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LESSONS FROM CISCO Supply Chain and E-Commerce

Over a year ago, John Chambers was applauded for a firm surpassing Microsoft's valuation at $550 Billion.  Quite a staggering number since most of Cisco's growth has been generated through purchasing other firms.  In fact, Cisco purchased almost two firms per month since 1996.  In December the mountain started to rumble and the stock began to slide from $86 to $13, bringing the firm to a $106-billion-dollar valuation.  Still not too shabby.


Many are questioning the value of Cisco's  business methodology in supply chain management and e commerce.  It's as if the wolves are circling the fallen prey to see who can rip it to shreds first.  Probably the same futurists and analysts who predicted that the dot com era would continue to 2010.  The big issue or dilemma is that Cisco's inventory swelled from 1.2 billion to 2.5 billion, and with a completely integrated e-system; this should not happen.


But the lesson here is certainly not that either Supply Chain Management or the use of e-commerce doesn’t work.  What, then, can we conclude?


Let’s start by talking about Supply Chain Management.  Each business entity is different.  Supply Chain Management works not only in principle but in the real world, for two main reasons.  First,, the process is the integration of multiple departments and vendors so that all parts of the firm are working together.  In Cisco’s case, the same or worse would have happened if marketing, manufacturing, sales, purchasing, and other departments were fighting over chiefdoms and making unrelated decisions.  Secondly, Cisco is a sales firm with manufacturers sitting on the tail end of the manufacturing process.  In December, when the changes in the market took place, Cisco had orders in the field.  Manufacturers had commitments to deliver and they in turn had purchased raw materials, labor, and machine time to fulfill orders.  Just because the faucet was turned off at Cisco, they could not renege on orders.  If the firm did its own manufacturing, the situation may have been different.


As for e-commerce, who can argue with the numbers of cost savings for being on line.  The banking industry has shown that transaction costs drop to pennies per transaction vs. around $1.50 per transaction with bank tellers.  Cisco had 300 people in its call centers and over 44,000 people on its payroll.  Most transactions are commenced over the web and have literally no human contact to handle the almost $19 billion in sales revenue.  This is a staggering number.  Compare the ratios in your firm to these numbers.  The adding machine on my desk, after being pushed to the 6th decimal point, still indicated that there would be no one taking orders in the firm; besides, $19 billion almost did not fit within the window.  (Using Excel, the percentage was 0.00000157894736842105%)


Everyone is experimenting with new ways to conduct business.  ERP (Enterprise Resource Planning) has fallen off in popularity while CRM has surpassed SA (Sales Automation).  Any type of system that integrates departments and decreases human involvement in routine procedures should at least be reviewed and, if necessary, implemented, since the results achieved by firms that have made the investment will carry forward to serve them in trying times.  Don't pounce on Cisco too hard; they still have no debt and have cash in the back.


© MMI David & Lorrie Goldsmith

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01.08.2019 (342 days ago)
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