Cisco Case Study

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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. 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...
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