Costs, Compatibility, and Control

Introduction

In resource-intensive sectors like mining and oil and gas, managing IT infrastructure presents unique challenges that standard OEM offerings often fail to address adequately. This whitepaper delves into these challenges, exploring the disconnect between OEM strategies and the specific needs of industrial sites. It offers strategic insights aimed at optimizing IT management to enhance efficiency, reduce costs, and ensure operational continuity.

Project Builds and Impending OEM Timelines

In the typical project rollout process within the resources sector, the IT team commences by gathering a detailed list of technical and operational requirements. This forms the basis of their inquiry to resellers for appropriate IT solutions. However, the pivotal challenge arises from the limitation that resellers can only offer quotations for products.

Such a scenario places the project team in a precarious position: they are potentially investing in technology that could require premature replacement if these products reach their end-of-sale milestone shortly after deployment. This predicament is further compounded by the industry's rapid pace, where newly released hardware, although appealing for its longevity, is often plagued with initial bugs that can lead to significant operational downtimes.

This conundrum forces a crucial decision- making process, requiring a balance between the risks of adopting newly released technology—prone to initial failures—and opting for older, possibly soon-to-be obsolete hardware. The choice made at this juncture can significantly influence the efficiency and lifespan of the deployed IT infrastructure, directly impacting project timelines and long-term strategic outcomes.

Run, Build, and Maintain: The Silo Challenge within IT Departments

In the realm of large resource companies, the IT department is typically segmented into three distinct teams: Build, Run, and Maintain. This structural division, while ostensibly organized, often breeds a critical disconnect in inter-team communication. The Run team is frequently left to manage and operationalize whatever infrastructure the Build team has provisioned. This process can inadvertently set a ticking clock on the operational efficacy of the IT systems due to impending OEM end-of-sale milestones.

For instance, if the Build team deploys a system that is nearing its end-of-sale date, the Run team may find itself cornered into a precarious situation. They face an imminent challenge if their operational standard requires system consistency over, say, a five- year period. The reality strikes when, three years down the line, they need to expand or upgrade the system, only to discover that the original hardware has passed its end-of- sale date, rendering procurement impossible.

The scenario escalates when the Maintain team enters the fray. Their interaction with the OEM revolves around lifecycle management tools—like Cisco's 'Know the Network'—which highlight not the operational health of the network, but the looming obsolescence of its components. These tools predict the end-of-life of network elements, irrespective of their current performance or reliability. The consequence? A cascade of replacements, not driven by need or failure, but by OEM- dictated timelines.

This misalignment not only fosters inefficiencies but also forces IT departments into a perpetual cycle of unnecessary capital outlay and project initiations—merely to keep pace with OEM milestones, rather than actual technological need or failure. This structural flaw in IT strategy needs urgent recalibration to ensure that technological investments are driven by genuine demand and system integrity, not arbitrary timelines set by external vendors.

Cost of the Hardware: The Misleading Minor Expense in IT Operations

In the vast economic landscape of IT operations within the resources industry, the upfront cost of hardware often misleads project teams during the initial design phase of infrastructure planning. Although the price tag attached to hardware might seem substantial, it pales in comparison to the 'actual costs' associated with replacing hardware during constrained change windows.

Taking prominent examples from leading industry players, such as ExxonMobil and Rio Tinto, the daily operations revenue runs into hundreds of millions. For instance, with ExxonMobil generating approximately $944 million daily, even a minor disruption or downtime in operations due to hardware replacement can lead to significant financial losses, far outweighing the initial cost of the hardware itself.

This scenario is further complicated by the often unforeseeable OEM end-of-life milestones, where hardware must be replaced not due to failure or unreliability but simply because it no longer meets the OEM's support criteria. In such cases, the operational teams face unavoidable downtime during critical operational windows, which are incredibly costly and disruptive.

