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It hardware category plan

IT Hardware Category Plan

www.procurement.scotland.gov.uk


Version control
Version Control

To ensure changes can be tracked and queries can be directed to the appropriate person it is necessary to complete this table


Contents

Page

  • Foreword 4

  • Abbreviations 5

  • Executive summary 6

  • Category profile 10

  • Category plan 27

  • Appendices 30

  • Research Sources 32

Contents


Foreword
Foreword

Purpose

  • The purpose of this document is to summarise the key findings from the category team’s research into current spending on the category across the public sector in Scotland, the supply market and opportunities for both cost reduction and process efficiency, available to Procurement Scotland and its stakeholders. It also seeks to outline the strategy and plan developed to address these opportunities and other key issues observed.

  • The document is not intended to provide detailed information on specific contracts and/or supplier performance. It seeks only to present the key opportunities available and the approach and resources required to address them.

  • The document is intended to be shared with key stakeholders within the public sector in Scotland. It does however contain certain sensitive commercial information and should not be shared beyond this environment. In particular it is not intended that the document is shared with suppliers without further review and the removal of commercially sensitive information. Whilst the document provides for an overall strategy and plan, it does not provide a detailed sourcing strategy or plan. Further, in-depth stakeholder engagement and analysis will be required in most cases before attempts are made to source requirements from the supply market. The document should be regularly reviewed and updated where appropriate

Approval

  • Approval of this document requires its review by the appropriate National Category Forum. Formal approval however is provided by the Operational Board (comprising the Heads of the Sector Centres of Expertise). Endorsement by the National Category Forum and/or Operational Board does not commit any individual organisation or entity to the actions or contracts outlined within the plan. The plan should however reflect the intentions and understanding of each of the key sectors and describe expectations of uptake, subject to detailed discussion and evaluation.

Disclaimer

  • The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

  • The expenditure data contained in this document reflects that provided on the 2nd May 2007 from the Spikes Cavell Observatory. The data reflects information gathered from more than 100 organisations across the public sector in Scotland, although in much of the analysis a number of the smaller Central Government bodies have been consolidated into a single entity for reporting purposes. It reflects expenditure during the 2005-06 financial year and therefore covers August 2005 to July 2006 for the HE/FE sector and April 2005 to April 2006 for all other sectors.

  • Unless stated otherwise, expenditure is classified by the primary business of the supplier to whom the payment was made. In many instances, this may not accurately reflect the true nature of the products or services provided. The document reflects information gathered from across the sector during early 2007 and from participants in cross-sector category forums undertaken during 2007 and 2008.

  • This document also reflects information gathered during conversations within key suppliers, review of analyst reports and industry trends.


Abbreviations
Abbreviations

The following abbreviations appear in this document

  • PDA Personal Digital Assistant

  • HE/FE Higher Education and Further Education Sectors

  • IT Information Technology

  • MFD Multi-function device (providing network printing, photocopying and fax facilities)

  • NHS National Health Service

  • NHS NSS National Health Service National Services Scotland

  • PS Procurement Scotland

  • OEM Original Equipment Manufacturer

  • SG Scottish Government

  • TFT Thin Film Transistor

  • VAR Value Added Reseller


Executive Summary

IT Hardware Category Plan


Executive summary category background
Executive SummaryCategory Background

Key Insights

  • The spend data in this updated category plan is based on 2005/6 data from Spikes Cavell. Although this data is directionally correct in showing the largest areas of spend by sector, the data is not accurate in reflecting the suppliers, who in 2008, account for the spend in Scotland. This document where appropriate will highlight gaps in the data to ensure the current IT hardware landscape in Scotland is reflected.

  • The total spend on IT hardware products and services in the Scottish public sector from the Spikes Cavell data is £106 million. This data is categorised at the level of supplier, many of whom provide a range of products and services such as software, maintenance and professional services that are wider than the scope of this category plan.

  • Local Authorities are the most significant buyers spending over £69 million (65%) of the total spend. The spend in this sector is almost four times that of Central Government which at just over £16 million (17%) is the next largest. Eight of the top ten spending organisations are Local Authorities.

  • The 2005/6 data shows a total of 95 suppliers where the top 10 account for spend of over £59 million (55%) of the total with the top three suppliers being Dell, Research Machines and Computacenter. It is important to note the emergence of the OEM Lenovo and their VAR partner Insight as a result of the e-Auctions held in February and December 2007. Insight/Lenovo are now one of the top suppliers, along with Dell and HP, across the public sector in Scotland. Expenditure with Research Machines, although significant, is focused primarily within the Local Authority sector.

