Page 35 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes
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Caselet Industry Leadership Enjoyed by Cisco Systems as a
Result of Logistical Competency

isco’s sales were growing by 100 percent per year in the mid-90s. Employment
was swelling to keep pace and supply chain costs were unacceptably high. Product
Clife cycles continued to shorten. Demands for reliability, flexibility, and speed
escalated at an alarming rate. To keep pace, Cisco undertook a wholesale revamping of its
business processes, from design and forecasting to raw materials acquisition, production,
distribution, and customer follow-up.
The creation of Cisco’s global networked business model arose in multiple departments
at the same time, out of a shared realization of the need for change. Within this model,
Cisco views its supply chain as a fabric of relationships, rather than in a linear fashion. The
goal was to transcend the internal focus of Enterprise Resource Planning (ERP) systems to
embrace a networked supply chain of all trading partners. Primary goals were servicing
the customer better, coping with huge growth, and driving down costs. Utilizing the
Internet, it is pursuing a single enterprise strategy. Today Cisco relies on five contract
manufacturers for nearly 60 percent of final assembling and testing and 100 percent of
basic production. Through strict oversight and a clear set of standards, Cisco ensures that
every partner achieves the same high level of quality. All 14 of its global manufacturing
sites, along with two distributors, are linked via a single enterprise extranet. The quest for
a single enterprise has tied Cisco to its suppliers in unprecedented ways. Product now
flows from first- and second-tier suppliers without the documentation and notifications
on which most supply chains rely. Instead of responding to specific work orders, contract
manufacturers turn out components according to a daily build plan derived from a single
Iong-term forecast shared throughout the supply chain. Items move either to Cisco or
directly to its customers.

Payment occurs automatically upon receipt; there are no purchase orders, invoices, or
traditional acknowledgments. In exchange for getting paid sooner, suppliers are required
to aggressively attack their cost structures but not to the point where they can’t make a
profit. “It’s not a partnership if you’re putting the other guy out of business,” says Barbara
Siverts, manager of supply chain solutions within Cisco’s Internet Business Solutions unit.
Cisco cites at least $128 million in annual savings from its single enterprise strategy. It has
reduced time to market by 25 percent, while hitting 97 percent of delivery targets.
Inventories have been cut nearly in half. Order cycle time has declined from 6 to 8 weeks
4 years ago to between 1 and 3 weeks now. Under a program known as dynamic
replenishment, demand signals flow instantly to contract manufacturers. Inventories can
be monitored by all supply chain partners on a real time basis. Some 55 percent of product
now moves directly from supplier to customer, bypassing Cisco altogether. This has
removed several days from the order cycle. Direct fulfilment means reduced inventories,
labour costs, and shipping expenses. Cisco pegs savings at $10 per unit or around
$12 million a year.

Working with UPS, Cisco took control of the outbound supply chain, allowing for time
definite delivery throughout Europe within 5 to 8 days, via a single point of contact. With
Oracle’s inventory control system hooked directly into UPS’s logistics management system.
Cisco now tracks product to destination on a real time basis. The extra measure of control
allows it to intercept, reroute, or reconfigure orders on short notice. Through deferred
delivery, Cisco ensures that a component won’t arrive at the customer’s dock until it’s
Contd...

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