Supply chains: the biggest “hidden” challenge for data centers 

17.01.2024 416 0

The world of data centers is booming at an unprecedented pace. Interest in data centers is at its historic peak and will only continue to grow. The advancements in artificial intelligence (AI) are driving up demand and is in direct battle with regular data center clients who need more resources than ever before. 

“Much of the anticipated 2024 supply will be pre-leased, resulting in limited options for users who are not in the market far in advance of their preferred go-live date,” JLL reported. The average vacancy rate across the North American data center market is just 2.7% for the third quarter of 2023, says datacenterHawk. And in some regions, like Northern Virginia for example, the rate is just 1%. 

“Frankly, the only limiting factor is our ability to get the data centers handed over and filled up fast enough. This quarter alone, we’re talking about hundreds of millions of dollars that we would have been able to recognize if our capacity was available,” says Oracle CEO Safra Catz in the company’s earnings call, quoted by DataCenterFrontier. 

Demand will continue to soar in all regions, which means that data centers are expanding at a record pace, and companies are building new facilities faster than ever. All of this further drives the hunger for hardware and allother types of related data center resources, like infrastructure and supplies. Thus, the segment is facing am important new challenge which so far has remained somewhat hidden – the supply chain. 

The data center supply chain has its own set of issues. Initially it was the chip shortage which plagued multiple industries in 2020, 2021, and parts of 2022. Since then, the chip supply has been improving but there are other challenges. For example, now there’s high demand for everything data center related and thus there’s big competition between data center operators and builders to set up a steady supply chain for their needs. 

We want more and we want it now 

Completion dates for data centers have suffered in 2023 due to disruptions in the supply chain, DataCenterFrontier reports. Naturally, data center operators want more certainty and are preparing to take the required steps in 2024 to ensure this. One action is the creation of deeper and more stable relationships with companies from the supply chain. Think of closer integration, more exclusive deals, and more money to be invested to achieve these goals. 

The data center supply chain is vast and covers multiple industries, including, but not limited to energy, construction, OEM hardware, etc. “The increase in demand has exceeded the capacity of traditional infrastructure deployment methods to efficiently support it, and this will continue to challenge project timelines and milestones well into 2024 and beyond,” said Zech Connell, VP of Program Development with BluePrint Supply Chain, in the recent DCF Executive Roundtable. 

It’s an increasingly important topic which up until now seemed a bit distant. Now it’s no longer hidden, it becomes a primary issue for the industry. 

“In 2024, the supply chain faces significant challenges in meeting heightened demand. Aligning with customers on delivery timelines remains a critical obstacle. The industry grapples with 52+ week lead times for crucial data center components such as switchgear, power distribution equipment, generators, and chillers,” said Jeffrey Kanne, President & CEO of National Real Estate Advisors, the sponsor of Sabey Data Centers. 

We must build it smarter 

The traditional approach of simply ordering more stuff is not enough for the data center industry. There’s only so much material and components to go around, and simply increasing orders will only lead to more problems and longer waiting for deliveries. Obviously, that’s not a good idea. So, instead, the data center industry must change and not only improve and optimize their buildings but make the entire supply chain smarter. 

This shouldn’t be much of a problem, considering anything IT is usually very flexible and eager to quickly transform and optimize for the better, right? It turns out, not quite. There’s  always some exception to the rule and in this case, the exception might be the data center industry, notes DataCenterDynamics.  

“I do think, in many ways, the data center industry is much slower to change than other industries, which is quite interesting,” Brett Rogers, CEO and founder of supply chain software company KatalystDI, said.  

“If you think about each data center construction project, it has its own unique supply chain – everything’s individualized and bespoke. In fact, this was the genesis for the company – back in September 2018, when I was at Google, we had released something like 600-800 megawatts of orders into the marketplace. And right away we started learning about these delays in a very specific part of our delivery plan, it was something as simple as busway.” 

He says at the time the company had to coordinate and do details at the job site even though they “never stopped to standardize”. Despite that, every data center project is different and requires custom orders. There’s no way to have a perfect data center construction plan so that you can simply order everything in advance and time it to perfection. 

So, the industry has to adapt. And in this case it has found inspiration thanks to… Lego. What Lego does is quite smart. There are hundreds if not thousands of different pieces of Lego. You can mix and match them to build unique structures and projects, while the main blocks are the same. 

But there’s an issue. If we just buy random parts and then “dump 7,000 Lego pieces on the floor and handed somebody an exploded diagram showing how they went together, that would be a nearly impossible task,” Rogers says.  

The genius of Lego’s approach is that it separates the building into stages. Even the pieces for each stage are neatly packaged and separate. So, this way it’s much easier to keep track of what parts you need, where they go, and when you should use them. This way, building using Lego has become so popular as it’s both easy, yet still requires attention and to put in some effort. 

And that’s the aim of the industry now; to have a decentralized standardized supply chain – this way vendors and suppliers can easily mass produce everything every data center would need, but also focus on their specific areas. Data center operators can easily mix and match suppliers to achieve their perfect bespoke solution while always having the peace of mind they can easily order more inventory from an additional supplier and know it will work with the rest easily. Well, in theory.  

It won’t be that easy to truly achieve this goal. For one, it will require all involved parties to communicate with each other and share a lot of data, and some of this information might be confidential or they might not want to disclose specific solutions they have. There are two approaches to solve this: One is to simply not work with such firms, and the other one is to consider these “information blind spots” into the products themselves.  

Another important factor that Rogers says must be done is to change the way of thinking of the industry. He says that a lot of the data center industry views itself as overly special.  

“Data centers for whatever reason have been very insular and view themselves as special. And the truth is, what is a data center? It’s a hardened warehouse. It has a somewhat complicated electrical system to make sure that the electrons keep flowing and it has a heat rejection system to remove heat from the servers. And obviously, there are controls and monitoring layers, etc. But I don’t think data centers are nearly as technically complex as they appear to the outside, particularly when you compare them to battery or semiconductor factories,” he says. 

The good thing is that all of this creates a perfect opportunity to now transform the entire data center supply chain and make the most of its potential, says Rogers. That is, if the industry players will talk to each other and not let the competition for supplies get the better of them. 

Something has to be done 

Chances are that the industry will find common ground. One main reason is that the supply chain issues are increasing data center outages. The State of the Data Center 2023 report by AFCOM reveals this piece of data. 

It found out that 44% of data center operators have had an outage because they just couldn’t get the necessary parts, and 94% of operators say they’ve had at least one supply chain issue.  

This reflects greatly on the overall data center performance, too. For comparison, in 2022, just 25% of data center operators had an outage due to a supply chain issue. Uptime Institue’s Outage Analysis for 2022 also finds that these outages are now lasting longer and are therefore becoming far more costly.  

As for which components are causing problems most often, servers and switches take the crown with 59% of respondents saying they have had issues with them. Power systems like generators, UPSs, etc. take second place with 51%.  

“I think we are realizing just how fragile the supply chain really is. The demand is just huge. So a lot of these manufacturers simply trying to catch up to what the requests are. The pandemic really was an accelerator. And now we’re trying to sort of dig out from the supply chain issues,” Bill Kleyman, program chair for AFCOM says to DataCenterDynamics. 

All of this should indeed motivate everyone in the industry to band together and work towards improving the data center supply chain. Everyone depends on it working as best as possible. And it will require the work of everyone sans the data center clients to achieve these goals the effects of which are intended exactly for the clients. And the client is always right, so we can expect that in 2024 there will be significant progress in this area leading to improvements for all. 

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