The supply chain issues currently blighting data center development are not necessarily new, nor have they struck out of the blue. Rather, they have been bubbling in the background for some time and now, two years since Covid struck and with a war raging in Ukraine, the supply-chain challenges have become bigger and more demanding.
However, even now, there is much that data center builders and operators can do to manage, mitigate, and minimize their risks, argues Kirby’s David Waldron.
He ought to know. As Associate Director, Supply Chain at engineering and construction specialist Kirby, it is Waldron’s job to keep data center builds on track, on-budget and on-time for major clients across Europe.
“We’re in the contracting ‘game’, so we have to keep a very close eye on the commodity rates to make sure that the position is sustainable, but we do have a good model around that in relation to our cost base,” says Waldron.
In particular, steel, copper and aluminium are heavily used in common data center products, such as busbars, cabling, and cabinets. Any shortages or price increases in those commodities will feed through directly into prices and costs for data center builders, who can therefore benefit from accurate insights into where prices are really heading.
Trouble in store
One of the key features of the current pattern of interruptions in global supply chains has been the queues building up at major ports, and the uncertainty over the shipping of products and components from one side of the world to another.
But even goods with ‘Made in Europe’ stamped on their undersides, destined for data centers around the world, may have sub-assemblies and other components originating from a factory closed down by Covid lockdowns in China, or be stuck on a container vessel queueing for weeks for a place to dock.
“Some production processes are now in extreme distress. A European multi-billion-euro manufacturer might have a European factory and European design, but their sub-assemblies would typically be made in China, and delivery times this year have got exponentially longer,” says Waldron.
While Covid lockdowns are now a thing of the past across most of the world, in China they were reintroduced with a vengeance earlier this year, locking people in their homes for weeks on end, preventing them from working and even going out to the supermarket for essentials, such as food. Only now have China’s big city lockdowns been tentatively lifted, with the risk that they could suddenly be reintroduced at any time. The added disruption to supply chains wrought as a result is not expected to recede for a year or more.
Russia’s war in Ukraine, meanwhile, hasn’t just borked global supplies of neon, used in semiconductor manufacturing, but the spike in already high oil prices has even had an impact on the price of plastics, such as PVC, which is typically made from oil industry by-products naphtha and ethylene. For commodity products and components, these issues will have another big impact on prices.
“It’s a bit different for complex, highly engineered equipment,” says Waldron. “They may be primarily made of steel but a greater proportion of the value of the product is in design, rather than their composite make-up; the more highly engineered it is, the less exposed to the commodity risk, from a cost point of view.”
Nevertheless, where once the quote for a product might have been valid for 28 days or more, in some cases they have been slashed to just a day, adds Waldron, such is the level of market volatility and risk. Just comparing prices from different suppliers has become a nightmare.
“In our general cycle, we would have a validity period for each of our quotes and, if necessary, we would always try to extend it. That level of price certainty has now been rescinded and we’re seeing quotations now that are out of date within 24 hours. This is something we’ve never seen before, but it is because everyone is operating on such high levels of uncertainty,” he says.
As a result of all these various issues affecting supply chains, the data center sector has become no less immune to the kind of panic buying more commonly associated with ordinary folk contemplating the horror of a possible toilet roll shortage. Such knee-jerk reactions don’t just exacerbate the problem, but they also load unnecessary costs onto projects.
“There’s a lot of stockpiling going on out there. People are just grabbing whatever they can, but that’s certainly not something we would do. After all, you want to reach the end of any project as lean as you can, and it’s not ideal to have a lot of cash tied up in unnecessary inventory.
“In any case, it’s at the lower end of the supply chain in terms of containment and brackets – things like that – rather than high-end equipment, that it is possible to stockpile, if you need to.”
Much of the most sophisticated equipment, of course, either needs to be built bespoke or has high levels of factory customisation required, and this can scarcely be stockpiled.
How do you do?
Navigating successfully through the next few years will take both expertise and determination, but the challenges posed by adversity invariably help separate the winners from the also-rans.
At Kirby, Waldron and his supply chain team have been skilling up to handle such challenges as they have ratcheted up, year by year.
“We have processes internally at Kirby to make sure we’re as up to date with our pricing information as possible. We have a daily LME [London Metal Exchange] interaction in relation to exposed metals commodities. That would be the main challenge,” he says.
This enables Kirby to be ahead of the pack in terms of product pricing and exactly where prices are heading. In addition to helping clients make quick decisions when it’s advantageous to do so, it could help save even more money when supply chains turn the corner.
Data center builders need, above all, to diligently focus on critical-path sequencing if they want to stay on top of all their potential supply chain issues, believes Waldron.
The critical path method is a project management process of identifying the string of key tasks and dependencies that will take the longest time to complete. This intensive to-do list is called the critical path, while tasks inside it are called critical activities. This approach is intended to identify the processes and supply of products that could cause delay, and to highlight the potential for delays so that they can be managed and mitigated.
“You have to focus on the critical path; the critical path of equipment. We're heavily focused on critical-path sequencing – what needs to get done and when, and what needs to get to the front of the queue, from the point of view of design prioritization in order to facilitate the earliest feasible procurement of ‘challenging goods’,” advises Waldron.
Underlying this, with regard to supply chain challenges, is a need to work out who your most reliable suppliers are, to nurture those relationships and to remain in constant communication with key contacts. “You will be relying on your relationships if they have to fire up a flare for you,” he adds.
The current supply-chain – and heightened political risk – issues are not going away and could intensify still further before they ease. That means that data center builders and other organizations need to critically consider their supplier relationships and partnerships, and to build-in resilience with in-depth supply-chain knowledge to manage their way through the next few critical years. That may also mean consolidating suppliers in terms of reliability.
“So, validate, revalidate and revalidate, to the point of pestering your suppliers. It’s not for the faint hearted, but resilience is the key attribute everybody needs to have at the moment, while keeping a cool head, clear thinking and working through each supply chain challenge, one at a time,” says Waldron.
To find out more about Kirby, its data center engineering and construction services and some of the hyperscale projects it has successfully helped bring to completion, check out the company’s website.
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