Since late 2019, global supply chains have been disrupted. This post shares insight into the impact of this disruption on the technology procurement supply chain from Techary’s global procurement team.
Introduction
At the time of writing (September 2022), we’re all very aware of the impact of the global semi-conductor (chip) shortage, and consequently the wider disruption on supply chains, which is continuing to evolve. Original equipment manufacturers (OEMs) face include increased energy usage, labor and production costs worldwide, which will continue to affect end-customers for the foreseeable future.
In this article, we talk about how the impact on IT hardware procurement has changed since the shortage began in late 2019 and what we’ve learned through this time, as well as sharing some insight into strategies we’ve adopted to not resolve, but attempt to mitigate, these issues in the future.
Although manufacturers have dedicated huge amounts of time, resource and funding to try and mitigate the issues presented by the shortages, there is no simple solution. They simply do not have the components required to ship product as per their current demands.
The extent of the issue
One of the key vendors in the IT market, Cisco has a $15 billion order backlog. This has been no small problem.
- Over 75% of orgs have had to cancel an order and use a new vendor, specifically due to delays.
- 78% of businesses have experienced moderate to significant supply chain delays for IT hardware in the past 12 months.
- In fact, 71% are experiencing shipping delays of up to 6 months.
The resulting impact is an array of consequences that have left IT teams struggling to keep pace with the demands of their business.
Mentality shift
Within organisations, decision makers across various business functions (procurement, technology, executive stakeholders, business teams) have had to adapt their approach to technology procurement.
Pre-2019, businesses experienced very short timeframes between requirement through to delivery. Lead times were weeks, not months — and the idea of a year-long lead time was unthinkable.
Technology teams were able to react very quickly to business demand in various situations, such as the organsiation needing to:
- Operate in a new location — perhaps a new office location or infrastructure hosting location
- Upgrade infrastructure to cope with constant upgrade or refresh cycles of hardware
- Add additional scaling capacity to existing infrastructure to meet increases in demand or compute requirements, whilst maintaining standard inventory / configurations
In all of the above scenarios, stakeholders could agree and implement a solution with minimal lead time issues. The concern of delays would always sit with resourcing and was dependent on the availability of third parties to meet the agile demands of the business.
Now, the situation is very different. Although the organization may still rely on third partiesor the historic assumption of being able to procure assets within weeks — the ability to react and deliver quickly has been affected by the shortages.
If you’re looking to expand compute or build out a new office, you’re now required to plan a year in advance, as well as deal with a new set of challenges, including:
- Forecasting and planning up-to a year in advance without knowledge of any additional requirements / changes the org may have in this timeframe, effectively ordering into the unknown
- Future proofing hardware, without visibility into new advancements that may well be released / updated in the timeframe from order to delivery
- Committing budget through different periods, after potentially higher additional capex / opex costs in the previous years through the pandemic
- Standardisation of hardware for all deployments — you’re now limited to what’s available rather than what was once standard across your entire hardware footprint
Leaders are not used to this requirement of forward-planning technology procurement, and those who are not close to the landscape still believe quick turnarounds are possible.
As with most technology responses across the past few years, those who have the ability to purchase ahead, strategically amend their procurement strategy to adopt additional inventory purchasing, and plan for known projects well in advance have benefitted from being able to navigate the delays whilst minimising impact to BAU operations.
From having enough laptops for new hires through to hot spares for data center infrastructure, the requirements for hardware inventory have been well tested by the last two and a half years, and those who are fortunate enough to have resources to purchase and hold additional inventory, have been able to continue to meet business demands.
The customers facing the most challenges are those without direct synergies between the business requirement and the technology procurement stakeholders. This misalignment leads to not having the hardware required when it’s needed by the business.
A positive is that going forward, business decision-making will be closely linked to technology teams, allowing more time for planning and alignment, for mutual success.
Navigating constraint
There is no immediate answer or solution to the issues — but we have seen ways to mitigate the direct impact.
At Techary, our key advantage has been our global coverage through our ability to purchase in different markets.
Techary operates across four key global locations, with key trading locations in:
- London — UK
- Amsterdam — EMEA
- New York — AMEA
- Singapore — APAC
In addition — Techary has also invested in what we call ‘operational entities’, that represent locations we don’t have a local office or staff in-region but have the ability to procure stock and established supplier relationships. These locations include countries such as Canada, UAE, Japan — with other locations also on the roadmap.
These strategic locations expand our ability to source and procure stock across global markets. We are also aided by our ability to work and source globally using a centralized approach. Unlike some of our competitors who operate global markets as siloed individual entities — Techary centralises our procurement function — allowing customers to interact with their local account team while gaining a global reach.
This approach has increased our ability to procure items in constraint, for example
- During the height of the crisis, when there was a global shortage and extended lead times on monitors and peripherals, we strategically sourced products from Germany for a UK project — whereby we were able to use our EU and UK entities to negate any tax implications for the end-customer. The project was delivered on-time, whereas if the customer had relied on ordering within the UK, the project would have been delayed by circa 12 weeks.
- When a deployment for an ultra-low-latency trading environment for a US customer was delayed due to Network Card availability — Techary was able to gain inventory of the required product in Singapore and internally ship to our US configuration centre by strategically utilising our global supply chain. This resulted in the customer being able to deploy their environment on time when they were expecting a significant delay due to component availability.
Both of these would not have been possible without our global, connected presence.
For years prior to the pandemic, Techary has been working with customers to solve procurement issues, which have ultimately helped them navigate these supply chain constraints, unbeknown to us at the time.
How do we solve fluctuations in stock availability? How do we gain a consistent price for the same products, through different months? These questions led us to test out different methods of procurement — i.e. bulk purchasing and creating call-off mechanisms, as well as work towards providing complimentary offerings to the traditional VAR model, such as stockholding, warehousing, and additional self-delivered value-add services. This ultimately resulted in what we now call our Matter offering — a complete procurement, storage, and logistics function for global enterprises.
Matter — which offers an end-to-end Inventory as a Service offering is an evolution of what we have learned from over 10 years in this space.
The saga continues
For many in the IT world, the pandemic and wider supply chain issues were thought to be temporary during 2020 — and normality was around the corner. What happened, as we all know, was much different. The lasting effects continued through 2020, into 2021 and when many thought that the issue would not carry in 2022, we were again proved wrong.
The impact is a fundamental shift in the technology procurement requirements for every organization. The disruption has changed how IT orgs need to approach procurement.
Those who adapted early on gained advantages from the continued disruption — they identified the problems early and were not hampered when supply chains continued to suffer extended lead times.
Some fundamental practices that every IT org can develop to mitigate the future impacts of supply chain issues and improve their operations include:
- Aligning internal business teams with IT procurement — HR & Operations
- Automating processes and streamlining on and offboarding of staff/requests
- Encouraging leaders to understand the scale of the issue and build into business planning and decision making
- Proactively interacting with chosen IT vendors — a partnership approach will likely yield better results than a transactional relationship
- Reviewing what added value services your IT vendor can provide — these may help resolve some items you cannot handle internally, such as inventory stockholding & reverse logistics
If you’d like to hear more examples of how we helped our customers through the supply chain issues or any of our value-add services like Matter — reach out to us at [email protected]