The Networked Supply Chain Concept Implemented by Cisco - Case Study Example

?Supply Chain Management Table of Contents Table of Contents 2 Study the networked supply chain concept as implemented by Cisco. What are its strength and weaknesses? 3 2.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 down turn? Give reasons to justify your stand. 6 3.Aside from the information systems problems referred to above, what other specific problems did you see in the case? 8 Reference 10 Bibliography 11 1. Study the networked supply chain concept as implemented by Cisco. What are its strength and weaknesses? The California based network giant, Cisco Systems, Inc was founded in the 1984 by the scientist of Stanford University. The founder Len Bosack and Sandy Lerne along with Richard Troiano designed an operating system for routing data from one computer to another through the operating system called IOS (Internet Operating System) (Cisco-a). This successful venture of Cisco in the world of network made Cisco the giant for the next two decades. Headquartered at San Jose, California the company started operating through a customer support site in the year 1985. Then the company implemented the online service strategy through which the customers are able to download softwares and can update them instantly by downloading the updates from the site. With a massive increase in the number of calls in the support centre from 3000 calls in the year 1991 to 12,000 calls in the year 1992, the company successfully implemented their strategy and increased sale to great extent and dealt with large amount of transaction through customer support on its website. In the following year in 1993 Cisco implemented a new strategy to reach out to the global market and grabs the multinational customers through its new Internet based system for the customers. This Internet based support gave clients of Cisco the ability to post their queries in the portal which is directly reviewed by the company. With the success from the Customers Support Site the company launched Cisco Information Online service in the year 1994 for their customer. The customers are now able to view the products available from Cisco and also they can avail the technical support service and customer support from the online portal. In 1995 the company also added their products and services in the site to sell to their customers through application provided in the site which helped the customers to directly buy products or services from their website. The main concept behind this was to eliminating the ideas of paper work, fax, CD-ROM and various other materials for training directly to the web which can be accessed by the clients at any point of time from any parts of the world. This gave the company the opportunity to reduce cost from its employees, trade partners and reduce time for transaction and also increases the market reach at the same time. Farther in the year 1996 Cisco implemented the Networked Strategy for a more interactive approach towards the clients’ relationships. They implemented a new supply chain network which consists of Cisco employees, trade partners, manufacturers, suppliers, and distributors. The orders from the clients are stored in the databases which are accessible by all the members of the company and it is directly connected to the Enterprise Resource Planning system of the company for an easy handling of the stocks and the fast transaction for the customers. For an easy and on-time delivery system the company involved the third party logistics recourses into the system. The logistic providers access the order in the database via internet and can view the status of the order processing information. This direct fulfillment system increased the revenue of the company to a great extent and the company is able to save around $12 million annually with this new strategy implementation. For a more efficient testing process the company introduced an automatic testing of products which can be used worldwide from any location and the new system of prototype design at the manufacturing site by the engineers gave Cisco an advantage to produce product in much shorter cycle time. The prototype designing directly at the production site gave the flexibility for the company to design products according to the need of the market. With the constant change and addition in the strategies of the company, Cisco continued its growth and sales of the firm increased massively from $2 billion in the year 1995 to $9 billion in 1998. In 2010 the net sales of the company reached to $40 billion which is 11% increase from the previous year (Cisco). In present year the market capitalization of the company has reached to a massive amount of $140 billion (Alamitos). This network strategy of the company helped the company to increase its sales and is the major contributor for the success of the company over the years. Though the company is exceptionally successful in its business but through its networking strategy and it played as the major strength for Cisco but the company’s major weakness is the distribution system which is operated by third party distributors. It has two authorized channel of distribution, One-tier and two-tier channel mode (Cisco-b, 2). Cisco don’t own the distribution system for the delivery of the products and services to its customers rather it is handled by third party distributors, suppliers and resellers who are in direct contact with the customers. This can create a problem any time for the company as they will have to rely on the external agents for their services and it might not be working smooth every time for the company. This disturbances caused by the third party distributors can influence Cisco’s reputation in the market and can generate dissatisfaction amongst the customer to avail their services. Transaction between the supplier and the manufacturer outside the organization can be erroneous at a higher rate than being inside the firm under the control of the company which might lead to delay in the service and irregular payment cycle between the two. The shortage of components from the suppliers can delay the order processing and can ruin the customer relationship at the same time affect the revenue generation for Cisco. These weaknesses of the company are needed to be very well evaluated by the company to avoid any disturbances in the services to the customers otherwise this dissatisfaction will directly affect the company’s reputation in the market and will affect the business very badly in spite of producing quality products for the customers. This is a problem which contributed a lot in the downfall of the company in the year 2001 when the market capitalization of the company was down to $154 billion from $579 billion in 2000 decreasing approximately around 30 percent in the company’s sales in the third quarter of financial year 2001. 2. 