The Ultimate Guide To Long Term Cost Minimization

What We Propose: Uniformity Over The Long Run.
Planned Deployment Cycles and Control of Equipment Obsolescence in the Large Organization

Long-Term, Standards-Based, Acquisition Plan For Total Cost Minimization.

The Holy Grail of the commercial IT department is standardization. Standardization simplifies and orders the chaos now commonplace in the world of network computing and printing. Even small steps toward uniformity* or simplification of variety can make a profound difference in reduction of long-term costs.

I. Introduction/Discontinuance Cycle
Continual change and evolution have created an installed base of enormous variety. The infrastructure is continually fragmented by new infrastructure introductions.

A. The cost drivers are supplies and service. Within the manufacturer's typical cycle (two to three years, long enough for them to optimize their production plan), the toner cartridges become cloned, offering market competition and lowering costs. Once the market cost structure reacts to competition for printer supplies, the user begins to realize enormous cost savings. Rule of thumb: 11 times purchase price in three years when you count supplies -- that $1500 printer is actually closer to $17K.

B. Sources of printing hardware and supplies have profit incentives to change products rapidly. The ongoing paradigm is to discontinue models rather than selling them less expensively over time, and (marginally) inflate the specifications with a newer proprietary toner cycle. From the manufacturers' point of view, if standard equipment were made available over time, it would cannibalize the sales of the newer, more expensive, product lines, with an appropriate reduction in manufacturers' revenue as prices fall. Every sale of the "old" model is at the expense of a potential "new" model.

C. The agenda of the distribution channel, from manufacture to delivery, is to maintain and grow sales. Every introduction of marginally improved models perpetuates endless variety. Data Processing executives are forever struggling with the inevitable jumble of diverse equipment and software. The pace of introduction and discontinuation quickens, and the complications rise geometrically, not linearly.

II. Common Management Strategies.
Many solutions that have been implemented to deal with this problem are half-measures, at best.

A. Many companies are currently implementing a "cascade" approach:. Targeted acquisition based on specific user-initiated requirements, and ultimate redeployment in a domino fashion down the system. This can be very costly because each seat requires multiple de-installations, re-configurations, software and data transfers, physical moves, and reinstallations. The labor time involved and lost productivity costs, while difficult to measure, can be staggering. Further, this does not solve the long-term support cost issues inherent in the typical distributed network model.

B. "But what if I fall behind the technology curve?" Applications under consideration cannot depend on technologies that don't exist yet. State-of-the-Art is impossible to maintain and folly to chase.

C. Leasing is just a way to finance the cycle, but may be an important (if expensive) tool. It can complicate the scene with a variety of equipment and configurations with different lease anniversaries.

D. Outsourcing only shifts the support burden to another entity. That is, the problem isn't going away.

III. Proposed Long-Term Hardware Solution:
Establishing confident dialog with independent professionals is very difficult. Every company representative or VAR has a sales agenda. The viability of broad-based uniformity depends on a continuum of availability. The aftermarket can be an excellent indicator of the popularity and supportability of various product lines. An open discussion with an aftermarket expert can often resolve appropriate choices to base the standards upon. Because long-term availability is an integral part of this paradigm, the aftermarket becomes vital to the sustainability of the uniformity model.

Each step in the process is important to the process of creating and maintaining degrees of uniformity. A change in model number at the end of the manufacturer's or distributor's cycle signals a shift to the next phase.

Phase 1. Acquire a specific model type new from the manufacturer while supplies are available through normal distribution channels. Keep the configurations stable.

Phase 2. As these models are discontinued, continue to acquire the same model type new as available through the surplus market. As new models are introduced, the older models, while still new, are available for purchase through the "gray" market. These are heavily discounted and may carry full warranty.

Phase 3. Acquire the same model type refurbished to your specification. If it's identical to the ones you already have, it's an easy fit. Product life cycles get shorter each year. Dependable availability in the refurbished market is vital.

Phase 4. As appropriate, return to Phase 1 and repeat the process.

IV. Uniformity: The Justification:
Acquiring a standard machine type and model of computer assets over time achieves five great goals:

a) It's just like the last one, so you'll know its exact configuration and,
b) You can more easily support it over time and,
c) The hardware and its support gets less expensive as you go and,
d) You are not at the whim of the manufacturer's or distributor's discontinuance cycle, and,
e) The installed base is asymptotically, minimizing costs.

The cost of supporting uniform networks decreases dramatically over time. When you're ready to establish the next standard, take the next jump. Leapfrog when you're ready. It is much easier to install, configure, replace, redeploy, sell, or upgrade machines that are all the same.

Because prices for commonly-used models decline significantly in price over a fairly predictable market-value life cycle, total cost over three years (or more) will be significantly lower for the following reasons:

i) As you standardize platforms, support costs decrease dramatically over time as you climb the learning curve. (Examples: set up, software and device driver configurations, error resolution, diagnostics, etc.)

ii) As time goes on, take advantage of price decreases and market value decline while maintaining uniformity.

iii) Your Investments can be made with an eye on attrition of your current installed base without any commitment to onerous safety stock levels usually necessary to assure network uniformity.

iv) Present value of cash flows decrease as total costs fall dramatically.

v) Maintenance of the installed equipment becomes much less expensive as replacement parts become more abundant.

At the end of the planned life cycle, begin a new cycle based on then-current platforms. This paradigm applies to PCs, printers, networking gear, communications products, monitors, etc.

Asset cycle management can save an immense amount of money and time --the two assets in shortest supply. Achieve and maintain network standards with continuous, standard, uniform, hardware.

Establishing a standard does little to guarantee the market's ability to provide a consistent supply. Manufacturers will constantly change models, specifications, and part numbers. The secondary market, therefore, is integral to the reliability of supply.

*The process of initiating and maintaining uniformity requires active restriction of model variance introduced into an organization. The concept is an integral part of minimizing total cost while "freezing" current variety until a new standard is introduced by management. It is not always possible to have all equipment identical. Reduction of variety and staunch insistence on specific platform adherence is a long term process.

Therefore:
Firms that deal in surplus, used and refurbished equipment, that are able to offer consistent supply over time, of specific models and specifications, built to high quality and uniform standards, will be of benefit to end users who would attempt to introduce and maintain an action plan governing the steps toward uniformity.

Submitted and amended 1985-2005-2007-2009-2011