  • A variety of different models for the provision of IT Services is in use across the public sector e.g. managed services, and the procurement of IT hardware should be seen in context of total cost of ownership since the initial purchase cost is normally a small proportion of the full life costs. The strategy for managing the overall lifecycle of IT equipment and the way regular technology refresh programmes are planned is important in managing costs and influencing procurement activities.

  • There are significant variations in procurement processes across all sectors and organisations with some pre-qualifying their own suppliers following an OJEU notice, some using Catalist or sectoral collaborative contracts and some placing orders directly with preferred suppliers. HE/FE benefit from UK and inter-regional contracts which are managed nationally. The concentrated spend on IT hardware towards the end of each financial year presents a challenge for many organisations both in meeting short timescales for procurement and in ensuring that terms of contract are competitive.


Executive summary category background1
Executive SummaryCategory Background

Key Insights (cont…)

  • Such diversity in process has resulted in a range of prices and terms and conditions. The e-Auctions held in February and December 2007 have demonstrated the pricing achievable when a truly competitive process is adopted. Formal benchmarking has not been carried out, but price differentials in excess of 50% for similar models have been observed. Different procurement processes e.g. auctions, competitive tenders will continue to be adopted to address the challenges of maintaining an efficient purchasing process when market prices for technology are constantly falling.

  • There is a wide variety in the technical specifications of IT equipment and in the service elements purchased. Service elements include installation, warranty, support, maintenance and training. While some variations will be required to service local needs, there is scope for realising savings through the adoption of standard technical and service specifications.

  • The sector with most to gain in cost savings is likely to be Local Authorities since it has the largest spend and most diversity in practice, particularly across schools where devolved budgets can lead to small individual purchases and higher prices.

  • There is limited visibility of planned procurements within local authorities and it may be that others are underway. All such exercises should be exploited as opportunities for quick wins by directing organisations to improved pricing under National Collaborative Arrangement’s for IT Hardware.

  • The IT hardware market is a global and highly competitive market where technological evolution and globalisation of supply chains has led to consistent price reductions. The global market is currently dominated by a small number of companies with HP and Dell holding over 30% of market share between them. Margins particularly for desktops and laptops are low (typically 2%-4%) and further consolidation in leading suppliers is likely. In addition to OEMs, there are a number of major companies who act as resellers to the many of the major manufacturers such as

    Insight/Lenovo, SCC/HP and Computacenter/Fujitsu, the exception to this is Dell which sells only through telephone and online channels.

  • The demand for IT hardware will continue to be driven by technological changes in both software and hardware such as the introduction of Microsoft Vista, the move towards server computing, and the evolution of mobile devices.


Executive summary recommendations
Executive SummaryRecommendations

Opportunities & Actions

Whilst there are examples of good practice in the procurement of IT hardware including instances of collaborative buying, there is scope for significant improvement leading to improved demand management practices, better contract terms from suppliers and increased efficiency in procurement activities. To bring about this improvement, there are a number of actions that should be pursued including:

  • Development of a schedule of regular collaborative procurement activities including e-Auctions, where appropriate, to support more structured and planned expenditure on IT hardware.

  • Evaluate the development of a standalone IT Hardware framework contract for Scotland with around 6 – 8 suppliers

  • Development of an approach for the procurement of servers at entry, mid range and enterprise levels

  • Active engagement with public sector IT managers and stakeholder groups to gain commitment to more centralised procurement of IT hardware.

  • Development of standard specifications for all sub-categories of IT hardware across all sectors with focus towards future proof, high end products.

  • Provide leading practice guidance to all organisations on current procurement channels for IT hardware from e-Auctions and multi supplier frameworks to the provision of managed and outsourced services

  • National contracts for interactive whiteboards and the disposal of IT hardware.

  • Reducing and standardising the number of desktop and laptop specifications in Scottish schools.

    The benefits of these actions will include:

  • Reduction in the cost of IT hardware to the public sector of between £5 million and £10 million over a three year period and lower running costs through the reduction in complexity.

  • Reduction in costs and duration of procurement for individual organisations through streamlined processes allowing redeployment of resources.

  • Leverage of shared expertise in IT leading practice, especially for end users in smaller organisations .

  • More robust plans through better information about likely procurement volumes in next three years.

    There are a number of short term actions which should be undertaken to release benefits more quickly:

  • Focused engagement with the top 3-5 suppliers by sub category to better understand what is being purchased to support the development of commodity strategies

  • Actively intervene in tendering activities in progress or planned to prevent them from proceeding by highlighting the benefits of collaborative procurement through national contracts

  • Communicate and get buy in to the strategy and approach on desktops, laptops and servers to get volume commitment on future sourcing activities to support the 2009/10 desktop and laptop technology refresh.

