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Riding Out Turbulent Times

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Retailers are heading into 2009 with a keen eye focused on networking operating costs. Savvy chains that plan to consolidate vendor contracts, hardware and networks are primed to recover up to 20% of costs in 2009.

This was the message during the Webinar, “How to Significantly Reduce Network Costs in These Turbulent Times.” Gartner, Stamford, Conn., sponsored the event, held in October.

“The hot topic on all networking managers’ minds is how to reduce costs. If they can, they will become heroes in 2009,” Jay E. Pultz, VP, and distinguished analyst, Gartner, said during the session. “By following some recommendations, companies can lower planned networking expenditures by between 10% and 20%.”

Networking costs are comprised of three segments: carrier services, equipment, and network-support costs such as staff needed to maintain hardware and operations at store-and data-center level.

“Companies often break down expenditures on these segments by investing 40% in network services, 40% in carrier services and 20% on equipment,” Pultz said. “To understand the total cost of ownership of a network and how to reduce costs in these turbulent times, companies need to understand their internal-networking structure and focus on where they are spending the most money.”

Many companies are expected to pursue layoffs this quarter, and head counts could decrease by an average of 5% to 10%. While this move will loosen capital tied up in employee overhead, Pultz suggested alternatives to reduce expenses. The biggest benefits are expected to come from consolidation efforts.

“Opportunities don’t need to revolve around large capital investments,” he explained. “Instead, companies can make consolidation decisions that will help them save money.”

The first initiative Pultz suggested is to renegotiate carrier contracts and consolidate services wherever possible. “One-third of our clients have contracts expiring in 2009. Two-thirds will be renegotiating in 2010 or 2011. It is time to open those contracts and start renegotiating now,” he said.

Besides renegotiating service conditions and rates, companies should consider bundling services. “There are opportunities to combine data traffic like never before,” he reported. “Some companies may be able to streamline voice and data, while others can combine state and international service or wired and wireless support.”

There is also plenty of consolidation work to be done in-house. As the economy tightens, retailers shouldn’t be supporting separate IP (Internet Protocol) networks for their data center and stores. Further, chains should take stock in similar processes running at store level and within the data center.

“By converging to a centralized IP network for example, companies can integrate platforms and relocate office or branch functionality into the data center, including servers and data storage,” he said.

“Networking is a key enabler to centralize data in one place and bring efficiency back to both the data center and the branches,” Pultz said. “By consolidating the network and the data facility’s network platform and services, the enterprise has a foundation to save money.”

Whether retailers are well under way with these projects or just beginning to make changes, Pultz warned companies to be cautious and focus on systems that will support business initiatives planned for 2009.

“History has proven that economic downturns often last between nine and 12 months, and these turbulent times will soon be less turbulent,” he explained.

To ensure that ambitious companies don’t get ahead of themselves, Pultz suggested that companies stay focused on projects that will provide the highest cost savings or support major business initiatives.

“Now, if you over-invest, you will end up with costly networks that may need to be replaced sooner than expected,” he said. “If there are projects on your to-do list that don’t fit into these short-term goals, the best plan is to defer them until 2010 or when the economy turns around.”