1. Study the networked supply chain concept as implemented by Cisco. What are its strengths and weaknesses? Cisco Systems, Inc. is an IT company that specializes in the selling of networking and communication products and services. It is a B2B company where they sell its products primarily to large enterprises and telecommunications service providers, but it also markets products designed for small businesses and consumers such as routers, modems, and home network management software. The products and services aim to transport data, voice and video communication within buildings and campuses as well as around the globe.
The services include routing, switching, home networking internet protocol telephony, optical networking, security, storage area networking, wireless technology, access, network management software and service. (Source from: Cisco Annual Report 2004) Cisco’s Strengths Cisco’s success in the network industry can be directly attributed to its ability to summon vision and action to continually sharpen its business model for long term success. In 1993, Cisco realised it future growth would put its current manufacturing capabilities.
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Difficulties to in scaling the all of its supply chain would limit its ability to grow profitably. The firm created a model for a global supply network where it outsourced it logistics and manufacturing creating a “single enterprise strategy” with supplier through information sharing. (Source from Cisco website: Supply Chain Management by Barbara Siverts). This strategy made Cisco to work more closely with suppliers in the new product information and ensured that the whole supply chain worked off as one central demand forecast.
Figure 1: Source from Cisco website: Supply Chain Management by Barbara Siverts From the case study, it mentioned that in 1996, introduced a new Internet initiative called the “Networked Strategy”, the strengths of this initiative is to introduce a single scheme system that allows contract manufacturers, distributors, logistics partners, development engineers, sales representative and customers into a single information system that enables business partners to manage much of Cisco’s supply chain. This also allows information real time where the entire supply chain operates from the same demand signal.
This means that any change in the node from the network is immediately transmitted throughout the network. In addition, Cisco also practice direct fulfilment process where Cisco could provide on-time delivery to their customers. Direct fulfilment also helped them to reduce inventories, labour costs, and shipping expenses, which in turn helped Cisco to save $12 million annually as mentioned by Carl Redfield (1999). Cisco’s Internet-linked supply chain network enabled automatic testing of products from any of its location worldwide so that when an order arrives the cell can automatically configure the test procedures.
Table 1 shows the annual savings that Cisco had saved when they implemented the initiatives. Table 1: Source from: Business Intelligence 2001 Cisco’s Weaknesses Although Cisco had saved costs on the implementation of their initiatives and made a huge profits out of it. There were still flaws in the company which Cisco did not notice. Cisco was oblivious to what was happening externally. The weakness of Cisco was that too much outsourcing was involved where they were unable to forecast its inventory.
They overcommitted to inventory and capacity when the market was blooming but their forecasters failed to foresee the downturn in the market. As a result, they faced excess inventory where the company had to write off inventory worth $2. 2 billion in May 2001. Another weakness of Cisco was its structure, based from the analysts from the case study; they mentioned that Cisco’s supply chain was structured like a pyramid with the company at the central point where large base of commodity suppliers were scattered all over the globe, as a result this leaded a communication gap within the supply chain. . Analyze why Cisco landed in financial trouble in early 2001. Would you agree that Cisco’s problems were largely caused by inherent defects in the company’s systems? Or possibly was it just because they had failed to forecast a market downturn? Give reasons to justify your stand. Cisco not only failed to forecast a market downturn and also reportedly its problems were largely caused by inherent defects in the company systems. Below are some of the reasons why Cisco landed in financial trouble in early 2001. There were several factors that play a part for Cisco’s crisis in early 2001.
But the main culprit was the misalignment of Cisco’s interest with this of its contract manufacturers which leaded to communication breakdown in the overall supply chain process. Stanley et al. , (p. 10, 2007) mentioned that “a supply chain is made up of a series of linked company-level value chains where communication up and down the supply chain can help build processes that enable the entire chain to make and deliver winning products and services”. Cisco’s Supply Chain Structure Reportedly, analysts mentioned that Cisco’s supply chain structured like a pyramid.
Based on Figure 2 below, there were quite a number of contract manufacturers on the second tier who were responsible for final assembly and they were dependent on large sub-tier companies for components such as processor chips and optical gear. And in turn, those companies were dependent on an even larger base of commodity suppliers who were scattered all around the globe which leaded to a communication gap between the four tiers. As a result, the contractors accrued large amount of inventory without factoring in the demand for Cisco’s demand.
