration in the market may not necessarily be the optimal configuration for enterprise needs. Processor class has come to be the criteria rather than processor speed to assess configuration. Companies should choose to carefully design lot strategy in e-auctions to leverage maximum buyer power. Rank order auction format on equipment based lots would be a recommended auction strategy to eliminate regional price differentials.
Ubiquitous access to information through proliferation of portable PCs and smartphone devices has not reduced demand for printers. A printer has instead transformed to be a mini-processing unit rather than a plain output device. Integration of printers with corporate document management systems and ability to convert scanned documents into editable documents through optical character recognition software has given rise to a new breed of multi-functional printing devices. With greater focus on reducing impact to environment in terms of power consumption, use of recycled paper and reduction in paper consumption, companies are constantly evaluating cost control measures. There is a heightened focus on capturing costs per employee to enable chargebacks of printing costs to departments within companies. Information security needs in certain companies is further driving the demand for smart MFPs (multi-function printer) which provide printing capabilities through security features integrated with corporate security systems.
The acquisition cost of printing equipment is very low compared to the total cost of operation, which is difficult to accurately project at the time of strategic sourcing. Companies should, therefore, evaluate managed print services as an option as that can provide planning flexibility and good return on investment. MPS also eases vendor management through well-defined SLAs. Though the price per page through managed printing services can seem high, the all-inclusive total cost of the existing solutions should be evaluated to make the right decision in selecting MPS.
Cost-savings in printing can come as much from setting up the right availability and access levels, as from negotiating with external parties. Proper demand and access management to identify exact number of assets required globally should be performed and companies should have appropriate access rights management to prevent overuse/misuse.