CISCO SYSTEMS (THE SUPPLY CHAIN STORY) 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 into alliances with integration partners like KPMG and IBM to provide solutions.
CISCO- INFORMATION FLOW THROUGH SUPPLY CHAIN Cisco ERP Database Customer Order Contract Manufacturers Supplier Production Schedule TPL INTERNET VPN
Q1. OUTSOURCED ACTIVITIES OF CISCO: <ul><li>Manufacturing : </li></ul><ul><ul><li>It was handed over to a set of contract manufacturers. Cisco owned just 2 of its 40 manufacturing facilities by 2000 </li></ul></ul><ul><li>Assembly </li></ul><ul><li>Product Configuration </li></ul><ul><li>Distribution system: </li></ul><ul><ul><li>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 </li></ul></ul>
Q2. WHY CISCO IS DOING OUTSOURCING? <ul><li>Cisco initially identified its core competency as “Product Designing”. So to focus more on it Cisco outsourced all the other non core activities </li></ul><ul><li>Ensured product quality though major portions of the fulfillment process were outsourced </li></ul><ul><li>To reduce the manpower cost is another main motive </li></ul><ul><li>To reducing the cost of wages </li></ul>
Q3.IMPACTED OF OUTSOURCING DECISIONS ON PERFORMANCE OF CISCO <ul><li>Cisco's supply chain was Pyramid structured. </li></ul><ul><li>The communication gaps between these tiers created problems for Cisco. </li></ul><ul><li>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. </li></ul>'being the hardware maker Cisco did not make hardware’ "If the inputs are wrong, the world's best supply chain can't save you” Garbage in, garbage out. Processor Chip , optical gear 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 <ul><li>Cisco had to write off inventory worth $ 2.2 billion </li></ul><ul><li>Cisco’s market capitalization down to $ 154 billion (By the end of 2001) </li></ul><ul><li>Cisco in Q3,2001, sales had decreased by 30%. </li></ul><ul><li>Cisco’s per employee profit was $ 240,000 (down from $ 700,000 in 2000). </li></ul><ul><li>Cisco lay off 8,500 people. </li></ul>Buyers
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 relationships with 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. 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. 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