Cisco’s Blunder

Made By:-
Jayant Jain
18020841210
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 A Brief history of Cisco
▪ 1984: Leonerd Bosack and Sandy Lerner founded Cisco
Systems.
▪ 1986: Cisco’s first product AGS multi protocol router was
released.
▪ 1988: John P. Morgridge gets appointed as president and CEO of
Cisco
▪ 1993: Cisco makes its first acquisition by buying Ethernet
switching start up crescendo communications.
▪ 1994: Cisco acquires Kalpana the inventors of Ethernet
switching and reaches the revenue of $1.33bn the same year.

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 A Brief history of Cisco
▪ 1995: John Chambers became CEO replacing John Morgridge.
▪ 1998: Cisco’s market cap reaches £56 Billion and introduces
gigabit Ethernet switching.
▪ 2000: Cisco becomes to be the most valuable company in the
world with market Capitalization of £313 Billion before the web
bubble blasts.
▪ 2001: After the web bubble burst cisco announced that it would
take a $2.2 billion charge against earnings to write down the
value of inventory in the supply chain.

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 Cisco’s Supply chain strategy
▪ Cisco focused its energies on just
three main activities; product
innovation, marketing and selling
and managing the supply chain.
▪ With Cisco on top, the second
tier of the pyramid was formed
by contract manufacturers
responsible for final assembly of
Cisco’s products.
▪ They were fed by third tier
supplier which provide
component like processor chip
and optical gear.
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 Cisco’s Supply chain strategy
▪ Fourth tier consist of even larger base of suppliers of commodity
inputs.
▪ Cisco’s system was very responsive to demand changes and
transmit product orders it received through its website down the
supply chain allowing their contractors and suppliers to optimize
their production schedules in real time
▪ This dramatically reduced the amount of inventory in supply chain
which further reduced its capital requirement and boosted its ROIC.

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 What went wrong?
▪ During the boom years up to 2000 demand for routers and
switches rocketed as every kind of company invested in IP
networks.
▪ The customer’s couldn’t get Cisco’s product quickly enough so
they had started to double and triple book orders for Cisco and
its competitor’s products knowing that they would ultimately
make purchases from just one company.
▪ Cisco was unable to detect this and thought they are not
producing fast enough. This problem amplified as orders moved
down the supply chain.

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 What went wrong?
▪ Suppose cisco ordered 10,000 routers and its contract
manufacturer would compete to fill the entire order and to gain
an edge they often tried to lock up suppliers of scarce
component. Suppose if three contract manufacturers were
competing it would look like sudden demand for 30,000 routers
so component makers too would increase their output .
▪ The result was a huge surge in inventory that far outstripped
underlying demand. When the telecom and dot com bubble
burst in early 2001 demand from these customers plunged and
Cisco was left with a bloated supply chain full of inventory no
longer needed.

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 What happened next
▪ Cisco reconfigured the way it manages its supply chain.
▪ It created a central internet based repository of information
known as eHub that all participants in the supply chain can
access.
▪ Now if contract manufacturers get an order for 10,000 routers
and all turn around and place orders for 10,000 chips each (for a
total of 30,000) to try to tie up scarce components, the chip
makers can access eHub and see that the true order is just
10,000 routers and not 30,000 and plan accordingly.
▪ ehub uses PIP(Partner interface process) technology which
needs confirmation of order from recipient system within 24
hrs.

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 What happened next
▪ This helped cisco to get an exact count of bidders.
▪ Cisco production cycle began when a demand forecast PIP was
sent out showing cumulative orders to contract manufacturers
and chipmakers also.
▪ Thus overlapping orders were avoided and chipmakers knew
exact demand figure.

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 THANK YOU !

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