1

Name: Pacheco Prieto Alexandra, Date: 27/09/2018, Case name: Mi Tiendecita de Moda,
Word Count:

1. Cisco Systems Inc. is an American company well-known for its computer

networking products. In 1996, the firm developed the 'Networked Strategy' which
encouraged information sharing between all the stages of the supply chain. Cisco was in
charge of product designing and delegated the rest to its partners. This ensured that
customer’s orders information flowed smoothly throughout all the stages (employees,
manufacturers, resellers, suppliers, customers and distributors). The use of networks led
to a rapid sharing of demand information which improved the supply chain performance
as customers were receiving their products faster. Besides, responsiveness was
enhanced as the supply chain was responding successfully and within an adequate
timeframe to customer’s needs. Some actions that support the responsiveness
improvement are the following:
 Cisco's suppliers had their production schedule connected to Cisco’s ERP system
which allowed them to see the order information. Then, they shipped the needed
components to manufacturers who were able to start their job products within 15
minutes of receiving an order.
 Third party logistics providers were plugged into Cisco’s database through internet
which ensured that customers access information about the status of their order at any
time.
 Engineering-to-production cycles were diminished since engineers could do the
prototyping from any of Cisco’s locations.
Cisco’s supply chain performance could be measured through the reduction in inventories,
labor costs and shipping expenses which helped the firm save U.S. $12 million annually.

2. The bullwhip effect became evident when the firm discovered there was distortion in
demand information due to a lack of forecast accuracy. Customers would order similar
equipment from Cisco's competitors and close the deal with the party that delivered the
goods first. Consequently, they would place duplicate and triplicate orders, which
artificially inflated Cisco's demand forecasts. This also implied supply gaming as
customers were ordering more than they needed to avoid shortages.

Another cause was the order batching. Cisco decided to order large amounts so that they
would not run out of scarce components during the boom period. Nevertheless, placing
orders in lot sizes meant the order stream could be more variable than the demand stream.
The table below shows us a summary of the bullwhip effect causes mentioned.
 2

Table 1
Cisco’s bullwhip causes

Bullwhip cause Description

Ordering large amounts of scarce

Order batching
components to avoid shortages.
Customers order more to stay in
Supply gaming
stock.
Forest accuracy Projections were artificially inflated.

Distorted demand information was the major obstacle to coordination in the supply chain.
Cisco’s partners drew up supply-and-demand forecasts that contributed to distortion as
these were based on multiple points in the supply chain. Consequently, there were time
lags in delivery and payment which increased the order-to-payment cycles length. This
also contributed to a shortage of key components thus shipments to customers were
delayed by 3-4 weeks.

Analysts stated that Cisco's supply chain pyramid configuration played a major role in the
firm’s breakdown. (see figure 1). The company was at the top and relied on contract
manufacturers. They depended on companies for key components and these in turn were
dependent on commodity suppliers. This structure brought about communication gaps that
successively resulted in a distortion of the information sharing.

Cisco

Contract manufacturers
Flow of
Products
information Component suppliers

Commodity suppliers

Figure 1. Cisco’s supply chain network.

Cisco had to face an operational obstacle known as shortage gaming which caused that
its customers increase the size of their orders to increase the amount supplied to them.
Cisco’s contract manufacturers played a similar shortage gaming too. If three
 3

manufacturers were competing to build 10,000 routers, to chipmakers it seemed like a

demand for 30,000 machines. Since Cisco cannot break the commitments with its
suppliers, they got stuck with key components which eventually led to an increase in
Cisco's inventory cycle which rose from 53.9 days to around 88.3 days.

An information-processing obstacle that can be addressed is that forecasts were based

on orders and not customer demand. The example stated before showed that orders were
magnified as they moved upstream in the supply chain from manufacturers to suppliers.
Cisco's supply chain management system failed to comprehend that the increase in
demand was indeed an overlapping of orders. The table below shows the bullwhip effect
obstacles identified.

Table 2
Cisco’s bullwhip obstacles

Incentives Information Operations

Each stage Distorted demand information that
Order large quantities in
independently led to artificially inflated demand
advance.
optimizes. for key components.
Demand
projections made
by the company's
Long order-to-payment
salesforce were
Forecasting based on orders. cycles as there were time
not aware of the
lags in delivery and payment.
forecast issues
from different
stages.
Lack of information sharing due to Facing shortage of some key
pyramid structure of its supply components for some of its
chain. equipment.

3. To overcome the obstacles within its supply chain, Cisco focused on taking the following
managerial actions:
- Regarding operational performance, Cisco Connection Online (CCO) was launched and it
allowed the connection between the firms and all its suppliers and contract manufacturers.
As a result, payment cycles were shortened and a reduction in the operation costs of all
constituents. Besides, the CCO let contract manufacturers know the exact position of
demand and inventory at any time so that replenishment inventory management could be
managed easily.
- Another actions concerning information accuracy were the following:
 4

 Integrated Commerce (ICS) smoothed the information exchange between Cisco and its
large customers. Furthermore, the server was integrated into the customers back-end
ERP systems which ensured collaborative big data.

 The company formed a group to work on an e-Hub recovery program made up of a

technology called Partner Interface Process (PIP) that indicated whether a document
required a response or not. As a result, the flow of information between Cisco and its
partners (manufacturers and suppliers) was boosted. Also, since the exact number of
manufacturers competing for an order could be found out, the bullwhip effects could be
tackled. Forecast accuracy was improved as well because overlapping orders were
removed and thus chipmakers were informed of the exact demand figure.