Scrutinising Supplier Contracts Can Save On IT Costs

IT Supplier

Organisations today often find themselves cutting costs across various business areas in order to free up the resources they need to increase revenue and acquire more customers. As a result of such cost cutting exercises, IT departments can find themselves under constant pressure to trim back their operating budgets and, with almost 40 per cent of this being spent on IT infrastructure, there is a clear need for the deployment of ever more cost-effective solutions.

In an effort to make these savings, infrastructure and operations (I&O) teams are spending a great deal of time working with colleagues in procurement departments to shave off a few percentage points wherever possible from the contracts they hold with hardware vendors.

But recent research carried out by Forrester Consulting illustrates the significant savings that can be made by focusing attention on the maintenance contracts and suggested technology refresh cycles that accompany hardware purchases.

Recommended Refresh Cycles

According to the report, 80 per cent of businesses are not paying sufficient attention to ongoing maintenance, and have upgraded their networking infrastructure before it was required. As a result, these business were found to be missing out on opportunities to make significant capital and operational cost savings.

Businesses tend to be guided by the information on refresh cycles and maintenance contracts by the vendors whom they purchase their hardware, software and respective maintenance. By following these recommendations, it’s unlikely that businesses will consider the prospect of extending the life-cycles of their hardware and third-party maintenance contracts, and will remain largely unaware of any alternative solutions that may exist.

The report reveals that four out of five companies (79 per cent) will refresh their wired networking infrastructure every three to five years, based on the industry averages provided to them by vendors. The extent of this runs to the hardware that supports campus networks, data centre networks, routing and Wi-Fi, to name but a few.

By following these industry averages, I&O professionals are led to believe that their hardware, within the three to five year refresh cycle as suggested by the vendor, has become old, has lost its value or, most problematically for the business, has become subject to failure.

Pulling Back The Curtain

However, most of the infrastructure that’s being replaced on the basis of these vendor recommendations will maintain its market value well beyond the suggested three to five year refresh cycle, and is likely to have more than 20 years mean time between failure life cycles.

What businesses need to stop and consider is how, in fact, this equipment can actually be kept for longer without impacting the running of the business, and without incurring the considerable operational expense of replacing it unnecessarily. Ultimately, its value should increase over time. This being the case, it appears that only the manufacturers and vendors stand to gain the most from the accelerated refresh cycles that they recommend.

In addition, a further 81 per cent of companies stated that they would buy their maintenance contracts from the OME manufacturer, even if there was little perceived value in the contract itself. More than half of respondents, for reasons of convenience or simply by default, reported purchasing a maintenance contract at the same time as the hardware it related to.

Looking Further Afield

Due to their featuring a combination of misrepresented cost savings, new fees, and inflexible pricing models, there is a large sense of dissatisfaction felt towards these maintenance contracts. Despite this however, vendors will only be challenged by a small minority of businesses, allowing them to continue making substantial profits from selling the contracts.

Interestingly, and perhaps as a result of this dissatisfaction, four out of five businesses claim that they would consider a third-party maintenance contract, although there appears to be a lack of action on this front, either due to a lack of willingness, or a lack of awareness that such options exist.

Should they look further into this, and take advantage of maintenance contracts from third-party vendors, businesses may see a reduction in their capital and expense budgets, while continuing to receive support for their infrastructure.

Asking The Right Questions

In order to improve the value of both their existing hardware and any that they plan to purchase, an organisation’s I&O team should consider what their current infrastructure is capable of, what it needs to deliver, and whether it is able to manage this expectation. Having done this, they should have a clear idea of what’s still working, and what can be kept. Additionally, maintenance contracts should be scrutinised, as those supplied by OEMs and vendors can not only be costly, but can often contain items covered by a product’s basic warranty.

As we’ve seen, the majority of organisations will often purchase maintenance contracts from the same vendors, and at the same time, as their hardware. I&O teams should work with their procurement departments to secure lower prices by putting these contracts out for competitive tender with a number of different resellers, including third-parties.

Although maintenance contracts tend to be part and parcel of a hardware purchase, and although vendors tend to dictate technology refresh cycles, these established practices can – and should – be challenged. By doing so, businesses will soon find that they are able to shift costs in the favour and enjoy the savings that this brings.

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Tom Pappas

Tom Pappas provides commercial leadership, strategy and team development for Network Hardware Resale in Europe, the Middle East, and Africa. His responsibilities include overseeing sales and marketing for this rapidly growing region. He joined NHR in 2011, prior to which he held management positions at BlueCielo, Progress Software, Nortel Networks, and Bay Networks. Tom began his career as a military officer working for the US Army in Europe and NATO. He holds an international MBA from Nijenrode, the Netherlands Business School, and earned his bachelor’s degree from the United States Military Academy at West Point.