On the back of two turbulent years, global supply chains have been tested like never before.
Travel restrictions and political tensions have constricted the passage of goods and people around the world. As demand for the manufacture of new products soared due to pandemic-driven and pre-existing tech trends, scarce supplies of crucial resources have dwindled even further.
One of the most damaging aspects for technology has been the semiconductor shortage. Caused by the stretching of already fragile and highly interdependent global supply chains, the shortage brought production to a complete stand still, leaving industries, such as automotive to suffer devastating impacts.
Although somewhat recovered in 2022, the crisis is still playing out in data centers by tightening the availability of critical hardware. More and more mission-critical business operations rely on digital technology, so enterprises must find new and innovative modes of consumption to meet their needs.
How is the crisis impacting data centers?
Chip fabs gave priority to high-margin orders, such as those from technology giants like Intel, maintaining a steady supply of CPUs. Recently, however, impacts of the crisis have made their way to other parts and components of data center equipment.
In late 2021, manufacturers and other buyers of computer chips had less than five days’ worth of supply1, compared to 40 in 2019. The impact has been to extend the lead times on crucial equipment; jumping from a standard four to eight weeks, companies can now wait up to 52 due to strained supply chains constricting production – most notably network switches and servers.
This is a major concern and will be a ‘universal issue’2 for all businesses looking to deploy fresh systems in 2022, according to Bill Wyckoff, Vice President of Hardware and Advanced Solutions at SHI International.
Travel and other COVID-19 restrictions have also seen data center owners and operators struggle with a widening skills gap. Despite the growing number of jobs, labour and skills shortages have made it hard to find qualified candidates in this rapidly expanding industry.
Unable to obtain the equipment and skilled personnel they rely on, the effects of the shortage are not limited to businesses, they extend to their customers’ experiences, and crucially, brand reputation too.
Even large enterprises have not been immune: in late 2021, Naoki Yoshida, Director of gaming giant Square Enix3, pointed to COVID-19 responses, skills, and semiconductor shortages among the reasons the company wasn’t able to acquire sufficient high-performing servers to cope with demand to play its latest release.
How have businesses reacted so far?
Overarching reactions to cope with the crisis so far have been to maintain the status quo.
Chip manufacturing giants have opted to ramp up production to cope with demand, such as Intel dedicating $20 billion4 to establishing two brand-new chip plants.
Greater production has also been promised by governing bodies, such as the European Union who in 2022 announced the European Chips Act5. The initiative will add 15 billion euros to an existing 30 billion of public funds to see Europe increase its global manufacturing share from 9% now to 20% in 2030, as part of the development of a thriving semiconductor industry in Europe.
These efforts may help reduce the potential for disruption in the mid- to long-term by narrowing the skills gap and reducing reliance on globally distributed resources. But they don’t address the difficulties businesses are facing now.
Instead, they have the capacity to increase the risk of commodity and equipment shortages longer term: continuing to cater to current and future demand by consuming more materials and producing more equipment, deepening pressure on raw materials to become increasingly scarce, only adding to current supply chain vulnerabilities.
Further financial impacts mean businesses cannot afford to just carry on as normal. IT departments must reassess their actions and align them with long-term solutions to protect the business continuity and productivity of themselves and their customers.
Data centers can implement long-term solutions to avoid disruption
Experts predict the supply chain crisis and semiconductor shortage are not due to resolve any time soon. And the longer the disruption continues, the harder it will be for manufacturing to resume levels that meet growing demand.
Consciousness of future issues was reflected in a 2021 survey by McKinsey6, which found 95% of participating businesses have implemented formal supply chain risk management processes, and 59% have adopted new strategies in this area.
Despite the gloomy outlook, data centers and equipment users can take a variety of routes to lowering their long-term exposure to supply chain disruption.
A critical step in protecting business continuity will be for businesses to gain greater visibility on where and how they source their equipment, identifying weaknesses in their supply chains and responding accordingly.
Moreover, by revaluating their current usage, many are finding different ways to buy, operate, configure, and dispose of hardware to help ease production pressure and alleviate the chance of future crises.
