CISCO SYSTEMS

(THE SUPPLY CHAIN STORY)

Submitted By, Sourav Dutta Sunayan Pal

CASE SUMMARY (1/2)

YEAR 1984
EVENT A group of computer scientists formed Cisco. They designed IOS that could route streams of data from one computer to another. Started customer support through a website Installed bug report database on its site Cisco support center receiving 3000 calls per month Calls per month increased to 12000 Cisco built a customer support system to help the customers in posting queries about their software problems Cisco came up with Cisco Information online. It offered company and product information, technical and customer support.

1985 1990 1991 1992 1993 1994

CASE SUMMARY (2/2)

YEAR 1995 1996 EVENT Cisco introduced applications for selling products and services in the website. Cisco introduced Networked Strategy to foster its relationship with the supplier,customer,manufacturer,distributor etc. It started product configuration and order placement online.

1997

Dial in access for customers from their desktops o that they can place their orders without internet More than 70% of Cisco orders were online

2000

2001
Recent

Market demand decreased due to downturn resulting in huge loss

Steps implemented to recover the loss and make the Cisco supply chain more flexible to market demand

CISCO THE MILESTONES

Year 1990 1992 1993 Cisco goes public Plans a global supply network, outsources manufacturing and distribution Acquires Crescendo, a low end LAN switch maker for $ 100 million Launches Cisco Connection Online website. John Chambers becomes the CEO and accelerates the acquisition strategy by acquiring four companies in the same year. Events

1994 1995

1996
1998

Cisco moves into the WAN switch market, acquires Startcom for $ 4.5 billion
Cisco prepares to become a single vendor servicing the network arena. Enters into alliances with integration partners like KPMG and IBM to provide solutions.

CISCO DOMINATE NETWORK MARKET (2000-01)

Network market ( $36.8 Billion)

21% 2% 3% 4% 38%

Cisco

3Com
Nortel Lucent New bridge

12% 7%

13%

Cabletron Intel Others

CISCO- SUPPLY CHAIN NETWORK

CISCO- INFORMATION FLOW THROUGH SUPPLY CHAIN

Customer Order

INTERN ET

VPN
Cisco ERP Database

TPL

Contract Manufacturers

Supplier Production Schedule

Q1. OUTSOURCED ACTIVITIES OF CISCO:

Manufacturing :

It was handed over to a set of contract manufacturers. Cisco owned just 2 of its 40 manufacturing facilities by 2000

Assembly Product Configuration Distribution system:

Through the network of suppliers, distributors, partners, and resellers and customers, Cisco successfully coordinated all the activities necessary to provide products to its customers on time

Q2. WHY CISCO IS DOING OUTSOURCING?

Cisco initially identified its core competency as Product Designing. So to

focus more on it Cisco outsourced all the other non core activities

Ensured product quality though major portions of the fulfillment process were outsourced

To reduce the manpower cost is another main motive To reducing the cost of wages

Q3.IMPACTED

OF OUTSOURCING DECISIONS ON PERFORMANCE OF

CISCO
Buyers

'being the hardware maker Cisco did not make hardware

Cisco's supply chain was Pyramid structured. The communication gaps between these tiers created problems for Cisco. Based on Demand projection (company's sales force)Cisco ordered in large quantity in advanced to lock-in supplies of scarce components during the boom period. Garbage in, garbage out.

"If the inputs are wrong, the world's best supply chain can't save you

Cisco entered into long-term commitments with its manufacturing partners and certain key component makers for all time component availability.
RESULTS

Larger base, all across the globe

Processor Chip , optical gear

Cisco had to write off inventory worth $ 2.2 billion Ciscos market capitalization down to $ 154 billion (By the end of 2001) Cisco in Q3,2001, sales had decreased by 30%. Ciscos per employee profit was $ 240,000 (down from $ 700,000 in 2000). Cisco lay off 8,500 people.

Q3.IMPACTED

OF OUTSOURCING DECISIONS ON PERFORMANCE OF

CISCO

Cisco's partners worked out their supply-demand forecasts from multiple points in the supply chain.

Transactions between suppliers and contract manufacturers were not always smooth.

There were time lags in delivery and payment, and thus greater opportunity for errors

Suppliers were plagued by long order-to-payment cycles Cisco run short of some key components for some of its equipment. Shipments to customers were delayed by 34 weeks

Revenues of customers who took delivery within two weeks were affected badly

customers were rather 'out of character' for a company that prided itself on its relationships with customers

compensated many of its executives the basis of on customer satisfaction.

Q4. HOW LONG TERM CONTRACTS WITH SUPPLIERS RESULTED IN POOR PERFORMANCE OF CISCO SUPPLY CHAIN?
Cisco entered into long-term commitments with its manufacturing partners and certain key component makers for all time component availability. Arrangements led to an inventory pile-up availability. since Cisco's forecasters had failed to notice that their projections were artificially inflated.

Many of Cisco's customers had ordered similar equipment from Cisco's competitors, planning to eventually close the deal with the party that delivered the goods first.. Cisco's supply chain management system failed to show the increase in demand, which represented overlapping orders.

Double and triple ordering, which artificially inflated Cisco's demand forecasts

For instance, if three manufacturers Assumption competed to build 10,000 routers, to chipmakers it looked like a sudden demand for 30,000 machines Cisco should not have
assumed that there would be continuous growth.

As Cisco was committed to honor its deals with its suppliers, it was caught in a vicious cycle of artificially inflated demand for key components, higher costs, and bad communication throughout the supply chain.

Cisco's inventory cycle reportedly rose from 53.9 days to around 88.3