Introduction
Cisco Systems of San Jose, California, is a company that develops networking devices such as switches, routers, network management software, and dial- up access servers. By the mid 1990s, realising that growth depended on our ability to scale manufacturing, distribution and other supply chain processes quickly, Cisco managers decided to reinvent its business model and turn itself into a Web-enabled company. ‘An ecosystem' which in fact transformed the entire supply chain into an extended enterprise system based on internet technology was created in order to links customers, prospects, partners, suppliers and employees in a multi-party, multi-location electronic network.
This article is trying to analyse how Cisco can successfully implemented ‘ecosystem' by considering what approaches they used to manage their whole supply chain. In order to achieve this objective, an overview of e-business and e-supply chain will be fist presented to identify why it is important and worth implementing in Cisco. In the second section, the ‘ecosystem' will be evaluated in terms of upstream supply chain, downstream supply chain and internal human resources in Cisco. Thirdly, e-supply chain, as a whole, will be discussed. At last, a conclusion will be made to summarise the issues which will be discussed in the second and third section.
An Overview of E-business and E-supply chain
E-Business can be defined by Chaffey (2002, pg 8) as “all electronically mediated information exchanges, both within an organisation and with external stakeholders supporting the range of business processes.” It links internal employees with external customers, suppliers through technology like Internet, intranets, and extranets. He further states that there are two general advantages that motivate organisations to implement e-business, which are:
E-commerce, conceived as a subset of e-business, can be categorised as buy-side e-commerce which are equivalent to upstream supply chain and sell-side e-commerce which equate to downstream supply chain. According to Rehan (2006), A ‘supply chain' is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. An effective supply chain management can improve efficiency throughout e-business.
As a result from the case, Cisco estimated that in financial year 2000, a total of US$695 million would be saved by adopting this interconnected supply chain. These solid figures prove the potential benefits e-business can bring into Cisco are enormous. Broadly speaking, it is argued that there are at least two primary ways in which the application of e-business technologies can improve the efficiency of a supply chain (Slyke and Bélanger, 2003). First is known as disintermediation, which organisation eliminates the communication and coordination costs associated by eliminating links in the supply chain. The second way is by lowering the cost of communication and coordination among the various members of supply chain. In this case, Cisco adopted the second way by using information technology to communicate, which enable faster, more accurate, and lower cost information exchanges with its trading partners. The way to lower the cost of communication and coordination in Cisco will be analysed below in terms of upstream, downstream and internal human resources issues.
Upstream issues (Buy-side)
Upstream supply chain is the transactions between an organisation and its suppliers and intermediaries (Chaffey, 2002). In this particular case, Cisco outsourced most of the manufacturing and logistics activities as James Crowther, customer business solutions manager said, in order to increase production capacity enough to meet demand. According to Bocij (2003), outsourcing is a business activity subcontracting a process, ' product design or manufacturing, to a third-party company. Cisco's suppliers not only make all of the components and perform 90 per cent of the sub-assembly work, but they also undertake 55 per cent of the final. By outsourcing production of 70 percent of its products, Cisco has quadrupled output without building new plants. Furthermore, through Cisco Manufacturing On-line, Cisco has created an extranet application that increases productivity and efficiency in the manufacturing, supply, and logistics functions among globally networked partners. The accomplishment not only increased the outputs but left Cisco free to concentrate on their real strengths: new product development, looking after customer needs and brand management.
Cisco Manufacturing Connection Online (MCO)
Since relationships with suppliers are especially critical in the E-conomy, Cisco has created an Extract application that leverages productivity and efficiency in the supply function through MCO, which can be viewed as supply chain portal that seamlessly connects Cisco to its contract manufacturers, distributors, and logistics partners. The core of MCO dealing with their supplier is centralising the process control and as a consequence decentralising actual execution. There is a three-part strategy to scale its upstream supply chain in a cost-effective manner in MCO:
Auto test. To resolve the testing problem, Cisco has installed automated test cells on all Cisco-dedicated supplier production lines using Cisco-developed technology to automatically configure test procedures for each specific customer order so that the quality could be controlled and the cost of deploying a test engineer could be saved. However, although Cisco outsourced much of the physical test, the company retained the intelligence behind the testing.
Direct Fulfillment. Cisco launched a global direct fulfillment model under which most of the company's manufacturing partners can now ship directly to customers. This will reduced the distribution cost between Cisco and supply chain partners.
Dynamic replenishment. By direct linking to the suppliers, Cisco could gain real-time access to supplier information so that delivery lead-times, errors and inventory will be cut and the productivity of its employees involved in purchasing will be improved. The purchasing teams can focus on more strategic activities such as partnership and business development.
The implication of increasing outsourcing of core activities is that companies will move towards the virtual organisation which leads to a more responsive and flexible company with great market orientation (Chaffey,2002). As Pete
Rukavina, Cisco's director of global supply chain management, addressed:
“For every Cisco manufacturing employee there are six virtual manufacturing employees who use Cisco processes, are measured against Cisco metrics, and are located around the world.”
Virtual manufacturing is not only a Cisco thing. “Hewlett Packard, IBM, Silicon Graphics, and others have sold plants to contract producers such as Solectron, SCI Systems, Flextronics, and Celestica- then signed up these manufacturing specialists as suppliers,” Business Week (Port, 1999) reports.
Traditionally, a new product introduction had been a process in which engineering, procurement, manufacturing and marketing were performed sequentially in time-consuming steps. Cisco has networked these functions in order to extract real benefits with its partners. A perfect example could be car industry where car plants traditionally would be located nearby the raw material factory so that inputs directly from factory will be produced as a result of cars. However, there has been a trend to outsourcing more and more components such as lights, trim and even engine to third party. Just-in-time of Toyota was created base on the outsourcing strategy.
Downstream issues (Sell-side)
Downstream supply chain is the transactions between an organisation and its customers and intermediaries (Chaffey, 2002). There were some potential issues which Cisco has faced in the process of selling products in the past:
Cisco Connection Online is introduced in order to deal with these issues.
Cisco Connection Online (CCO)
As Crowther explains: “Customer Connection Online is essentially a web portal to information stored in Cisco's enterprise resource planning [ERP] databases, legacy systems and client/server systems, and acts as a comprehensive resource for our customers, resellers, suppliers and partners.” In fact, it used the Internet as the prime customer contact channel so that customer information and decision-making feeds directly into the supply chain. Chaffey (2002) stated that technology is vital to supply chain management since managing relationships with customers, suppliers and intermediaries is based on the flow of information and the transactions between the parties. Customers rely on CCO to answer questions, diagnose net work problems, and provide solutions and expert assistance worldwide based on four components of CCO:
