Supply Chain Management Solutions at Cisco - Case Study Example

? SUPPLY CHAIN MANAGEMENT - CISCO SYSTEMS INC. Question The key reason for the introduction of the ‘Networked Supply Chain’ concept in Cisco in 1996 has been the increase of the company’s transactions. Having to handle hundreds of customers’ queries on a daily basis the company needed to develop a framework for interacting with its customers globally. Also, such framework would allow the effective and ‘on real time’ communication among the firm’s ‘employees, suppliers, partners’ (case study, p.1). The above target has been achieved becoming the main strength of the specific framework. At the same time, through the above concept, customer satisfaction has been increased. Customers were able to ask for technical help – online – anytime, a fact, which has been an important criterion for the improvement of the firm’s image in the market (Simchi-Levi, David, Kaminsky, Philip, Simchi-Levi, Edith, 2003). At the same time, the specific system supported the increase of the company’s profits; since the orders of customers could be processed quite rapidly the level of the company’s sales has been significantly increased, a fact which is reflected in the firm’s financial statements in the years that followed the establishment of the Networked Supply Chain strategy. Indeed, in 1995, i.e. before the introduction of the particular strategy, the firm’s profits were estimated to $2 billion. In 1998, i.e. in just three years from the above system’s implementation, the firm’s profits reached the $9 billion, which is a significant increase. Apart from the financial benefits of the particular framework, its ability to create a dynamic relationship between customers and suppliers should be also highlighted. More specifically, through the particular system, suppliers were notified of each new order, a fact that allowed the suppliers to start building the product ordered immediately after the order was placed. In this way, the delivery of the order to the customer on time, one of the firm’s main targets, was ensured. In addition, customers could choose the exact form/ material of their product; also, they could monitor the progress of their order at any time. The products ordered through the particular scheme were of high quality, having been chosen by the customers and be available for testing online. The ‘direct fulfillment’ scheme that the company used, focusing on the issues discussed above, led to the limitation of the operational costs of the organization at about ‘$12 million annually’ (page 2, case study). In other words, the firm’s Networked Strategy offered the chance for improving the quality of customer service, for reducing the time for handling orders and for controlling the organizational costs. Despite its benefits, as analyzed above, the Networked Strategy of Cisco had also a series of problems to face. At a first level, the forecast of demand was not always easy – referring to the firm’s partners. Because of the lack of effective communication between the firm’s suppliers and manufacturers, the process and the delivery of orders often had to face significant delays. Networking offered the chance for direct control over existing orders, but because of the system’s inefficiency this control often required a lot of time – at least much more time than that estimated from the system’s developers. In this context, the time between the delivery of the order and its payment was significant, leading to the delay in paying suppliers. Due to this problem, the response of suppliers to the orders of the firm’s customers became problematic. In this context, in 2000 the firm had to face the following problem: the shortage many of the components used for the manufacturing of its products (case study, p.3). As a result, the time required for the delivery of ordered products was increased. Delays that reached the 15 days became a common phenomenon. The specific fact severely affected the firm’s image, a firm which was known for the high level of its customer services and which based its success on customer satisfaction. In other words, the Networked Strategy offered a basis for the significant improvement of communication among the firm’s stakeholders; however, this function was not appropriately supported leading to the limitation of the benefits achieved. Question 2 As already explained above, the technical failures of the firm’s systems destroyed the firm’s efforts for improving its relationship with its customers. The specific fact could be possibly regarded as the key reason for the firm’s financial troubles in early 2001. However, a closer observation of the events of the particular period leads to the assumption that the decrease in the firm’s profitability was not related only to the organization’s systems. In fact, it seems that the firm’s managers made any possible effort for resolving this problem. More specifically, in 2000, because of the problems developed up to then regarding the orders’ processing, a major re-structuring of the firm’s information systems was initiated. The Cisco Connection Online (CCO) aimed to improve the communication between customers and suppliers; through the new system, the time for the delivery of the ordered products was significantly increased – the new system offered the chance for a direct communication between