  • The benefits associated with these short term actions can be realised within 6 to 12 months and include:

    • Cost reductions of over £2 million and/or improved services through negotiations with suppliers and increased commitment on current tenders.

    • Increased efficiency in procurement administration for collaborating organisations through reduction in tendering activity


  • Category Profile

    IT Hardware Category Plan


    Category profile current expenditure

    Thomson Categories

    All spend data is imported into the Spikes Cavell Observatory

    The supplier is then allocated a Thomson category

    Thomson categories are grouped in three levels of larger Proclass categories

    We selected Thomson categories relevant to the scope of ‘Category A’ and grouped these into our own commodity-category structure.

    Sub-commodities reviewed

    Category ProfileCurrent Expenditure

    Category Definition

    • The IT Hardware category has been defined as comprising desktop and laptop computers, monitors and servers. These are items where there are opportunities for standardisation and could benefit from collaborative procurement efforts. Network and communications hardware, multi-function printers, support, maintenance and implementation services are all out of scope. Spend on IT services and contractors will be addressed under the Professional Services category.

    • The key sub-categories are:

      • Desktop PCs and laptops

      • Monitors

      • Servers (Entry, Mid Range and Enterprise)

      • Interactive whiteboards & disposal of IT hardware

    • Spend information has been included for those suppliers who sell some or all of these products. This has included all suppliers classified as Computer Manufacturers and a selected number from the Computer Systems & Software and Professional Services classifications.


    Category profile current expenditure1
    Category ProfileCurrent Expenditure

    Spend by sector (Financial Year 05/06)

    Source: Spikes Cavell

    Observations

    • The total spend drawn from relevant sections of Spikes Cavell data is over £106 million. Since this data is held at supplier level, and some provide a range of IT goods and services, it is likely that there are elements included that are outside the scope defined for this category plan e.g. maintenance and support, software, consumables and managed services.

    • Local authorities are the most significant buyers of IT Hardware within the public sector in Scotland, spending over £69 million and accounting for around 65% of the total spend. The spend in this sector is almost four times that of Central Government which at almost £18 million is the next largest.

    • Spend in some sectors such as Health may not reflect spend that is channelled through PFI/PPP deal structures to acquire IT goods and services.


    Category profile current expenditure2
    Category ProfileCurrent Expenditure

    Organisational spend profile for 05/06

    Source: Spikes Cavell

    Observations

    • Spend on IT hardware can fluctuate across organisations depending upon asset refresh policies for example. Spend in one year may not therefore be representative of future spending patterns.

    • HE/FE has a fairly level annual expenditure due to a planned refresh strategy. Its financial year end is at the end of June and this is when the majority of its expenditure occurs

    • The top ten spending organisations in 05/06 accounted for over £59 million which is over 55% of the total spend in IT Hardware.

    • Eight out of the top ten organisations are Local Authorities and the University of Edinburgh is the sole representative from HE/FE sector.

    *% of total refers to the proportion of IT Hardware spend relative to the total third party expenditure of the organisation

    Source: Spikes Cavell

    • Within the top twenty organisations which account for almost 70% of the total spend, there are two Health organisations, NHS Lothian and NHS Lanarkshire, and no further HE/FE organisations.

    • Around £7 million of the Scottish Government total represents the costs of the five year contract with Research Machines to deliver the Glow project. The figure for South Lanarkshire also reflects a large spend with Research Machines, while over 80% of the East Lothian spend is with Computacenter.

    • The value of spend relative to the total third party spend varies widely with highs of 7.4% at East Lothian Council and 4.0% at South Lanarkshire Council. This may reflect spend on one-off projects or significant technology refresh activities.

    • Of the 10 organisations listed, 4 of them have bought large numbers of desktop and laptop PCs from the December 2007 eAuction.


    Category profile current suppliers
    Category ProfileCurrent Suppliers

    Observations

    • The 2005/6 data shows spend is highly concentrated with the top 10 suppliers accounting for 90% of all expenditure. Dell, Research Machines and Computacenter are the top 3 suppliers and each holds a roughly similar share of the spend with a collective total of 60%.

    • In 2008 the concentration of supplier spend is anticipated to be the same although there may be some changes in supplier order as well as new additions to the top supplier listing.

    • The main cross sector suppliers in Scotland today are Dell, HP and the reseller/OEM partnership of Insight/Lenovo. Other key suppliers are Fujitsu and the VAR’s Computacenter and Specialist Computer Corporation (SCC).

    • Research Machines are a key supplier to Scotland but expenditure with them is focused in Schools via Central Government and Local Authorities.