Moreover, during the design and planning stages, project teams frequently underestimate or cannot predict the timing and impact of these OEM milestones. They plan for the physical lifespan and capacity of the hardware, not the externally imposed timelines of end-of-life declarations by OEMs. This oversight leads to strategic misalignments where the hardware, still operational and efficient, must be phased out prematurely, incurring enormous indirect costs related to system downtime, operational and efficient, must be phased out prematurely, incurring enormous indirect costs related to system downtime, labor for rapid replacement, and the acceleration of procurement cycles.

In essence, the true cost of hardware in the resources sector isn't just its purchase price but the broader impact on operational continuity and the financial health of the company. This underscores the need for a more holistic view of IT lifecycle management, where decisions are informed by both the technical lifespan of hardware and the strategic management of OEM lifecycle milestones.

New Is Not Always Best: The Case for Established Hardware in High Availability Environments

The adoption of newly released hardware in high- availability environments poses significant risks, largely attributable to the initial phase of the bathtub curve—characterized by higher failure rates due to early defects. This "infant mortality" phase can lead to unforeseen downtimes and operational disruptions, which are particularly costly in sectors where continuous system availability is crucial.

Moreover, new software typically accompanying new hardware also tends to have a higher incidence of bugs during initial releases. This not only compounds the risk of system failures but also necessitates frequent updates and patches, further destabilizing an already delicate environment.

In contrast, hardware that has moved beyond its initial release phase and settled into the "normal life" period of the bathtub curve offers more reliability and stability. These systems have had their early issues rectified, ensuring that they perform more predictably and require less frequent intervention. This reliability is paramount in environments where uptime is critical, making slightly older, proven technologies a safer and more effective choice.

Thus, when continuity and performance are paramount, the allure of new and supposedly superior hardware must be critically evaluated against the proven track record of existing solutions. This strategic approach ensures that operations remain uninterrupted, safeguarding both productivity and financial stability.

Useful Life versus End of Life: Navigating the Complexities

Understanding the distinctions between 'useful life' and 'end of life' of IT hardware is crucial for maintaining high availability and cost efficiency in enterprise environments. The concept of useful life pertains to the period during which the equipment performs reliably and meets the operational needs without excessive maintenance. In contrast, 'end of life' is a vendor-determined milestone, often marking when the manufacturer stops selling or supporting a product.

The 'useful life' of enterprise network equipment can vary significantly, influenced by factors such as technological advancements, operational demands, and environmental conditions. For instance, enterprise-grade switches and routers may have a useful life ranging from several years up to a decade, depending on their operational environment and maintenance.

However, the 'end of life' policies set by vendors can complicate this scenario. These policies do not necessarily align with the actual operational viability of the hardware. For example, a piece of equipment might still be in excellent working condition and capable of meeting business needs well beyond the vendor's designated end-of-life date. This misalignment often pressures IT departments into prematurely replacing hardware, driven not by a failure of the equipment to perform its function but by the cessation of vendor support, such as software updates and technical help.

This premature replacement cycle is not only costly but also environmentally unsustainable. It ignores the potential extended useful life of the hardware, which could continue to serve the enterprise effectively without the need for costly upgrades or replacements. The challenge for IT managers is to balance these factors: assessing the true useful life of their hardware, navigating vendor-imposed end- of-life dates, and deciding whether to extend the life of their equipment through third-party support options or replacement.

The key is a strategic approach that prioritizes actual equipment performance and operational requirements over adherence to vendor-imposed timelines. By focusing on the genuine condition and performance of their IT assets, companies can optimize their technology investments, reduce waste, and better align with sustainability goals. This approach not only saves money but also supports a more sustainable, circular economy by extending the life of existing equipment and minimizing environmental impact from electronic waste.

Case Study

How OEM Made a Multi-Million Dollar Problem Out of a $3,000 Problem

In  this case study, we explore a significant challenge faced by a large oil company operating an offshore rig. The incident began with a simple failure of a component, which was temporarily resolved using a spare part. However, the need for a permanent solution led to unforeseen complications due to OEM policies and hardware compatibility issues.

