Cost Optimization in setting up an Offshore Data Centre

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The Problem

A US based global Semi-conductor giant planning to upgrade its global DRS and Data Centre operations wanted to move significant processing power to its off shore development centre. The equipment costs are significantly high and required immediate cash outflow for which the corporate HQ in USA was not willing to move cash out the US.

Key Challenges

  • The servers required for the Data Centre were of a specific configuration for  there were a limited number of suppliers in the market and the company has been procuring from only this one vendor globally under it’s preferred vendor policy.
  • The server supplier required commitment for a higher quantity of servers and advance payment for better delivery and pricing.

 

Standardization of Configuration of the IT Equipment and Introduction of reverse bidding process

Detailed discussions with IT department both in offshore and HQ revealed that the equipment with standard configuration can be customized at the offshore site before commissioning and that the price variation was mainly due to customization carried out at the suppliers factory prior to delivery – a long standing practice.

This new information opened up the opportunity to invite more suppliers to participate in price bidding. RFQ was floated with standard configuration. Reverse bidding process was adopted with the technically qualified suppliers that has brought down the prices significantly. This bidding process was coupled with financing options and staggered delivery. Further, a server buy-back was also negotiated at a specified date at  pre-agreed buy-back prices.

Key Benefits Realized

By leveraging in-house talent available at the offshore location for configuring the servers – a custom-configured equipment with higher pricing and longer delivery schedules was converted into standardized equipment and standard equipment commissioning process. Cash was conserved by opting for leasing instead of outright purchase.

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