V. The $2.25 Billion Write Down
In 2001 Cisco had one of the largest inventory write offs in history, $2.25 billion in inventory was essentially written of as unsellable. The main reason for this was pure incompetence of Cisco to understand the bull whip effect in their industry. The online system is only as good as the information inputted.
During the tech-bubble of the 1990s orders were not being filled because of shortages of parts and materials. So in classic bullwhip style, customers overstated their needs into the online system causing Cisco to over estimate the demand for their product and order a larger supply of components. This gave Cisco a false forecast, which was totally preventable if the online system had a true read of the end customer’s demand instead of distribution center demand.
VI. How Should Cisco Manage its Supply Chain Better?
When the tech bubble burst in 2000 orders fell and Cisco was left holding the raw inventory. Since all of Cisco’s sales forecasts were based on the information supplied by customer demand requirement inputted under duress of a parts shortage, the information was hugely inaccurate. In addition, when the customers started to reduce orders or even cancel them, Cisco did not react with their supplier to stop delivery of product. Instead all orders were received and held in inventory. Unlike their customers, Cisco did not respond quickly enough to the shift in demand and neither did the supply chain. The supply chain had no incentive to reduce shipments; they were looking to sell as much product a possible.
With the use of Cisco’s “Single Enterprise” system, the company can have real time interaction with its customers and determine demand instantaneously. Furthermore, the implementation of the “Dynamic Replenishment” model enables Cisco and its trading partners to transmit demand signals to each other without distortion or delays. All in all, with Cisco’s “Global Networked Business Model,” the supply chain is more coordinated and problems resulting from poor forecasting and logistics are eliminated.
Since the Internet provides a new marketplace it is a great place for providing Internet commerce as well as new channel for resellers and partnerships. Provide technical support for non-software related issues. Provide an open forum for customers, resellers and partners.It is also a great place for networking, online ordering for authorized dealers and resellers. Provide on time delivery for customers.
VII. To What Extent Does Information Technology Contribute to the Cisco Strategy?
Cisco’s business strategy is as follows:
- Assembling a broad product line so that it can serve as a one-stop shop for business networks.
- Systematizing acquisitions as an efficient business process.
- Setting industry-wide software standards for networking.
- Picking the right strategic partners.
Cisco is attempting to segment their business and squeeze further profits out of specialized portions of the industry. They are attempting to branch within their customer environment based on segments. These include:
- Business strategies and solutions
- Networking solutions and provision services
- Products and services
To be able to successfully execute the company’s four point strategy, Cisco will need to maintain its leadership in the information technology industry. In the fast paced industrial environment, doing business will require constant innovations in technology, product design and business applications.
Cisco’s business will be driven by changes and enhancements in information technology. Delivery and on-going support for Cisco’s services will rely on the sophistication that the IT infrastructure provides.