We all know Moore’s Law, but so far 2021 seems less about Moore’s Law and more about the Law of Supply and Demand. That’s because empty shelves and higher prices are becoming uncomfortably noticeable.
These current conditions are causing big headaches for IT buyers. Many customers delayed their 2020 IT purchases due to the challenges of COVID, working remotely, and staying afloat.
You remember, 2020 was to be a big IT refresh year across the industry. New processors and the availability/cost benefits of solid state drives had tech watchers expecting a banner year.
But 2020 was the boom that never happened. Now that life is returning to some level of normality, 2021 braces for two years’ buying cycles. Pent up demand is exhausting the IT supplies that are available and the backlog is huge. Unfortunately, that demand is only half the problem.
“So, why can’t I get my order?!”
Lack of Inventory
Several things are driving the new-inventory constraints: a shortage of raw materials, time to convert raw materials into end products, and the time it takes to get end products to distributors. Right now we are victims of our own efficiencies. “Just in time” production methodologies work only if the global machine stays running.
A key component in everything from toasters to computers to automobiles is the semiconductor. It takes 14-20 weeks to make a single semiconductor, and semiconductor fabrication plants are extraordinarily expensive to build. The cost of one plant is $10 billion plus. Spinning up manufacturing is a herculean task. That’s why many plants run 24/7/365. And due to differences in quality and feature sets, most semiconductor chips worldwide are sourced from just three companies.
Guess who shut down for months last year? All the semiconductor manufacturers … that’s who, along with CPU, GPU, SSD, and circuit board manufacturers.
As it turns out, international shipping doesn’t restart easily either. There are too many goods for too few shipping containers destined for too few ports with too few cranes and workers. Many of us are waiting on product that is parked just off our western shore on a container ship. Check out this video detailing Why There are Now So Many Shortages (It’s Not COVID).
Lack of Workforce
One unsavory contributor to our current situation is the mass employee purge of 2020. These past 18 months, many corporations took draconian measures to maintain stock prices. In 2020, employers accelerated the popular practice of reducing aged, higher paid employees (in theory to cut OPEX). All that experience and intellectual capital evaporated despite ITIL efforts to document the process.
Skeleton crews were kept on board to man the phones and idle machinery. They will be the leaders as fabrication plants come online. Unfortunately, they only have so many hands.
The Great Ramp Up
We have never witnessed a global restart of the production process. New employees are scrambling to assimilate, train, and re-learn all the lessons lost, as they attempt to meet the current crushing supply demands.
CEOs and accounting offices assume (or hope) the savings gained from hiring new, inexperienced employees will offset the potential lost revenue of not rehiring their experienced, pre-pandemic workforces. But will their customers tolerate the CEO gamble? Will they endure fumbles on top of supply chain shortages and logistics delays? Some might argue long odds.
Meanwhile, here we all sit. Hoping raw materials can be gathered, chips can be created, parts and pieces can be assembled, packing materials can be acquired, and transports to market can be arranged. As new inventory trickles into availability, it is snatched up within moments of being posted … even with higher prices than we expect.
Plan A…and B…and C…and D…
So is it time to start planning IT purchases based on delivery times and production runways in addition to our own company budgets and timelines? For the short term, yes. That is the reality. Second, third, or fourth choice is also the reality. These days the only in-stock choices are often the most expensive ones, just like the meat counter at the grocery store. Have you priced a filet lately?
What next?
You should prepare IT spends a quarter (or three) out. Communicate your upcoming needs with your vendors, suppliers and distributors. Be flexible if possible on your IT choices. Expect some higher prices. And finally, be patient with your vendors. We are all ready for abundant inventory, lower prices, and plenty of new choices. It is high time for some good times ahead!