CISCO SYSTEMS(THE SUPPLY CHAIN STORY)

Submitted By, Sourav

Dutta Sunayan Pal

Submitted By, Sourav

Dutta Sunayan Pal

CASE SUMMARY (1/2)

YEAR EVENT

1984 A group of computer scientists formed Cisco. They designed IOS that could route streams of data from one computer to another.

1985 Started customer support through a website

1990 Installed bug report database on its site

1991 Cisco support center receiving 3000 calls per month

1992 Calls per month increased to 12000

1993 Cisco built a customer support system to help the customers in posting queries about their software problems

1994 Cisco came up with Cisco Information online. It offered company and product information, technical and customer support.

CASE SUMMARY (2/2)

YEAR EVENT

1995 Cisco introduced applications for selling products and services in the website.

1996 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

2000 More than 70% of Cisco orders were online

2001 Market demand decreased due to downturn resulting in huge loss

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

CISCO – THE MILESTONES

Year Events

1990 Cisco goes public

1992 Plans a global supply network, outsources manufacturing and distribution

1993 Acquires Crescendo, a low end LAN switch maker for $ 100 million

1994 Launches Cisco Connection Online website.

1995 John Chambers becomes the CEO and accelerates the acquisition strategy by acquiring four companies in the same year.

1996 Cisco moves into the WAN switch market, acquires Startcom for $ 4.5 billion

1998 Cisco prepares to become a single vendor servicing the network arena. Enters intoalliances with integration partners like KPMG and IBM to provide solutions.

CISCO DOMINATE NETWORK MARKET (2000-01)

CISCO- SUPPLY CHAIN NETWORK

CISCO- INFORMATION FLOW THROUGH SUPPLY CHAIN

Cisco ERP Database

Customer Order

Contract Manufacturers

Supplier Production Schedule

TPL

INTERNET VPN

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

'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.

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

Garbage in, garbage out. Processor

Chip , optical gear

Buyers

Larger base, all across the globe

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

RESULTS

•Cisco had to write off inventory worth $ 2.2 billion•Cisco’s market capitalization down to $ 154 billion (By the end of 2001)•Cisco in Q3,2001, sales had decreased by 30%.•Cisco’s 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.

Suppliers were plagued by long order-to-payment cycles

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

Cisco run short of some key components for some of its equipment.

Shipments to customers were delayed by 3–4 weeks

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

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

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

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.

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

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

For instance, if three manufacturers competed to build 10,000 routers, to chipmakers it looked like a sudden demand for 30,000 machines

Arrangements led to an inventory pile-up availability.

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

since Cisco's forecasters had failed to notice that their projections were artificially inflated.

Cisco should not have assumed that there would be continuous growth.

Assumption

Q4. HOW LONG TERM CONTRACTS WITH SUPPLIERS RESULTED IN POOR PERFORMANCE OF CISCO SUPPLY CHAIN?