The Problem:
The company needed to replace a failed part on the oil rig. Initially, they requested a direct replacement from their hardware partner. Unfortunately, the specific model needed was declared end-of-sale by the manufacturer, meaning it was no longer available for purchase. The partner suggested a newer model as a replacement. However, it was soon discovered that the new model was not compatible — it could not "stack" or integrate with the existing older models on the rig.

The Complications
To ascertain compatibility, the oil company inquired about the interoperability of the new model with their existing setup. It was confirmed that the new model would not work with the old ones, posing a significant issue. The only solution seemed to be a complete replacement of all units on the rig with the new model. This was not just a matter of replacing one piece of equipment but instead entailed upgrading the entire system.

The Consequences
To ascertain compatibility, the oil company inquired about the interoperability of the new model with their existing setup. It was confirmed that the new model would not work with the old ones, posing a significant issue. The only solution seemed to be a complete replacement of all units on the rig with the new model. This was not just a matter of replacing one piece of equipment but instead entailed upgrading the entire system.

The Simple Solution
The practical solution proposed was to source the exact same model that was used as the spare, thus avoiding the need for a complete system overhaul. This approach would prevent the significant operational and financial impacts of the suggested replacement.

This case study highlights a common issue in the industry where OEM end-of-life policies can force companies into expensive and disruptive upgrades, which are not always necessary from a technical standpoint. It underscores the importance of considering extended support options or sourcing from suppliers that can provide identical replacements, thereby aligning maintenance strategies more closely with actual operational needs rather than OEM sales strategies. This approach not only saves considerable costs but also minimizes operational disruptions, making it a crucial strategy for managing enterprise IT hardware effectively.

The True Cost of a Support Contract - $23 Million, Not $2 Million

This case study revolves around one of the world's largest mining companies during a period of significant financial strain due to plummeting iron ore prices and a declining share value. The focus was on stringent cost reduction across the board.

Background
As the company approached the renewal phase of its maintenance support contract with the OEM, the immediate attention was on the sticker price of the contract, quoted at $2 million. However, a deeper analysis revealed a more alarming financial implication.

Financial Revelation
Included in the support contract were details on which devices would remain supported and which would become unsupported over the next three years. It was discovered that replacing the unsupported devices during this period would incur costs exceeding $20 million. Thus, the actual expense associated with maintaining operational integrity through the OEM support contract was not just the upfront $2 million but an overwhelming $23 million when factoring in necessary hardware replacements.

Data Insights
After securing the contract, the company was required to report all hardware failures, specifying the nature of each incident. Over three years, spanning 16,000 devices, the data collected provided no evidence to support a correlation between the age of devices and the frequency of failures. Instead, failures were uniformly distributed across devices of all ages, with most linked to environmental causes such as power strikes or surges, rather than hardware obsolescence.

Implications
This case study illuminates the often-hidden costs embedded within OEM support contracts. The initial contract value can be misleading, overshadowing the substantial financial commitments that may be required later. Moreover, the data challenges the common assumption that older devices are more prone to failure, suggesting that external factors are more significant determinants of hardware reliability.

Strategic Considerations
For companies in similar situations, this case underscores the importance of conducting comprehensive reviews of support contracts to uncover all potential costs. Additionally, it emphasizes the need for robust environmental protections and infrastructure resilience to mitigate non-age-related hardware failures. This approach not only ensures more accurate budgeting but also aligns maintenance strategies more effectively with the actual risks to hardware performance.

Conclusion: Leveraging Recirc IT For Strategic Advantages

In industrial sectors, particularly within mining and oil & gas, the distinction between the IT requirements of remote operational sites and corporate offices is crucial yet frequently overlooked by Original Equipment Manufacturers (OEMs). This oversight can result in inefficiencies and increased costs due to the misalignment of provided hardware solutions and support services.

