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CISCO SYSTEMS

(THE SUPPLY CHAIN STORY)

Submitted By, Sourav Dutta Sunayan Pal

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. 1985 1990 1991 1992 1993 1994 . They designed IOS that could route streams of data from one computer to another.CASE SUMMARY (1/2) YEAR 1984 EVENT A group of computer scientists formed Cisco. technical and customer support. It offered company and product information.

It started product configuration and order placement online.distributor etc.CASE SUMMARY (2/2) YEAR 1995 1996 EVENT Cisco introduced applications for selling products and services in the website.customer.manufacturer. 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 introduced “Networked Strategy” to foster its relationship with the supplier.

. Events 1994 1995 1996 1998 Cisco moves into the WAN switch market. a low end LAN switch maker for $ 100 million Launches Cisco Connection Online website. acquires Startcom for $ 4.CISCO – THE MILESTONES Year 1990 1992 1993 Cisco goes public Plans a global supply network.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. outsources manufacturing and distribution Acquires Crescendo. John Chambers becomes the CEO and accelerates the acquisition strategy by acquiring four companies in the same year.

8 Billion) 21% 2% 3% 4% 38% Cisco 3Com Nortel Lucent New bridge 12% 7% 13% Cabletron Intel Others .CISCO DOMINATE NETWORK MARKET (2000-01) Network market ( $36.

SUPPLY CHAIN NETWORK .CISCO.

INFORMATION FLOW THROUGH SUPPLY CHAIN Customer Order INTERN ET VPN Cisco ERP Database TPL Contract Manufacturers Supplier Production Schedule .CISCO.

Cisco owned just 2 of its 40 manufacturing facilities by 2000    Assembly Product Configuration Distribution system:  Through the network of suppliers. and resellers and customers.Q1. Cisco successfully coordinated all the activities necessary to provide products to its customers on time . OUTSOURCED ACTIVITIES OF CISCO:  Manufacturing :  It was handed over to a set of contract manufacturers. partners. distributors.

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 .Q2.

optical gear •Cisco had to write off inventory worth $ 2. . •Cisco lay off 8.000 (down from $ 700. all across the globe Processor Chip .2001. garbage out.Q3. 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.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.500 people. The communication gaps between these tiers created problems for Cisco.000 in 2000). 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.2 billion •Cisco’s market capitalization down to $ 154 billion (By the end of 2001) •Cisco in Q3. Garbage in. RESULTS Larger base. sales had decreased by 30%. •Cisco’s per employee profit was $ 240.  "If the inputs are wrong.

. Shipments to customers were delayed by 3–4 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.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. 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. Transactions between suppliers and contract manufacturers were not always smooth.

9 days to around 88. Cisco's inventory cycle reportedly rose from 53. 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. Many of Cisco's customers had ordered similar equipment from Cisco's competitors. to chipmakers it looked like a sudden demand for 30. which artificially inflated Cisco's demand forecasts For instance. and bad communication throughout the supply chain. Arrangements led to an inventory pile-up availability.Q4. since Cisco's forecasters had failed to notice that their projections were artificially inflated. it was caught in a vicious cycle of artificially inflated demand for key components. higher costs. if three manufacturers Assumption competed to build 10. which represented overlapping orders. As Cisco was committed to honor its deals with its suppliers. Cisco's supply chain management system failed to show the increase in demand.000 routers. planning to eventually close the deal with the party that delivered the goods first. Double and triple ordering..000 machines Cisco should not have assumed that there would be continuous growth.3 .

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