    Current suppliers spend by sector


    Category profile current suppliers1
    Category ProfileCurrent Suppliers

    What follows is an overview of the key current suppliers and the sector organisations they supply based on 2005/6 spend data. A perspective on 2007/8 has been added to ensure this information is up to date.

    Observations – DELL

    • In 2005/6 Dell was the largest supplier of IT hardware into the Scottish public sector with 22% of the total spend and is the most widely used supplier having sales with 87% of all organisations.

    • The largest spend with a single organisation is with SG Core Departments.

    • In 2007/8 Dell are still one of the largest suppliers. However, as a result of being unsuccessful in the December 2007 eAuction, they have now focussed on the Health sector where they were successful in the Health specific procurement.

    Observations – RESEARCH MACHINES

    • In 2005/6 Research Machines had 20% of the total spend and are used by 34% of all organisations. They focus on the education sector and spend comes mainly from the Scottish Government and Local Authorities with a small amount from the HE/FE sector.

    • In 2008 spend with Research Machines is still significant partly because of the contract with the Scottish Government for delivery of the Glow project in Scottish schools. This contract, previously known as Scottish Schools Digital Network, is valued at around £37 million over 5 years. Research Machines also have contracts with South Lanarkshire and Scottish Borders Councils to provide managed services including desktop refresh.


    Category profile current suppliers2
    Category ProfileCurrent Suppliers

    Observations – COMPUTACENTER

    • In 2005/6 Computacenter had around 17% of the total spend and was used by 48% of organisations, made up of 20 Local Authorities, 9 NHS organisations, 4 HE/FE institutions and the SE..

    • Almost 60% of the total spend was with East Lothian and South Lanarkshire councils.

    • In 2007/8 Computacenter business is still focused in the Local Authority sector. In 2007 it notably lost the desktop support contract in Health.

    • Computacenter were successful in the December 2007 eAuction where they partnered with Fujitsu.

    Observations – HEWLETT PACKARD

    • In 2005/6 Hewlett Packard had around 8% of the total spend. Around 56% of the spend being with Glasgow City Council where they provided a managed services contract.

    • In 2007/8 HP have been impacted by the results of the auctions in February and December 2007. At the February auction they won limited business but more significantly at the December 2007 auction they were not awarded business. As a consequence their turnover with the public sector has been reduced.


    Category profile current suppliers3
    Category ProfileCurrent Suppliers

    As a result in the change in the supplier landscape since 2005/6, spend data and observations have been added on two key suppliers Insight/Lenovo and

    Specialist Computer Corporation.

    Observations – INSIGHT/LENOVO

    • In 2005/6 Insight/Lenovo only had a combined spend of £329k showing they were a minor supplier across the public sector.

    • As a consequence of the e-Auctions held in February and December 2007 where they were awarded business their turnover in Scotland has increased significantly

    • In 2008 Insight/Lenovo have business with over 90 organisations across all 6 sectors in Scotland

    Observations – SPECIALIST COMPUTER CORPORATION (SCC)

    • In 2005/6 SCC were not a significant supplier to Scotland with only a registered spend of £32k.

    • As a result of the e-Auction in February 2007 they picked up business through their partnership with HP.

    • SCC did not win business from the auction held in December 2007 so will be reliant on business from existing relationships.


    Category profile current suppliers4

    Spend by all suppliers

    5% of total spend

    1% of total spend

    Source: Spikes Cavell

    • #67 – Laptopshed

    • Total of £11,270 - all with Aberdeenshire Council

    • #90 – Laptopbits Ltd

    • Total of £1,377 - all with N. Lanarkshire Council

    • #19 – Viglen, £598,846

    • #25 – Lenovo, £191,719

    Category ProfileCurrent Suppliers

    Observations

    • There are 95 suppliers whose primary business with the public sector can be considered supply of IT Hardware.

    • The top three suppliers have around 60% of total spend, with the top 12 having 90%.

    • There are 14 suppliers with spend between £50,000 and £100,000.

    • There are a large number of suppliers with whom relatively small amounts are spent and 27 suppliers where spend is less than £10,000. There are also a number of suppliers who are used by only a few organisations.

    • Although the detail in Spikes Cavell is insufficient to allow a robust analysis of the influence of SME suppliers, initial indications are that there are at most three suppliers in the top 20 who may be regarded as SMEs. These are Glasgow based Scotsys (5% of total spend), Aberdeen based Grampian Electronic Components and Dundee based Computer Technology (Scotland) Ltd who each have 0.5% of total spend. The remaining suppliers who may be categorised as SMEs have a combined spend which is estimated as around 4% of the total spend.