Even when the economy slowed down, the contractors still continued to produce and places inventory at the same time resulting the excess inventory. Finally, Cisco could not use the excess inventory of raw materials because the demand had fallen tremendously after the economy downturn. Cisco has also entered into long-term commitments with its manufacturing partners and certain key component makers. Cisco ended up with no choice but to sell the raw materials off as scrap which caused them to write off worth of $2. 2 billion. Figure 2: Source from: EMSNOW: Extracting value difficult supply chain (2006)
Inventory Build-up In addition, Cisco’s forecaster also failed to notice that their projections were unnaturally inflated where many of Cisco’s customers had ordered similar equipment from Cisco’s competitors, and planning to close the deal with the party that as able to deliver the goods first. As a result, this caused the order doubling up. Another reason behind the piling up of Cisco’s inventory was also due to their supply chain management system failed to show the increase in demand, which represented overlapping orders.
For instance, as mentioned from the case study, if three manufacturers competed to build 10,000 routers, to the chipmakers it looked as if there was sudden demand of order for 30,000 machines, therefore Cisco was caught in a vicious cycle of artificially inflated demand for the key components at a higher costs and the lack of proper communication throughout the supply chain. As the forecasts started to vaporized, Cisco then realized that the forecasters’ projections were unnaturally magnified. Cisco’s inventory cycle then reportedly rose from 53. 9 days to 88. 3 days.
Cisco’s system failed to find out what would happen if one critical assumption, for instance, growth was removed from their forecasts. It could not fix its virtual production system with inventory, and it was unable take out capacity when it most needed to. With too much inventory on hand and improper communication across the networked supply chain, Cisco had suffered from the bullwhip effect where their forecasts were magnified as they ripple through the supply chain like a bullwhip. Quoting a supplier to Cisco interviewed in CIO magazine (pp. 1, 2001), “People see a shortage and intuitively they forecast higher.
Salespeople don’t want to be caught without supply, so they make sure they have supply by forecasting more sales than they expect. Procurement needs 100 of a part, but they know if they ask for 100, they’ll get 80. So they ask for 120 to get 100. ” With this theory, it can be understood that the costs and inefficiencies gone up when members of the chain failed to communicate and cooperate with one another. Over-reliance over its technology Another inherent defect that was seen in Cisco’s system was that they were too reliable on their sophisticated technology products that they did not notice the downturn of the market.
Reportedly from CIO magazine (pp. 2, 2001), there was sufficient evidence that the company’s highly flaunted systems contributed to the fog that prevented it from seeing what was clear to everyone else. Also, Cisco executives may have been blinded by their own good press. Based on CIO magazine reported by Berinato, S. , (2001), CIO Peter Solvik defends his company’s systems. He insists that without the forecasting software, that third quarter would have been even worse. He says that once executives realized there was a crisis, the day-to-day, near-real-time data helped Cisco quickly hit the brakes.
It was just that “the speed of the swing caught everyone by surprise,” Solvik says. It was clearly understood that the overreliance on their own technology led the company down a disastrous path. Outsourcing Flaws Although outsourcing did benefit Cisco in savings costs where the firm can focus its attention on the issues that are most important to the customers and the activities which the firm needs to perform best, it may have flaws when it is not attended properly. Cisco’s infrastructure outsourced most of their products to contract manufacturers.
Without production capacity of its own, all anticipated demand was passed down to their contract manufacturers. The contractors added this to the demand which they saw coming from Cisco’s competitors, some of them were bidding on the same business. Moreover, each contractor looked at the demand independently which leads the amplified counting of the same demand as a result this caused Cisco to lose sight of the market trend and made it difficult for them to forecasts the demand. The component suppliers ended up working overtime to fill orders that were never placed, and Cisco wound up holding the bag.
Activities such as the management of purchases, the control of inventories, logistics and evaluations were completely being neglected by their management. A great deal of emphasis was on the inefficiency and ineffectiveness of these processes which led to their financial crisis. Therefore, it is clear that their management failed to include the analysis and management of internal processes. 3. Aside from the information systems problems referred to, what other specific problems did you see in the case? Transparency of the systems
There are several problems that are found apart from the problems that are mentioned in the case study. One of the disadvantages that this report would like to highlight is that Cisco’s products are too exposed to market. Everyone in the market including its competitor knows how their structure works. The more exposure the company comes in contact with, the higher the risks it will encounter. Cisco was exposed to the market by outsourcing their products too much, though they are selling hardware products but they do not produce them.