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 down turn? Give reasons to justify your stand. According to the analyst the flaw remains in the Cisco system itself for the downfall of the company during the year 2001. In the later stage of 1990s the company is well known for being the hardware maker i.e. the network system provider for the customers. But the hardware is not manufactured by the company himself. The hardware is developed by the manufacturers and Cisco only ships the assembled parts to the buyers from the factory. This system of Cisco is mainly responsible for the downfall of the company later on. Cisco supply chain system was developed like a pyramid on the top of which is the company and on the 2nd tier lays the final assembler of the hardware components. The second tier is dependent on many sub-tiers for the supply of components like the processors and other hardware components. This sub-tier is also dependent on many suppliers for the supply of material who are scattered all over the world. Thus this long distance of the top management from the base suppliers creates a big communication gap between the operators. During the booming session Cisco sales forecast was huge for which the company ordered massively to the lower level and entered into long-term agreement with the suppliers of the products. This system arrangement of the company led to the inventory pile up for Cisco and they failed to forecast their sales and thus artificially inflated. Cisco’s customer ordered similar products to the competitors of the company also which led to the double or triple ordering of the same products and resulted in the artificially forecasted demand for Cisco. The competitors managed to produce products first and thus the companies close their deal with them only. But Cisco on the other hand committed to pay to their suppliers for the ordered products for the inflated demand of the market. Thus the company incurred huge loss due to the bad communication system with the market and with the suppliers. The whole supply chain system of the company is responsible for the downfall during the period. Analyst felt that Cisco failed to analyze their system and not done critical assumption specially should eliminate growth from the forecast while evaluating the forecast for the company. If the company would have played safe and consider the decline in the market then according to the analyst the company might have dealt the situation in a more tactful way. In the year 2000 Cisco formed a group of engineers and executives from the company to develop an eHub network for customers (Silverts, 13). This is known as the Cisco Connection Online (CCO). In the system the order processing should be done with the customers along with a bidding facility. But the system was not maintained in the later stage. EHub uses a technology called Partner Interface Process (PIP) though which the orders are processed automatically without any human intervention. If the company would have used the system in a meaningful way then Cisco could have estimate the number of interested customers and this could have reduce the redundancy in the supply chain system. The system works on order processing if the customers are interested and if they reply within a certain time to the system. When the unconcerned customers are approached and they didn’t reply to the company then it could have been eliminated from the possible count for the company. This might help the company to estimate approximately near to the exact demand of the market. With the eHub setup when the customer places the order, Cisco processes the order and it is also sent to the suppliers and the manufacturers at the same time. The chipmaker like Altera Corp. and Philips semiconductors are the suppliers of the chips for Cisco. If the company would have implemented the eHub system then the overlapping orders were avoided by the system and the exact demand for the products can be measured. The eHub system can also measure the shortage in inventory and production blackout instantly which helps the company to maintain its business processes very efficiently and act according to the critical situation to cope the problems which might arise in near future. But Cisco failed to implement eHub within schedule due to the complexity in the whole process and the cost involved in it. At first the company planned to implement the system and connect 250 contractors and distributors under the system but finally before 2001 the company only managed to connect 60 contractors which resulted to the huge gap in the handling process. This case of Cisco with a downfall in the financial performance is a classic example to show that even world’s best supply chain management system could devastatingly fail if the implementation at the very first stage is done in a wrong way (ICMR). 3. Aside from the information systems problems referred to above, what other specific problems did you see in the case? Cisco downfall during the year 2001 is mainly due to the technological management failure and implementation in the right manner into the supply chain system of the company. But this downfall of the company is not only due to the technological factors. There are various other factors which are responsible for the process. The major contributor of the problem apart from technology is the supply chain management system of Cisco. The third party involvement into the supply chain is a very fragile intermediary for the delivery process. The company has no control over the distributors and suppliers performance and it could fail anytime and might affect the whole system. Since the company is solely dependent over the suppliers thus they need to very well evaluate by the company before investing a huge amount for long term relationship with them. The delivery and payment can be delayed by the distributor and suppliers which will affect the business directly in-spite of producing world class products and strong supply chain network. The shipment delay from the company will result in increase of unsatisfied customers and in-turn will decrease the revenue for the firm. The company needs to build their own distribution channel with a proper evaluation system directly under the control of the firm. This will help the company to understand the reach and delivery constraints and act accordingly for a better control over the supply chain management system. The management of Cisco is needed to build a qualified board for the forecasting and understanding the market potential and proper risk management issues. Estimation of the market with proper forecast procedure might have helped the company to avoid the financial losses during the year 2001. Another aspect Cisco need to look after is management of customers through direct interaction with them. Understanding the customers’ problem directly from them and implementation of strategies to cope the problem will help the company for a better grip of the market and maintain an enhanced customer relationship. Reference Alamitos, Los. 2010. Cisco Founders Win Computer Society Entrepreneur Award. July 5, 2011 < http://www.computer.org/portal/web/pressroom/2010/ce>. Cisco. Letter to Shareholders. 2010. Annual Report 2010. July 5, 2011 < https://materials.proxyvote.com/Approved/17275R/20100920/AR_67529/HTML2/cisco-ar2010_0005.htm>. Cisco-a. Cisco Global Facts. 2011. Cisco India Overview. July 5, 2011 < http://www.cisco.com/web/IN/about/company_overview.html>. Cisco-b. Sourcing of Cisco products for the purpose of resale. 2011. Third party sourced Cisco equipment. July 5, 2011 < http://www.ciscosecure.org/web/AP/partners/assets/docs/12853_CiscoChina_BPpartnerGuide_press.pdf>. ICMR. The problem and the remedy. 2010. CISCO SYSTEMS - THE SUPPLY CHAIN STORY. July 5, 2011 < http://www.icmrindia.org/free%20resources/casestudies/cisco-supply-chain-3.htm>. Silverts, Barbara. 2011. E-Hub. July 5, 2011 < http://www.cisco.com/warp/public/765/communications/executive_exchange/Partner_Summit_2001/EMEA/Supply_Chain_Management/Barbara_Siverts.PDF>. Bibliography Bouwman, Harry & Wijngaert, Lidwien. Information and communication technology in organizations: adoption, implementation, use and effects. SAGE, 2005. Anthony, Robert & Govindarajan, Vijay. Management control systems. Tata McGraw-Hill Education. 2008. Read More