    Category profile current practice
    Category ProfileCurrent Practice

    Current Practice

    • The recommended Procurement route is for organisations to use the Procurement Scotland National Collaborative Agreement for IT Hardware. On 14 December 2007 Procurement Scotland held its first e-auction for IT Hardware using the Catalist Framework of OGCbuying.solutions. This project was the first demonstration of the benefits to be gained from collaboration at a Category A (National) level. The results of the auction have been very successful. Price savings have averaged 26% against an earlier auction held in February 2007, representing secured savings of approx £4.0 million. Uplifts in the specification of hardware and improved energy efficiency will also bring additional business benefits to participating organisations. In addition, experience from previous auctions suggests that other organisations are likely to come on board later.

    • There is a variety of procurement processes in use across the Scottish public sector. Some organisations make use of framework contracts available through Catalist while others choose to tender directly with suppliers through publication of an OJEU notice. In general, contracts are rarely made on the basis of committed volumes. Smaller contracts may be awarded following some form of competitive process although it is believed that there are still instances of procurement activities which may not fully comply with Scottish Government guidelines. This disparity in procurement process exists across all suppliers including those such as Dell and HP who are contracting individually with a significant majority of organisations.

    • There are variations in practice across the different sectors as follows:

      • The Health sector has a centralised procurement function where there is no significant non-compliance with this centralised process for IT hardware.

      • In the Local Authority sector, Scotland Excel provides the most significant grouping of organisations for the purposes of procurement. A new framework contract for IT hardware was awarded in March 2008. However, not all member organisations necessarily have made use of available Scotland Excel contracts in the past, and the new contract doesnot contain any committed volumes. In addition to large contracts for IT hardware, there is also a significant number of small orders from individual schools as a result of devolved budgets and it is likely that the terms of such orders are not always advantageous.

      • Organisations in HE/FE benefit from the use of a number of sectoral UK and inter-regional contracts which are managed nationally with representation from Scottish participants. These contracts are accessed through portals that are generally provided by suppliers and this allows compliance to be managed and good management information to be provided to the sector. HE/FE manages planned quarterly reviews with major suppliers and operates a planned IT asset refresh programme with allocated budgets.

      • There are plans for users of some of the aforementioned frameworks and local arrangements to transition to Procurement Scotland’s National Collaborative Procurement Arrangement on expiry of their current contracts.

    • A number of organisations, typically the larger Local Authorities, have put in place major contracts to provide a managed service for IT hardware covering some part of their organisations. These contracts vary in terms of the scope and terms and conditions but typically are for a number of years and involve some commitment to planned technology refresh. For example, Edinburgh City Council have a managed service contract with BT and Glasgow City Council are in a Joint Venture contract with Serco.

    • OGC Buying Solutions provide a route for public sector organisations to buy IT hardware through the Catalist framework IT Goods and Services - Client Devices contract. This contract became effective in May 2006 and runs until February 2010. It includes PCs, laptops and PDAs and associated services such as installation, warranty, maintenance and disposal facilities. There are 18 suppliers providing goods and services through this contract including OEM’s such as Dell, HP, Lenovo and Fujitsu as well as a number of other VARs including Insight, Computacenter and SCC.


    Category profile current practice1
    Category ProfileCurrent Practice

    Current Practice

    • The graph opposite shows a range of prices paid, or quoted recently, for a corporate PC (inc. monitor) including that specified in the recent e-Auction. Care should be taken in comparing prices since there are some differences in specification although all are intended to meet similar end user needs.

    • There is a wide variety in the IT hardware that organisations buy, both in terms of the technical specification and in the choice of service elements such as installation, support, warranties, maintenance and training. While some variations will be required to service local needs, it is unclear that there is any robust business case for much of the variation. A range of prices are being paid for hardware to meet equivalent needs of end users and it is likely that this is as a result of the diversity in both products and process.

    • The procurement of IT Hardware in each organisation reflects to some extent the IT Strategy and model adopted for the delivery of IT Services. The maturity of the approach employed varies by sector and within each organisation depending on its size and capability. There is an awareness that the purchase of IT hardware should be seen in the context of total cost of ownership.

    • The key suppliers and a number of organisations consulted report that there continues to be a concentrated spend on IT hardware towards the end of each financial year – typically end of March. N.B. HE/FE operates a different financial year and tends to operate a more structured asset refresh programme.

    • This factor presents a challenge for many organisations both in meeting short timescales for procurement and in ensuring that terms of contract are competitive. Suppliers understand the pressures on organisations at this time of year, and may take advantage of the situation to improve the margins they might normally receive or to shift end of life stock.