In the case of Square Enix, they were able to adjust their configuration to adapt to the server shortage by optimizing their use of software and source code to increase the maximum number of application logins.
Other businesses have reshaped their IT buying strategies to ‘just-in-case’ instead of ‘just-in-time’. This more pre-emptive approach involves greater strategic capacity planning, which helped dampen the effects of supply chain fluctuations and uncertainty for businesses who switched to this model before the onset of COVID-19.
In tandem with this model, to reduce the risk of future disruption further, data centers can opt to acquire refurbished hardware instead of new. As a simple yet effective solution to meeting hardware needs, buying refurbished reduces pressure on reserves of virgin natural resources and enterprise vulnerability to manufacturing disruption.
Additionally, extensive inventories of refurbished spare parts help them avoid component scarcity and resource fluctuations, enabling data centers to avoid shortages, long lead times, delays and the resulting potential for downtime and losses of productivity.
Working with a reputable vendor like Evernex, companies can access reconditioned assets as a cost-effective, permanent solution to a hardware need during these difficult times. With greater financial capability available for investment in technology strategy and solutions, it can also provide a smart way to gain essential resources to not only survive but grow through the crisis.
Looking to the future
It is clear – our current systems and use of Earth’s resources cannot keep up with the demand of our digitalizing economy.
With chip fabs taking billions of dollars and several years to set up, the complexity of our global, highly interconnected supply chains is not likely to simplify in the short-term. And as ongoing geopolitical tensions add to the disruption, if the world carries on as before, the next crisis is not far away.
Demand for technology will keep growing too, emphasizing the importance for businesses to adopt new approaches now to consume technology in smart ways that reduce vulnerability, rather than increase it.
Companies like Evernex, offering solutions that incorporate repair, reuse and recycling, are helping by extending the life of hardware and their raw materials through responsible modes of consumption and disposal. Our range of services, from Third-Party Maintenance, Spare as a Service and W-EEE certified recycling, provide benefits across cost-effectiveness, sustainability, productivity, and performance now and in future.
Partnering with third-party suppliers, companies can also outsource much of their technical expertise to avoid the effects of skills shortages and costs of employing in-house specialists.
If your company is struggling to find the right equipment or expertise at a reasonable price, speak with one of our experts today. Whatever your need, we will be happy to walk you through the full range of our IT Life Services and find the solution that caters exactly for your situation.
Sources
- Whalen, Jeanne. 2022. ‘Manufacturers have less than five days’ supply of some computer chips, Commerce Department says.’ The Washington Post. January 25, 2022. Manufacturers have less than five days’ supply of some computer chips, Commerce Department says – The Washington Post
- Edwards, John. 2021. ‘Semiconductors are scarce, and so are many types of network gear. The wait for things to get back to normal may be a long one.’ Network Computing. May 20, 2021. Semiconductor Shortage Hurts Network Equipment Makers and Customers | Network Computing
- Peters, Jay. 2021. ‘The global chip shortage is partially to blame for Final Fantasy’s XIV’s long queues.’ The Verge. December 7, 2021. The global chip shortage is partially to blame for Final Fantasy XIV’s long queues – The Verge
- Whalen, Jeanne and Gregg, Aaron. 2022. ‘Intel’s $20 billion investment in Ohio chips factories said to be the state’s largest ever.’ The Washington Post. January 21, 2022. https://www.washingtonpost.com/business/2022/01/21/intel-chip-factory-ohio/
- Cota, Jillian. 2022. ‘The European Chips Act: A Strategy to Expand Semiconductor Porduction Resiliency.’ CSIS. March 7, 2022. The European Chips Act: A Strategy to Expand Semiconductor Production Resiliency | Center for Strategic and International Studies (csis.org)
- Alicke, Knut, Ed Barriball and Vera Trautwein. 2020. ‘How COVID-19 is reshaping supply chains.’ McKinsey. 2020. How COVID-19 is reshaping supply chains | McKinsey
