Cisco Systems - The Supply Chain Story

Cisco – The Networked Supply Chain Contd...

In the same year, it also introduced customized business applications for its large customers. These applications resided inside the customers' corporate intranet and automated the ordering process by linking directly to Cisco's internal systems. By the end of 2000, more than 75% of the orders for Cisco's products were being placed over the Internet. Aided by Cisco's Internet initiatives, the company's net sales grew at an impressive 78% compounded annual growth rate (CAGR), from $ 2 billion in 1995 to $ 9 billion in 1998. The company's fourth quarter revenues in 2000 were $ 5.7 billion, up 61% from the same period in 1999.

Operating profits also went up from $ 710 million in 1999 to $ 1.2 billion in 2000. According to many analysts, the company's networking strategy had played a major role in its success over the years. Industry observers noted that ever since its inception, Cisco had demonstrated the power of networking and the benefits it could offer. Cisco owned just two of the 40 facilities that manufactured its products.

It did not own the distribution system that delivered the products to its customers, but through its network of suppliers, distributors, partners, and resellers and customers, it successfully coordinated all the activities necessary to provide products to its customers on time. In spite of an efficient supply chain network, Cisco ran into some problems.

Cisco's partners⁴ typically worked out their supply-and-demand forecasts from multiple points in the company's supply chain. Transactions between suppliers and contract manufacturers were not always smooth. There were time lags in delivery and payment, and thus greater opportunity for error. As a result, suppliers were plagued by long order-to-payment cycles. In June 2000, Cisco discovered, to its alarm, that it was running short of some key components for some of its equipment. Due to the shortage of components, shipments to customers were delayed by 3–4 weeks. Though demand for Cisco's products remained healthy, the revenues of customers who were used to delivery within two weeks were affected badly. Analysts felt that above experiences of customers were rather 'out of character' for a company that prided itself on its relationships with customers and even compensated many of its executives the basis of on customer satisfaction.

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4] Management consultants, system integrators or Internet application providers.

Case Details

Case Code : ITSY001
Themes: EVA Financial concepts
Case Length : 5 Pages
Period : 1997-2001
Organization : L&T
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Construction - Building Materials & Equipment, Financial Services

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