    Category profile supply market overview

    Desktop PCs Magic Quadrant

    Laptop PCs Magic Quadrant

    Source: Gartner

    Category ProfileSupply Market Overview

    PC & Laptop Market Overview

    Key UK Suppliers

    • The IT hardware industry is a global and highly competitive market. Driven by continued technological evolution and globalisation of supply chains, prices of hardware have fallen consistently over recent years.

    • Price reductions have been driven by strong competition among suppliers, reducing costs and an oversupply in the market. Margins in PCs and laptops in particular remain low – typically between 2% and 4%. It is likely that this situation will lead to further consolidation among the leading suppliers.

    • As PCs become close to being true commodities, it is increasingly challenging for suppliers to differentiate themselves on the basis of the product offered. Instead, they may choose to focus on other factors such as service and support capabilities and product life cycle management.

    • With the increasing emphasis on mobility, the popularity of laptops continues to rise in comparison with desktops and they now account for around 40% of all PCs sold. This is despite the total cost of ownership for laptops being up to 68% higher than for desktops. (Source: Gartner)

    • The evolution of mobile devices, PDAs and hand held devices is likely to drive further growth in PC technology. The continuing move towards thin client and server virtualisation technologies will also impact on this market.

    • The release of Vista, the new operating system from Microsoft, may drive growth through technology refresh programmes and temper price cutting that has been a feature in recent years; particularly as older Microsoft operating platforms become unsupported e.g. Windows 2000.

    • The main area of growth is expected to be in emerging markets since sales in Europe and US have slowed considerably in recent years. Growth however is often tempered by reductions in prices which may mean that there is no commensurate increase in revenue.

    • Recently, there have been signs of upward price pressures due to commodity/labour increases and exchange rate movements.


    Category profile supply market overview1
    Category ProfileSupply Market Overview

    Server Market Overview

    • The server market can be segmented in different ways which makes it difficult to analyse market trends.

    • The table shows how Gartner segments the server market into 3 areas; entry, mid range and enterprise, key characteristics being the number of CPU’s, physical design e.g. blade form, rack mounted and cost. Another segmentation criteria is the operating system e.g. Unix, Windows

    • The worldwide server market is valued at more than $54 billion which includes a variety of operating systems and processor technologies

    • In the total server market, x86 Intel servers represent more than 90% of shipments, and Windows Server is the installed operating system (OS) on more than 75% of these servers.

    • The worldwide x86 market is dominated by Dell, HP, IBM, Sun and Fujitsu/FSC who are regarded as “safe” choices for an organisations server requirements.

    • Since the beginning of the decade, there has been a clear shift toward x86 based platforms. During the period 2001 to 2006, only x86 based servers showed any real unit growth, doubling in size from 3.9 million units to 7.7 million units worldwide. Much of the growth was from the sub $5,000 segment, which accounted for 80% of volume in 2006.

    • Management of IT infrastructures has changed in recent years from having remote, decentralised servers supporting single applications to a more centralised approach where server estates are consolidated in data centre’s.

    • As a consequence of this trend the key issues facing IT Managers today are rising costs of managing their data centres in terms of space, power, support and maintenance.

    • Emerging technologies such as virtualisation or virtual management software and blade servers are helping to mitigate these issues.

    • Virtualisation software enables IT managers to create virtual operating environments so they can have multiple applications running different operating systems from a single server.

    • Virtualisation delivers cost savings by consolidating servers and reducing power consumption on heat and cooling. It also addresses a number of ‘green’ issues such as the ‘carbon footprint’.

    • Blades are based on clustering technology and enable having many servers in a single rack mounted device. They are a cheaper way of adding processor capacity without the extra data centre costs of space and power. They are also easier to use and manage, saving on man hours. Furthermore they use less power and reduce heat saving on air conditioning.

    Magic Quadrant for Worldwide Servers


    Category profile supply market overview2
    Category ProfileSupply Market Overview

    Supply Market Statistics and Trends

    PC & laptops - World wide market share 2006

    • Total worldwide shipments of desktops, notebooks and servers grew by around 10% in 2006 with almost 240 million computers shipped.

    • Worldwide revenue in 2006 remained flat however at $201.1bn. Although the growth in shipments in 2007 is expected to rise by around 9.9%, revenue is expected to grow only marginally due to pressure on prices.

    • HP has widened its lead over Dell in world wide share, and has closed the gap in the US market where Dell still has 4% market share lead. In addition to direct sales, HP has a network of resellers including retail stores which gives it a variety of routes to market. This may be an advantage given the anticipated growth in emerging markets where the direct business model is not always popular.

    • Dell is now focusing on diversifying its business and looking for growth in higher margin areas of servers, storage and services. PCs remain around 40% of revenue. Dell sells only directly to customers through the web and phone allowing it to reduce the overheads associated with retail and channel sales.