customers and suppliers. On the other hand, the above system also had certain problems, referring mainly to the time needed for connecting to the supplier’s websites. This problem was resolved through the introduction of the Integrated Commerce Solution (ICS). The above system was based on a server ‘fully integrated into the customers’ Intranet and back end ERP systems’ (case study, p.4). The ICS helped to face the problem of delays in the processing of orders and made the firm’s systems quite competitive. Normally, the firm’s financial performance for the year 2001, after the implementation of the above two systems, would be expected to be significant. However, the market downturn, as probably severely affected by the events of the September the 11th, led to a radical decrease of the firm’s profits. It was proved that the firm lacked an effective strategy for foreseeing unexpected market downturns. In any case, the failures in the firm’s systems in the past were also considered as being partially responsible for the firm’s financial problems in 2001. At this point, the following issue should be examined: could the firm’s forecasters foresee the limitation in technology spending of 2001? Or the firm’s systems could be regarded as mainly responsible for the decrease of the firm’s profitability since 2001? The global market trends, as being influenced by the events of the September the 11th, have been rather difficult to be foreseen. In fact, during a period of strong commerce growth – globally – the radical decrease of market activities, due to such events, would be quite difficult to be foreseen. However, if focusing on the firm’s ordering strategies up to 2001, the forecasting of a potential decline becomes achievable. It is at this point that the failures of the firm’s systems have been involved in the limitation of the organization’s profits in 2001 onwards. In fact, it seems that the structure of the firm’s supply chain strategy would need to be reviewed and updated. More specifically, as highlighted in the case study, the supply chain of CISCO had the form of a pyramid. The firm was based – for its orders – on certain contract manufacturers who, in their turn, were based on components’ suppliers and those on other suppliers around the world. These tiers of suppliers could not communicate effectively – due to the systems’ failures – leading to overlapping orders. Many customers used to place an order simultaneously in different firms aiming to buy the product from that firm which could have it ready for delivery first. However, in this way, the level of the firm’s pending orders did not reflect the actual profits of the organization. At the next level, being based on false data on customers’ demands, as explained above, the firm’s managers ordered more components than necessary, believing that they would have to respond to high demand of products in the short term (Simchi-Levi, David, Kaminsky, Philip, Simchi-Levi, Edith, 2004). This practice has led to the development of an extensive inventory, which negatively affected the firm’s performance in 2001. In accordance with the above, the financial problems of the firm in 2001 can be characterized as being related rather to the failure of forecasters in order to see the lack of continuous growth, as this failure has been related to a series of failures of the firm’s systems. The failure of the firm’s systems that most affected its strategies seems to be the following one: the existence of overlapping orders could not be identified by the system – and be taken into consideration by the firm’s forecasters; rather, the systems showed a trend for continuous increase in the firm’s pending orders, an indication which was false. In any case, as mentioned in the case study, the growth of an industry cannot be continuous; it is expected that periods of downturn are likely to appear. Because of this possibility, creating excessive inventory is a risky strategy for firms of all sizes, even if the industry involved has potentials for high profits. In accordance with the above it could be stated that the firm’s financial problems in 2001 were the result of failures in the forecasts made regarding the firm’s performance, as these forecasts were based on false information provided by the firm’s systems. In other words, the financial turbulences that the organization had to face in 2001 were the result of failures in strategic planning (forecasting/ systems’ design); these failures have led to the development of false reports regarding the market trends and the company’s performance, resulting to the firm’s financial problems in 2001. Question 3 Apart from the systems’ problems, as described above, the organization’s strategies also had a role in the appearance of financial turbulences in 2001. In fact, it could be stated that it was the development of inappropriate strategies that led to the systems’ failures through the years. After reviewing the case study, the following problem is made clear: every time that a problem would appear in regard to the firm’s operations, a major update of its systems was developed; new systems were implemented, with no delay, aiming to cover the relevant gap. However, it is clear that the relevant initiatives were developed quite rapidly – meaning, in such way that there was no time for careful planning (reviewing of the potential risks