1. Over-specification of Hardware:
   Operational sites like mines or oil rigs typically require significantly less network capacity compared to corporate environments. Despite this, OEMs tend to recommend readily available hardware solutions that are often designed for higher-spec corporate use. This not only leads to unnecessary expenditure on over-specified equipment but also inflates operational costs related to maintenance and energy consumption.
2. Realistic Service Level Agreements (SLAs): The remote locations of many industrial sites pose unique challenges for meeting the stringent SLAs offered by OEMs and their partners. The geographic isolation frequently results in SLA breaches, as rapid response times are logistically challenging. Companies often mitigate this risk by stockpiling spare parts, unnecessarily tying up capital.
3. Cost Implications of Inappropriate SLAs: OEMs, driven by profit motives, typically push the highest level of SLAs with matching high costs, regardless of their practical applicability to the site. This not only imposes undue financial burdens on the operation but also diverts resources from potentially more critical areas such as safety or environmental sustainability.
4. Strategic Recommendations: To navigate these challenges, companies should consider involving independent partners who are not tied to OEM frameworks. These agnostic partners can provide a perspective that is tailored to the actual needs of the site, rather than the sales-driven agendas of OEMs. Engaging with such partners enables companies to obtain hardware solutions and SLAs that are truly aligned with their operational realities, avoiding overspending and enhancing overall efficiency.

By advocating for a more customized approach and engaging non-OEM experts, businesses can ensure that their IT infrastructure is not only cost- effective but also perfectly suited to their specific operational needs. This strategic realignment empowers companies to negotiate more effectively with OEMs, ensuring investments in IT infrastructure deliver maximum operational value and support long-term business goals.

The Case for Software Updates in Closed Network Environments

In industrial site locations, which are often isolated and operate within closed networks, the conventional wisdom surrounding software updates, particularly those aimed at security, can be reevaluated. Unlike corporate environments where internet connectivity exposes systems to external threats, operational sites typically employ highly secure, closed Process Control Network (PCN) setups. These networks are rigorously shielded from external access, often physically disconnected from the internet, with security managed at the perimeter level through robust firewall systems.

Security Patch Relevance:
The primary purpose of regular software updates is to address vulnerabilities that could be exploited by malicious entities. However, in environments where the network is completely isolated, the risk introduced by potential external cyber threats is significantly minimized. The firewall acts as a robust barrier, effectively neutralizing the risk of intrusions. In such scenarios, the urgency and relevance of deploying every new security patch diminish considerably.

Stability vs. Security Updates:
For fully isolated systems, introducing new software patches, which are predominantly security-focused, can sometimes be more disruptive than beneficial. Updates, while crucial for systems exposed to the internet, can introduce changes that might affect the stability of highly specialized industrial control systems. The cautious approach often adopted at these sites prioritizes system stability and continuity over the incremental security enhancements provided by frequent updates.

Implications for OEM Contracts:
Given the unique operational dynamics of these sites, standard OEM support contracts, which include regular updates and patches, may not always be necessary or appropriate. The closed nature of the network at many industrial sites means that software updates, particularly those for security, are not as critical, and in many cases, can be managed more effectively on an as- needed basis rather than through routine comprehensive updates.

Moreover, security updates, when necessary, are typically provided free of charge by software vendors, further diminishing the need for extensive support contracts that emphasize regular patch deployment. This not only reduces operational costs but also allows site managers to focus on maintaining the integrity and stability of their systems without the pressure to conform to typical OEM update cycles.

In conclusion, for industrial sites operating within closed networks, the strategic focus should shift towards maintaining system stability and integrity rather than adhering to conventional update schedules. This approach ensures that updates are deployed judiciously, based on a thorough assessment of their impact and necessity, rather than as part of a routine process dictated by OEM agreements.

Conclusion

IT management in resource-intensive industries requires a departure from conventional OEM-driven approaches. By understanding the unique needs and challenges of industrial sites, companies can develop more effective IT strategies that prioritize long-term stability, cost-efficiency, and operational integrity. This whitepaper advocates for a shift towards customized, site-specific solutions that align with the practical realities of industrial operations, steering clear of one-size-fits-all solutions.