December 22, 2021
An unexpected side effect of the Covid-19 pandemic and labor-force issues that has revealed deficits in America’s supply chain logistics – exposing antiquated systems that need to be stepped-up and become 2.0-grade for the 21st century – is the current unavailability of many items that are essential for manufacturing and even shipping processes. We’re talking about nigh-ubiquitous items from shipping containers and wooden pallets to semiconductor chips. In a domino effect of cascading proportions, consumers and manufacturers alike are finding themselves unable to access products and supplies that western society has taken for granted for decades, causing varying degrees of difficulty depending on the business. The data center industry is discovering that it is not immune to these concerns as well.
According to a recent article from Rich Miller at Data Center Frontier that addresses how data centers are navigating this strange new scenario, “‘The supply chain continues to pose challenges for us and many, many others in the industry,’ said Rob Johnson, CEO of data center equipment specialist Vertiv. ‘Each of the regions are experiencing it, but it is most acute in the Americas, where material availability is most difficult and commodity prices have risen beyond expectations.’”
“‘We are clearly in the midst of an acute supply chain crisis with increased prices and long lead time,’ said Jayshree Ullal, the CEO of network gear vendor Arista Networks. ‘Lead times of many components have extended to 50 to 80 weeks, with price hikes ranging from 15% to as high as 200% across our entire supply chain.’”
“‘Overall, the server business is constrained by supply,’ said Pat Gelsinger, the CEO of Intel. ‘Trust me, we would be shipping a lot more units if we weren’t constrained by the supply chain of these other components in the industry. Our customers, both cloud customers and OEMS, have very strong backlogs that they’re pressing us aggressively to satisfy.’”
With business survival at-stake for many companies and customer satisfaction still mandatory for those date center suppliers who are managing to stay ahead of the game, various strategies are being utilized to keep the gears turning – or rather, keep the data flowing – per se. Several of the strategies being used to cope with the supply-chain crisis are documented in the DCF article and are explained briefly below for our readers to consider.
“‘What we are seeing is that customers are willing to take that inventory, in some cases in warehouses, so they have it when that site turns on and don’t lose their production slot or lose their equipment to somebody else,’ said Vertiv CEO Johnson. ‘That’s more of a new phenomenon. More and more of our large customers are wanting some type of program to have inventory, so they can go ahead and take it off our hands and take the responsibility for it.’”
“‘We’ve expanded our supply chain base, in some cases to 3 or 4 providers of that equipment to diversify some of that risk,’ said John Hatem, Chief Operating Officer for CyrusOne. ‘We’ve been focused on this for the past 4 quarters, because we saw some of this coming in our conversations with (suppliers). It’s been focused across-the-board to make sure that we have enough (equipment) to meet the demand and the time lines of the customers.’”
Order Now for the Future
“‘We adjust our expectations for the potential of a longer supply chain,’ said Thomas Morton, the President of Switch. ‘What we have done is place the orders earlier to both help our demand curve and also make sure that our suppliers had adequate time to provide us the equipment that we need without delay. We have very long-standing relationships with our supply chain manufacturers. We do custom builds, so they go in a different supply chain than just the commodity products. They’re very long lead time items, and we’ve been able to plan and order those items a long time ago.’”
In summary, although these supply-chain blockages were not an anticipated part of doing business in 2021, they’re here as part of the New Normal and there’s not exactly a foolproof method for knowing when they will be corrected. With the Omicron variant loose in America but the federal government saying that shut-downs are not the way to beat the pandemic moving forwards, there’s hope that manufacturers and shipping channels will be able to adapt and adjust and get essential materials and equipment moving freely again. Until then, Data Center Frontier sums-up succinctly some trenchant tactics that members of the greater data center industry should be keeping squarely in their minds.
“For most data center operators, managing the global supply chain crisis has been a function of leaning hard on their experience and relationships, and getting even more obsessed about planning. Some of the key strategies include:
- Ordering equipment ahead of time.
- Holding more equipment inventory in warehouses.
- Working with more suppliers, including new suppliers who can source hard-to-find products.
- Making spot purchases to meet specific short-term demand, sometimes at premium prices.
- Doubling down on supplier relationships and financial strength.
- Working ahead on forecasting and procurement for 2022, 2023 and beyond.”
Altus Technologies and our team of data center consultants are here to be of assistance during this complicated time in the IT world. Since 1996, we’ve been assisting Fortune 500 and 1000 clients with their IT consulting needs.
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This additional article, How Supply Chain Shortages Affect Data Center Providers, available at DataCenters.com, sheds more light on this complicated issue that is troubling our industry currently.