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CISCO SYSTEMS

(THE SUPPLY CHAIN STORY)

Submitted By, Sourav Dutta Sunayan Pal

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

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

Enters into alliances with integration partners like KPMG and IBM to provide solutions. . a low end LAN switch maker for $ 100 million Launches Cisco Connection Online website. acquires Startcom for $ 4. outsources manufacturing and distribution Acquires Crescendo. John Chambers becomes the CEO and accelerates the acquisition strategy by acquiring four companies in the same year.CISCO – THE MILESTONES Year 1990 1992 1993 Cisco goes public Plans a global supply network. Events 1994 1995 1996 1998 Cisco moves into the WAN switch market.5 billion Cisco prepares to become a single vendor servicing the network arena.

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.

CISCO.SUPPLY CHAIN NETWORK .

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

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

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. WHY CISCO IS DOING OUTSOURCING?  Cisco initially identified its core competency as “Product Designing”.

Q3.000 in 2000).2 billion •Cisco’s market capitalization down to $ 154 billion (By the end of 2001) •Cisco in Q3. garbage out. optical gear •Cisco had to write off inventory worth $ 2. •Cisco lay off 8. 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. all across the globe Processor Chip . The communication gaps between these tiers created problems for Cisco. sales had decreased by 30%. . •Cisco’s per employee profit was $ 240.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.  "If the inputs are wrong. RESULTS Larger base.500 people.2001. Garbage in.000 (down from $ 700. 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.

There were time lags in delivery and payment. 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.IMPACTED OF OUTSOURCING DECISIONS ON PERFORMANCE OF CISCO Cisco's partners worked out their supply-demand forecasts from multiple points in the supply chain. 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.Q3. . Transactions between suppliers and contract manufacturers were not always smooth.

Q4. Cisco's supply chain management system failed to show the increase in demand. which artificially inflated Cisco's demand forecasts For instance. and bad communication throughout the supply chain. Many of Cisco's customers had ordered similar equipment from Cisco's competitors. Cisco's inventory cycle reportedly rose from 53.000 routers.000 machines Cisco should not have assumed that there would be continuous growth.. Arrangements led to an inventory pile-up availability. which represented overlapping orders. it was caught in a vicious cycle of artificially inflated demand for key components. As Cisco was committed to honor its deals with its suppliers.3 . to chipmakers it looked like a sudden demand for 30. since Cisco's forecasters had failed to notice that their projections were artificially inflated. planning to eventually close the deal with the party that delivered the goods first.9 days to around 88. higher costs. 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. Double and triple ordering. if three manufacturers Assumption competed to build 10.

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