You feel it at home and at work — things cost more than they used to and some things are hard to find. Supply chain volatility and inflation are part of life right now and it’s no different for technology.
Before the pandemic, technology products were plentiful. It would take about a week from purchase to delivery of network infrastructure components — delivery dates are now up to 50 times longer. Companies need to make room for these changes in their IT budgets for 2023.
Together, supply chain volatility and inflation are a key difference in IT Budgeting for 2023.
Why is the pandemic still affecting the supply chain?
The lockdowns and logistics problems that broke supply chains at the beginning of the pandemic continue for a multitude of products. The first wave hit the production of critical components like microchips used in all kinds of finished goods, including technology equipment, and new variants led to new production slowdowns.
When economies boomed back, demand skyrocketed for scarce goods — catching up with more than two years of demand takes time and contributes to global inflation.
How much more can you expect to pay?
Companies with aging IT assets still need new hardware and almost all technology components cost more than they did pre-pandemic. Prices are often higher by double-digit percentages than a couple of years ago when you can find the products you need. Yet, investment in data centers is still projected to grow despite the price increases but at a lower rate than in 2022 and at a lower rate than investments in software and IT services.
You can expect to pay an average of 6 percent more for IT overall in 2023.
Worldwide IT Spending Forecast (Millions of U.S. Dollars)
Why will normalized production levels not be enough to stabilize supply chains?
Having enough supply won’t solve the larger supply chain problem. The technology used to manage supply chains desperately needs modernization, which has exacerbated pandemic-induced problems.
Manufacturers and logistics companies have been notoriously slow to adopt new technologies even though each step in the supply chain is powered by technology. Without modernized and centralized systems, they don’t have enough visibility or agility to accommodate rapid demand changes.
This was a recipe for disaster when the pandemic hit. Unless the companies evolve, it can happen again.
“Supply chain organizations in every sector are urgently rethinking how manufacturing supply chains can operate more effectively and resiliently by reassessing traditional supply chain strategies, reducing network complexity, integrating key functions, redesigning processes, and harnessing the power of digital tools wherever they can to transform their supply chain ecosystems.” Paul Tate, Manufacturing Supply Disruptions to Last Well Into 2023, Manufacturing Leadership Journal
What components are still on backorder and how does Leapfrog help circumvent the shortages?
“Shortages around network switches, access points, and firewalls are particularly challenging,” says Chris Teater, Purchasing Coordinator at Leapfrog Services, “although the second half of 2022 has been marginally better for firewalls. Backorder times are up to a year and all the popular manufacturers are in the same boat — they can’t get what they need to put their hardware together. It’s just not out there.”
Teater says one of the most challenging parts of dealing with the shortages is aligning project timing for clients. “The pricing we get from distributors is only good for so long. Our clients need to plan far enough ahead to meet project deadlines and get their orders in early.”
Creative infrastructure design can help.
“Most of the time, IT budgeting for physical infrastructure has been about doing a design, giving it to the sourcing department to find the needed components at the best price, then planning out the project,” says Emmett Hawkins, CTO at Leapfrog Services. “Now that’s flipped on its head.
“Now we need to design for flexibility by building in options in case components aren’t available when we need them. Adding options can lead to a more expensive design, but you don’t have to redesign the project if the timing is critical.”
Leapfrog also develops workarounds, such as buying whatever components are available. Hawkins says, ”We’ll buy older models and replace them with new ones later or substitute larger ones if they’re affordable.”
Pay now or pay later?
A major accounting dilemma for 2023 IT budget planning is deciding whether to make the financial commitments now and incur liability for initiatives that may not begin until 2024 or postpone buying. Does it make business sense to pay for something now that you may not be able to use for well over a year?
To make timing decisions even more complicated, economists predict high inflation will likely continue through next year. How much will the components cost in 2024, and will there still be back orders? These are open questions.
Your goals, priorities, options, and other IT needs all come into play. Chances are good your budgeting team will have robust discussions around these decisions.
Budget advice and caveats
There are some things you can do to help navigate decisions around hardware shortages and higher prices:
- Budget for more flexibility than usual
- Don’t expect manufacturers to be able to pinpoint exact delivery dates
- Use vendor list prices for budgeting, then try to negotiate later
- Ask vendors about product life cycles before purchasing so you know in advance when you’ll need to replace them
- Be decisive when you find available products to avoid missing out
Leapfrog helps clients navigate and budget for the best options for their IT environments, regardless of the current circumstances. Helping manage assets and vendors is part of our managed IT services.
For a deeper discussion of the five key budget changes and how they impact your 2023 budget, download Leapfrog’s report, Making Sense of What’s Different for IT Budgeting in 2023.