If any potential rivalry overtakes Cisco, they can easily outrun them if Cisco does not tighten their belts. The exposure may also leave them vulnerable to hackers. The problem with having a single vendor product line is that if a hacker does penetrate through to the company’s security then they will be able to get through the entire system and the information flows will be disrupted if hackers retrieved the data. Management issues Furthermore, the structure of Cisco does not involve in monitoring and evaluating its efficiencies and effectiveness of the company’s performance.
A comparison of basic elements with original aspects should be identified to make the business prosper. From the problems that they had encountered during their crisis, it is clear that the major factors are not identified properly when it comes to the development toward the company efficiency. In short, the culture had developed with low or negative effects on company efficiency. Nevertheless, that culture can either support or drastically delay a selected approach. Further understanding of cultural insights may be equivalent to entire knowledge of efficient strategic development.
Over confident on their products Cisco had also been proud of their sophisticated products that they have produced and these made them believe that the initiatives that they created are flawless. As a result, even when new products were launched they did not train their staffs or test the products as they were confident that their products have reached the high tech arena. While Cisco failed to give training to its workers, this slowed down the organizational function, which in turn established a mismatch between its products and services.
Eventually, the company encounter diseconomies of scale that brought the company down, failing to form a supply network for both the local and global services. After the crisis, Cisco started to lose its focus on their company’s strategic directions. As a result, the company slowed down in their decision making and the execution in decision making. As such, Cisco has failed to set its priorities on the establishment of an eminence sector with its different services. (Source from Network World, 2011) Conclusion
In the high tech arena, Cisco systems must learn to adapt unpredictable phenomenon. Even every good strategy has its weaknesses and constitutes the risk in achieving the business goal and objectives. Although Cisco’s products in many ways outshone others in the market, due to the risks and changes in the contemporary business world, every strategy or initiatives should be reviewed and recommended alternatives to curb or eliminate all the possible risks. All this must be accompanied by a solid strategic business plan.
Therefore, support from management and leaders coupled with corporation from employees will be the main key factors to achieve successful change. With strong leadership and well-trained employees, the company will be able to emerge stronger and improve its sales tremendously. Bibliography Stanley, E. , Lisa, M. , and Jeffrey, A. (2007): Supply Chain Management, From Vision to Implementation, Pearson Education: New Jersey. Cisco Company Profile Annual Report (2004): [Online] Available from: http://www. cisco. com/web/about/ac49/ac20/ac19/ar2004/profile. tml [Accessed on June 19, 2011] Siverts, B. , (2001): Supply Chain Management. [Online] Available from: http://www. cisco. com/warp/public/765/communications/executive_exchange/Partner_Summit_2001/EMEA/Supply_Chain_Management/Barbara_Siverts. PDF [Accessed on June 19, 2011] Redfield, C. , (1998): “Cisco Extended Enterprise”, corporate presentation. [Online] Available from: http://pages. stern. nyu. edu/~kbrabazo/cisco. pdf [Accessed on June 20, 2011] Attri, H. , (2006): EMSNOW: Extracting value from difficult supply chain, [Online] Available from: http://www. emsnow. om/newsarchives/archivedetails. cfm? ID=13679 [Accessed on June 25, 2011] Scott, B. , (2001): The Cisco Skid: CIO magazine, August 10, 2001. [Online] Available from: http://www. cio. com. au/article/51757/cisco_skid/ [Accessed on June 25, 2011] Business Intelligence (2001): Managing the e-Supply Chain, Case Study: Cisco Systems. [Online] Available from: http://www. business-intelligence. co. uk/PDFdownloads/esupply/Cisco. pdf [Accessed on June 20, 2011] Berinato, S. , (2001): What went wrong at Cisco. CIO, 14(20), 52-52-58. [Online] Available from: http://search. roquest. com/docview/205971838? accountid=14507 [Accessed on June 26, 2011] Duffy, Jim. , (2011): Cisco’s 3 biggest weaknesses: Network World [Online] Available from: http://www. networkworld. com/news/2011/050511-cisco-weaknesses. html? page=1 [Accessed on June 30, 2011] Cisco Systems Inc. (1999): Networking the Supply Chain for Competitive Advantage: An Overview of the Cisco Networked Supply Chain Management Solution [Online] Available from: http://210. 212. 115. 113:81/AK. Dey/SupplyChain/SCM_Articles/CISCO%20Details. pdf [Accessed on July 1, 2011]
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