and incorporating of appropriate measures). Moreover, it seems that there was no consideration of the balance between the cost and the benefits expected. Indeed, before developing any organizational strategy, including the plans related to a firm’s supply chain, it is necessary to check the resources available. In CISCO the lack of such initiative – or the ineffectiveness of the existed one – is revealed in the following case: after implementing the e-Hub Strategy, for improving the communication in the internal and the external organizational environment, the firm’s managers had to face the following dilemma: the cost of the project proved extremely high at such level that the project had to be abandoned before its completion – only 60 contractors, instead of 250 planned, were connected to the specific system by the end of 2001 (case study, p.5). Moreover, the firm’s personnel lacked of the necessary skills for responding to the demands of this system – it is assumed that the funds available were not adequate for developing an appropriate training scheme for supporting the employees managing the particular system. In other words, the firm cannot be accused for not trying to update its systems in order to respond to the needs of its operations. However, it seems that the strategies on which these initiatives were based were inappropriate. This fact was made clear in the following case: Through the years the firm has introduced a series of information systems for improving its performance in different areas: communication with customers and suppliers has been the most important sector for the firm’s strategic planners, as reflected in the characteristics of the information systems chosen. Shortly after its implementation, each of this system was proved to have a series of weaknesses. Then, other systems were required for covering these gaps. This fact was also clear in the firm’s last information system, as described in the case study, the e-Hub. The specific system was carefully reviewed, as of its characteristics, but still, its implementation could not be completed successfully due to the following reasons: increased costs and lack of appropriately skilled personnel. The firm’s priorities in regard to its strategic plans seem to be the key factor for the failure of its strategies. It is made clear that the firm has focused on the increase of its profitability; however, its managers ignored the fact that before attempting growth it is necessary to secure the existing achievements/ level of profitability; then, if the market conditions allow such initiatives, the introduction of new organizational schemes should be attempted. The review of the existing literature in regard to the criteria used by firms for developing their strategies, including the practices for managing their supply chain, leads to similar assumptions. In accordance with Sinha the development of effective supply chain management schemes should be based on a thorough market research – for identifying customer preferences; then, the ability of the firm’s suppliers to respond on time to the customers’ demands should be checked. Shah also notes that the common failure when developing supply management strategies is the lack of accurate information on customers’ demands. It seems that the problem of overlapping orders is common among firms in various industries. From a similar point of view, Pegels noted that designing an effective supply chain management strategy could be a challenging task, especially in markets, which are characterized by strong turbulences. The IT industry, where CISCO operates, offers many perspectives to firms that try to expand their activities globally. However, the high competition that characterizes this industry can lead to severe losses, especially if alternative plans are not available (Blanchard). Moreover, Wisner, Tan and Leong explained that the strategies of each firm should be based not just on current market conditions but rather on the long term perspectives of the firm, i.e. a long term period of growth should be rather set as the priority when designing a firm’s key strategic plans; in the specific case, the above assumption is of particular importance taking into consideration the failure of the firm’s forecasters to foresee the gaps in the industry’s growth. Works Cited Blanchard, David. Supply chain management: best practices. Hoboken: John Wiley and Sons, 2007 Chandra, Charu, Grabis, Janis. Supply chain configuration: concepts, solutions and applications. New York: Springer, 2007 Pegels, Carl. Proven solutions for improving supply chain performance. Charlotte: Information Age Publishing (IAP), 2005 Shah, Janat. Supply Chain Management: Text and Cases. Delhi: Pearson Education India, 2009 Simchi-Levi, David, Kaminsky, Philip, Simchi-Levi, Edith. Managing the supply chain: the definitive guide for the business professional. New York: McGraw-Hill Professional, 2004 Simchi-Levi, David, Kaminsky, Philip, Simchi-Levi, Edith. Designing and managing the supply chain: concepts, strategies, and case studies. New York: McGraw Hill Professional, 2003 Sinha, Ashok. SUPPLY CHAIN MANAGEMENT: Collaboration, Planning, Execution and Co-ordination. New Delhi: Global India Publications, 2009 Wisner, Joel, Tan, Keah-Choon, Leong, Keong. Principles of Supply Chain Management. Belmont: Cengage Learning, 2008 Read More