CAPEX vs. OPEX: Reducing the cost of hardware support

By Steve Bailey, Commercial Director at Agilitas.

Installing IT hardware has always been a high cost area for businesses. Typically viewed as a one off expense, costs can quickly skyrocket. More hardware requires greater upfront costs, more replacement parts, and increased maintenance and support in order to maximise uptime and minimise downtime. Whether or not businesses organise their own maintenance, or outsource it to a service provider, some level of support is business critical.

According to Agilitas research, nearly 30 per cent of resellers and service providers are spending over £50,000 a year on spare inventory for their customers, with the figure rising to over £1 million in 20 per cent of these cases. This is a staggering expenditure, especially when you consider that a large number of these spare parts go unused.

Reducing this cost is a constant challenge for some organisations, however making hardware provisioning and maintenance part of day to day operational costs can go a long way to reduce spikes in spending. Inventory-as-a-service is a flexible and simple way to achieve this and can deliver a model that not only saves money but provides a more efficient service.

For organisations choosing to go it alone, and manage their own inventory the challenge is purchasing and storing the right system parts, and enough of them to cover any potential issues. For organisations with lots of IT spares capital this approach works fine, however for the majority, concerned with margins and profit, a CAPEX approach can be both risky and unreliable.

Investing in inventory-as-a-service and working with a trusted and reputable partner, can instantly reduce expenditure and risk. This approach is of particular benefit to service providers managing hardware for clients. Juggling spending on IT spares inventory and resources whilst working to meet high pressure SLAs can be both a challenge and financial drain.

A third party inventory specialist will have already made that expensive outlay on server, storage and networking parts, and with more forward stocking locations (FSLs) and a larger operation, will be much better equipped to leverage that infrastructure in order to meet tight SLAs. Costs are typically fixed for a sustained period of time, enabling providers to structure financially viable monthly support contracts. If more parts are required, the inventory-as-a-service partner purchases them and absorbs all of the costs, not the reseller or service provider.

According to our research, meeting SLAs is the greatest challenge for service providers delivering IT spares and replacement hardware to end users. Failing to meet these is not only damaging to annuity based contracts, but will always result in unhappy customers, who in turn can lose thousands of pounds for each extra minute of downtime they experience as a result of waiting for a resolution. Inventory-as-a-service can go a long way to help to reduce this headache.

A good inventory-as-a-service partner will be able to scale operations up and down as required within short timeframes. Meeting two hour SLAs 24x7x365 is normal for organisations in this space, delivering service providers who include MSPs, system integrators and resellers, significant competitive advantage and cost savings at the same time. The agility that service providers can gain would be almost impossible to achieve on their own without unsustainable capital expenditure to remain aligned to a multi-vendor / multi-technology environment. Providing this level of support nationwide or across Europe is close to impossible for even some of the biggest service providers to coordinate.

In addition to moving from a CAPEX to OPEX model, we're also increasingly seeing CAPEX being lowered by upskilling existing in-house technical staff to carry out simple maintenance themselves. Coupled with an increase in remote support resolutions for customers, this reduces demand for service providers to have feet on the street mobile engineers, therefore reducing the overhead to service a contract. The result is greater margins for service providers and cost savings for the end user customer.

Customer demand is moving towards an operational focus as well, so a more operational approach to IT spares inventory management is necessary. Just last week, CISCO chief executive Chuck Robbins commented that customers are "fundamentally more concerned about the operational costs of their IT infrastructure than the capex" which historically hasn't been the case.

Adapting business models to make hardware more of an operational cost by partnering with a reliable inventory-as-a-service partner is a really simple way for resellers, MSPs, and systems integrators to lower overall expenditure and improve service performance and efficiency. Meeting SLAs is a constant challenge for those going it alone, and can be a massive drain on finances and business growth.

Taking this modern OPEX approach means no more unused IT spares inventory sat on a shelf depreciating, and maintenance can be carried out more efficiently; either remotely, in house, or outsourced to a partner that will provide assistance within a guaranteed time as per an agreed SLA. In short, reducing the cost of hardware provision is positive for both service providers and their customers. The service provider can improve its bottom line by taking less capital risk, and these cost savings can be passed down to customers, who in turn receive improved service performance at a lower cost.