    • Lenovo, which was sold by IBM in 2005, is actively growing its market share through competitive pricing, as shown by the recent e-Auctions in Scotland. It is also building its brand image through sponsorship of events such as Formula 1 and the Olympics in Beijing.

    • Acer, which concentrates primarily on Europe and Asia, remains the fastest growing PC maker for the third successive year with a business model that is aimed at the low margin, low average selling price market.

    • Toshiba focuses on the notebook market in which margins are healthier and it did well in 2006 with 27.3% growth in shipments worldwide.

    • Apple also experienced growth in 2006 and, while seventh in the world, is ranked fourth in the US.

    Servers - World wide market share 2006

    Source: Gartner


    Category profile supply market porters 5 forces

    New entrant threat 2

    • The barriers to entry as reseller are low and high for manufacturers.

    • Pressure on prices reduces the attractiveness of market for new players

    • Ongoing consolidation means that small players may be acquired

    • Limited opportunity to provide niche services e.g. sector specific

    • Upward price pressure due to commodity and labour increases and exchange rate movements.

    Key

    5 High

    3 Moderate

    1 Low

    Power of suppliers 2

    Supply market rivalry 5

    Power of buyers 4

    • A small number of global suppliers dominate the market.

    • Market is very competitive and growth and market position is achieved primarily through volumes at lower margins.

    • There has been ongoing consolidation in the market and this is likely to continue.

    • Hardware is often seen as a ‘sales vehicle’ for selling in other value-added services.

    • The market is becoming increasingly commoditised.

    • Major suppliers are looking to develop services on the back of hardware sales to improve margins.

    • Some growth in this market through need for technology refresh and in emerging markets.

    • Prices have reduced consistently in recent years.

    • Consolidation of volume provides strong leverage in the market

    • Increased commoditisation will lower risks and costs of changing supplier.

    • Dependent upon collaboration and committed volumes.

    Substitute threat 2

    • Ongoing evolution of technology e.g. growth of mobile devices will continue to offer alternatives in medium term.

    • Server virtualisation, the introduction of new software such as Microsoft Vista and the continued growth in on-demand services will impact on demand.

    Category ProfileSupply Market – Porters 5 Forces


    Category profile supply market pest analysis
    Category ProfileSupply Market – PEST Analysis

    Political

    Economic

    • The IT hardware market is dominated by a small number of global companies.

    • Concerns about environmental issues such as disposal of obsolete equipment may result in further legislation that will increase costs of disposal.

    • Concerns about energy utilisation may drive need for change in product specification.

    • The market is expected to remain highly competitive. However, continuing downward pressure on prices is not forecasted due to increased commodity/labour prices and exchange rate movements.

    • The UK market for PCs and laptops is almost at saturation and while some growth in the overall volumes is predicted, it is likely to come from emerging markets.

    • Continued erosion of margin is likely to force further consolidation of suppliers.

    Social-Demographic

    Technological

    • Ongoing focus on mobile and home working will continue to support move from desktop PCs to laptops and other portable devices.

    • PC user population becoming ever more sophisticated and demanding in their use of IT technology.

    • Concern around ‘disposable society’ may impact on refreshment policies with any resistance to early obsolescence.

    • Release of new software such as Microsoft Vista will drive demand.

    • Change in hardware (e.g. move to widescreens) will increase demand.

    • Move to server computing with thin clients will change profile of client requirements.

    • Server virtualisation will impact on the volume and specification of servers procured.

    • Continued evolution in mobile devices will provide additional demand.


    Category profile supply market sub categories
    Category ProfileSupply Market - Sub-categories

    Comments

    • There is insufficient detail in the Spikes Cavell data to allow spend break down to sub-category level although the total market for all sub-categories is estimated at £100million per annum.

    • The ease with which IT equipment can be replaced or interchanged affects its value to an organisation. This in turn is influenced by the IT management policies and procedures that are in place in any organisation.

    • The Kraljic grid opposite reflects the increasing level of complexity from monitors to servers with an associated increase in value to the organisation.

    • For monitors and printers and some proportion of PCs, this translates into a focus on best price analysis and volume leveraging. As complexity and risk increase for higher value PCs, laptops and servers, the development of strategic supplier relationships may also be relevant.

    Bottleneck

    Strategic

    Servers

    Risk/Complexity

    Laptops

    Desktop PCs

    Monitors

    Routine

    Leverage

    Value of spend


    Category Plan

    IT Hardware Category Plan


    It hardware strategy
    IT Hardware Strategy

    Category Objectives

    The core objectives for procurement of IT hardware in the public sector is that:

    • By 2009, significant levels of purchases of (in scope) IT hardware by public sector organisations will be executed through collaborative contracts aligned to Procurement Scotland’s strategy that meet the needs of the end user and provides best value.

