As IT leaders have grown to embrace the principles of hardware lifecycle management to contain IT costs, but also to maintain budget agility for sudden-surprise business drivers, more than 50% of the world’s enterprise IT departments are now opting-in to Hybrid Hardware Support models.
To level-set the information shared within this article, there may be two terms that are new to sourcing/procurement readers:
- Hardware Lifecycle Management: This is the practice of retaining and managing assets beyond warranties, or even beyond OEM End of Service announcements. Instead of obediently following the OEM’s tech refresh strategy, hardware owners assign criticality by asset type, usage (associated software applications) and speed requirements. This allows owners to strategically rely upon assets longer, maximizing ROI and delays or eliminates the need for an expensive tech refresh. Even more, hardware buyers will choose pre-owned hardware assets, when doing so meets usage requirements – often saving 50% to 70% off the cost of new. Both practices also help to minimize e-waste, which is a growing concern for an industry seeing a faster pace of product evolution.
- Hybrid Hardware Support: In a hybrid support model, assets under warranty are maintained by the OEM, but post-warranty assets are maintained by a significantly less expensive independent hardware support provider. This practice has a significant impact to Operating Expense (OpEx). The industry of independent maintenance providers is often called Third Party Maintenance (TPM). Depending on the asset type and age, independent provider costs are almost always 50% to 65% less than OEM maintenance pricing.
The hybrid hardware support model is rapidly becoming more and more common. In 2017, Gartner published a report
stating that over 71% of the world’s 100 largest companies are using TPMs for a portion of their post-warranty hardware assets. Now, please take into consideration a few more notable data points:
- Industry analysts Gartner and IDC agree that the typical data center will contain 20% to 22% post-warranty servers and data storage assets.
- Gartner has also published that 15% of a company’s 2019 total IT budget will be spent on hardware (“by asset class”), or more specifically, hardware acquisition (CapEx) and maintenance (OpEx).
From these two data points, anyone can begin to estimate that the Total Annual Hardware Maintenance budget is quite large. Yet, when a notable portion of your company’s asset base is post-warranty, the option of choosing and buying independent maintenance support can drive remarkable savings and a great deal of positive attention for the savvy IT procurement professional.
Before you can truly know whether your research into hybrid support will lead to a significant cost-savings initiative, you should know whether or not your company is already using independent hardware support. You should also know what percentage of post-warranty assets are being maintained by an independent provider – such data will help you project the value for taking on this objective.
Forecasting the Financial Benefits of a Hybrid Support Model
We’ve developed a very simple formula to help you quantify and forecast the financial impact you can make by driving the adoption of a hybrid hardware support model. It starts with the collection of two data points. Whereas an estimate (for these two data points) is “okay” and may suffice, collecting real numbers will establish credibility when presenting your concept to management.
- Find or estimate the percentage of hardware (footprint “counts” of servers, storage and networking) physical assets that are post-warranty. Is it 18.5% or is it 23.75%? It’s possible someone in IT Asset Management (ITAM) can help you find that number, but the hardware infrastructure team will know this data point, if the ITAM team isn’t helpful.
- Ideally, find the total estimated annual hardware maintenance spend for all hardware assets – both in-warranty and post-warranty.
From those two data points, use the following to estimate the savings impact possible:
- If post-warranty (P-W) is 18% of the total asset count, a hybrid support model will drive 10% to 11% reductions in Total Annual Hardware OpEx Budgets (TAHOE).
- If P-W is 20%, hybrid support will drive 11% to 12% reductions in TAHOE.
- If P-W is 22%, hybrid support will drive 12% to 13% reduction in TAHOE.
- If P-W is 24%, hybrid support will drive 13% to 14% reductions in TAHOE
- If P-W is 26%, hybrid support will drive 14% to 15% reductions in TAHOE.
Think about that! Even for a smaller company spending $1M annually in hardware OpEx, with 18% in post-warranty status, IT procurement can still drive $100,000+ in annual savings. It’s definitely worth taking a closer look, wouldn’t you agree?
Read our other blogs at Future of Sourcing to familiarize yourself with the steps necessary prior to deploying RFPs from the independent provider community: