Cisco Systems Supply Chain Cisco Systems Inc.

is a worldwide computer networking company based out of San Jose, California. From Ciscos beginning they as a company aimed to connect all members of the supply chain. Ciscos initial product was the router, which contained operating software called Internet Operating System (IOS). This product launched Cisco as a company and led to their future goal of a completely integrated supply chain. The first integration, a customer support site, came a year after the router was launched and it allowed customers to download and upgrade software as well as technical support through e-mail. This support center continued to grow through the early nineties and was eventually replaced by a customer support system on their website. The customer support system was continually added to and by 1995 it included; company and product information, technical and customer support, and most importantly it introduced the ability to sell products and services online. Ciscos main desire behind this system was to streamline the process of customer support and allow the information to more easily utilize. In 1996, Cisco implemented another Internet application called Networked Strategy, this introduced online order entry and allowed the information to flow through Ciscos supply chain. The order information was sent to Ciscos ERP system which in turn sent it out to the various suppliers and manufacturers, allowing for a very efficient process. Cisco continued to advance their networking between suppliers and manufacturers, but they soon ran into problems due to time lags in payments and shortages of key components. In order to resolve the problems they were facing, Cisco upgraded their technology and introduced Cisco Connection Online (CCO). CCO connected Cisco with all its suppliers and contract manufacturers online. As a result, when a customer placed an order, it was instantly communicated to all its suppliers and manufacturers. This system greatly reduced lag times and allowed the information to flow freely through the supply chain. One problem with this system was the inability of large companies to connect to CCO because their electronic data interchange systems were not compatible. To fix this issue Cisco launched yet another service which allowed large companies to connect to CCO. This new service was called Integrated Commerce Solution, ICS provided a dedicated server fully integrated into the customers or resellers Intranet and back-end ERP systems. Through CCO and ICS Cisco was able to manage the supply chain very efficiently, but these systems still relied on accurate data and forecasting which proved to be a problem. 1. Since its inception, Ciscos networked supply chain concept has always been to connect all members of the supply chain in one efficient and easy to use system. Their ideas and strategies in implementing these systems were cutting edge and initially allowed Cisco to generate huge revenues and maintain a very efficient business. However, these systems did not always do as they were designed to and they caused some big problems for the company. The benefits and advantages to a properly working supply chain integration system are very numerous. Cisco reaped these benefits in the early nineties through their online support and ordering systems. These systems saved Cisco millions of dollars annually and cut their inventory almost in half while allowing the company to grow at a 78% annual rate between 1995 and 1998. During this time period Cisco was running an extremely efficient business by integrated their supply chain. This is a vital element for business and Cisco understood this and continued to develop and implement new integration systems to manage the supply chain. Ciscos view of how the supply

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chain is pivotal to business was an excellent plan and implementation but their view also had drawbacks. During the late 1990s, Cisco had become famous for being the hardware maker that did not make hardware. This quotation perfectly summarizes the weaknesses that the Cisco supply chain had. Analysts described Ciscos supply chain as, Structured like a pyramid, with the company at the central point. On the second tier, there were a handful of contract manufacturersThese manufacturers were dependent on large subtier companies for componentsThose companies in turn were dependent on an even larger base of commodity suppliers who were scattered all over the globe. The pyramid analogy makes the weaknesses of Ciscos supply chain concept very clear. Ciscos end product relied on a large number of companies to fulfill their responsibilities completely and on time. This large number of companies not only added to the risk of delivering products on time but it also created exaggerated demand forecasts through bidding wars within the supply chain. These elevated demand forecasts were what caused the 2001 downfall of Cisco. Even the best supply chain integration system in the world will fail if the data entered and the forecasts drawn from this data are wrong, and this is exactly what happened to Cisco. 2. The reason for the financial trouble that Cisco faced in early 2001 is largely due to inaccurate data which led to inaccurate forecasts. The inaccuracies in the data were caused by double and triple ordering which resulted from Ciscos online systems. These systems caused competition at one level of the pyramid to appear as a much larger demand at the lower levels of the pyramid. For instance, if three manufacturers competed to build 10,000 routers, to chipmakers it looked like a sudden demand for 30,000 machines. The inaccuracies caused by this cycle of artificially inflated demand resulted in Cisco falsely increasing their inventories which resulted in their financial trouble. Another reason for Ciscos troubles in 2001 was their assumption that they would continue to grow at the same rate they were accustomed to. This reason however was due in part to the inflated demand data that they saw from their supply chain systems. In the end, all of the problems faced by Cisco in 2001 were a result of their pyramid like structuring. This structuring caused the confusion along the different levels of the supply chain, which led to inflated demands. In turn, these inflated demands caused Cisco to assume continuous growth and overstock their inventory, which eventually caused the negative earnings in 2001. It could be argued that Ciscos structuring was the main issue, but in reality it was just the first domino in a long line of unforeseen problems in the Cisco supply chain. I think the main problem in this case is the fact that Cisco outsourced almost all of its manufacturing and distribution. In doing this they opened themselves up to a great deal more risk along the whole length of the supply chain. Cisco started off with the best intentions, to integrate and make the supply chain a highly efficient mechanism to base their business off of. This worked for the first fifteen years of the companies existence but it acted almost as a band-aid which covered up their main problem, the high amount of risk throughout the supply chain. Not only was the supply chain risky because it relied on a large amount of companies to fulfil their responsibilities but it also, as the case shows, could cause data inaccuracies due to the many parties involved. If Cisco had implemented their supply chain integration systems and had more control over a smaller number of suppliers and manufacturers, they might have been able to achieve the continuous growth that their flawed system forecasted.

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In conclusion, this case study is a good example of the fact that no matter how advanced a supply chain system may be it can still result in errors and cause a business to fail. In order for a business to run at maximum efficiency a supply chain system must be in effect, but more importantly the business itself must be controllable at all levels and all levels must be on the same page. As this study shows, when different ends of the supply chain are not on the same page it can cause huge losses of money and result in bankruptcy. Luckily, Cisco resolved their problems of 2001 by learning from their mistakes, a lesson all businesses should follow.

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