    • There will be a planned schedule of regular e-Auctions for future-proofed hardware with committed volumes to ensure that the best market prices are consistently achieved and that organisations can benefit from advances in technology.

    • Procurement Scotland will manage the strategic relationships with key national suppliers working collaboratively across the sectors, to ensure that they are fully committed to working positively with the public sector to achieve the benefits that are possible.

    • eCommerce including eProcurement will be used extensively to manage the sourcing and procurement where appropriate.

    • There will be active and positive engagement by public sector IT managers in the work of the Procurement Scotland to ensure that there is full commitment to the procurement routes established.

    • All organisations in public sector will have access to current thought leadership on technical and IT management issues which will influence their procurement activities. In particular, there will be a common understanding of the options to buy or lease hardware or procure a managed service.

    Long Term Goals/Aims

    In order to deliver the vision for IT hardware, a number of goals have been identified that must be met. These are:

    • Development of a schedule for collaborative procurement activities including e-Auctions to support both tactical and strategic buying.

    • Consider the development of a standalone Scottish framework contract for IT Hardware with an appropriate number of suppliers.

    • Communication and co-ordination of strategic decisions shall be managed through the National Category Forum and disseminated by the Sectoral CoEs and User Intelligence Groups (where they exist) to facilitate better buying and alignment with strategic direction of the end users organisations.

    • Implementation of a communication programme to engage public sector IT managers to identify any barriers and gauge commitment to central procurement. Use of existing networks such as the Society of IT Managers (Socitm) should be considered together with existing groups such as JISK, HEIDS (within HE/FE) and other evolving networks across the sectors.

    • Development of standard specifications for all sub-categories of IT Hardware across all sectors with focus towards future proof, high end products.

    • Development of leading practice guidance in the management of IT hardware including use of managed services and lease or buy arrangements.

    • TCO models shall be in place for the provision of IT Services together with supporting white papers in other technical areas that will influence procurement activities e.g. server computing.


    Category plan short term planning
    Category PlanShort Term Planning

    Short Term Actions


    Category plan critical success factors
    Category PlanCritical Success Factors

    Critical Success Factors

    • Areas critical to successfully delivering the plan outlined in this document, the change it proposes and the benefits associated, include:

    • Resourcing

      The right number and capability of procurement staff are in place to deliver the planned activities on IT Hardware. The skill set required is knowledge and understanding of the stakeholder landscape across public sector organisations and also technical knowledge of IT Hardware to engage and influence stakeholders. This will be a challenging balance to achieve and may involve looking at secondments from other departments or interim resources with the required skill set.

    • Stakeholder Buy-in and Support

      The activities described in this plan will require the active support of IT and procurement staff within sector organisations. In some areas, such as the Technical Strategy Group in the Scottish Government, activities will require a significant allocation of resources from these organisations. It is therefore imperative that senior executives within these organisations are consulted early in the process, that they understand the benefits available to their organisation and the wider sector and that they are willing to support the initiative.

    • Support from the Sector Centres of Expertise

      Similarly support from the sector based centres of expertise will be critical. In particular they will need to support the category plan through communicating and engaging with end user organisations and staff, sharing information with the Portfolio/Category Manager and challenging, at the earliest opportunity, any sourcing or contracting activity that is outside the strategy outlined in the category plan.

    • Access to improved data

      The data obtained to-date has been valuable in establishing a high level profile of expenditure in the category. Delivering many of the activities described within the plan will require the identified extraction and analysis of more detailed data i.e. SOCITM input into a server survey.

    • Committed volumes

      The full benefits of collaborative procurement will only be realised where organisations are able to commit definite volumes in advance. It is recognised that this can be difficult in practice for some organisations where there is uncertainty regarding availability of budget.



    Deliverables dependent on resourcing being in place

    Extended time period to complete deliverable if only partial resourcing in place

    Timescales & Activities: 12 Month View

    Apr – May 08

    Jun – Jul 08

    Aug – Sept 08

    Oct – Nov 08

    Dec – Jan 09

    Feb – Mar 09

    Apr – May 09

    Contract

    Route

    Server Strategy

    Development

    Execution of Server Strategy

    Desktop Refresh

    Strategic Sourcing Initiatives


    Research sources
    Research Sources

    Main Data Sources:

    • Aberdeen Group

    • Gartner

    • Forrester

    • IDC

    • DataMonitor

    • IBM

    • Dell


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