OUTSOURCING AND ITS SUCCESSFUL STORY

Outsourcing and Its Successful Story at Cisco Systems, Inc

Outsourcing and Its Successful Story at Cisco Systems, Inc

Introduction

It should be no surprise that the Internet plays an integral role in Cisco Systems supply management strategies. After all Cisco designs and makes the equipment that connects computers to the World Wide Web. This paper discusses outsourcing and its successful story at Cisco Systems, Inc in a concise and comprehensive way.

Outsourcing and Its Successful Story at Cisco Systems, Inc

Cisco not only receives most of its orders via the Internet, it uses the Internet to do business with its supply chain partners through extranets with its contract manufacturers and distributors, says Mike Campi, vice president of supply management. Cisco uses five contract manufacturers who build the boards used in the hubs, routers, switches and other equipment that Cisco sells. In addition, two of the CMs build entire systems for Cisco. Arrow and Avnet, Cisco's two main distributors, provide services such as bonded inventory, auto replenishment and in-plant stores at Cisco's CMs (Engardio, Arndt and Foust, 2006).

Cisco is highly leveraged with contract manufacturers. "We never touch 65% of the units that go to our customers," says Campi. "We ship assembly-level demand to contract manufacturers and the CMs will blow that assembly-level demand out to our component manufacturers and distributors. We electronically consign that material to distributors to the portion they manage," says Campi The distributors have bonded inventory, auto replenishment and in-plant stores at CMs to support the manufacturer. CMs will pull product from the store on site. Parts like asics and memory will be pipelined through the distributor (Engardio, Arndt and Foust, 2006).

In essence, the CM handles the order-management process for Cisco. "The order comes in via extranet over Oracle," says Campi. A CM sees that order, triggers a build, builds and tests the product and then ships it off to the customer. The contract manufacturer pays the distributor for the portion of the bill of material that the distributor manages and the CM trigger a receivable to Cisco for the product," says Campi.

Products built this way tend to be ones that have less complexity and a lower level of configurability, but include new products as well.

Cisco also uses the Internet in an effort to control quality and integrity of its products, which is a key issue for any company that outsources its manufacturing.

"We don't do board assembly in Cisco, but we need to maintain quality," says Campi. "We need to control testing. We load software scripts via the extranet from our test development engineers directly to CMs and those scripts are fed into their manufacturing process."

While contract manufacturers build products and distributors handle materials management at the CM's site for Cisco, Cisco maintains control over all strategic sourcing.

"Cisco procures nothing from a purchase-order prospective at the device level with the exception of some memory and that is a small amount," says Campi. "All procurement activity is done via the CMs or the ...