A technology leader and enabler of the internet revolution, Cisco Systems produces a wide variety of switching and network products that enable fast and secure internet communications for enterprises and consumers alike. With suppliers and customers located around the world, Cisco's supply chain is broad, diverse and extremely complex. The company manages this complexity through a centralized supply chain organization under the leadership of Mendez, whose global organization has approximately 2,000 employees with responsibility for global supplier management, manufacturing and product operations, advanced sourcing, reverse logistics, manufacturing technology and quality, and demand management and planning.
Q: Tell us a little about the path that led to your current position as senior vice president of supply chain at Cisco.
Mendez: Over a 24-year career, I have worked for several companies. After graduating from GE's Manufacturing Management Program, I served 11 years with General Electric in manufacturing and supply chain management assignments. Then I worked at Allied Signal as head of the aerospace sector's international sourcing operation and later led supply chain efforts at Aerospace Equipment Systems, which then was AlliedSignal's largest business unit. I moved to Citigroup, where I worked as a division executive for global procurement, leading the consolidation of supply chain management activities during the merger of Citicorp and Travelers Group. After that, I was head of global supply chain management at Gateway Inc., and I was senior vice president for global operations for PalmOne.
Q: That's an impressive resume. What drew you to the job at Cisco?
Mendez: Cisco is unique in many ways, but one of the key things that differentiates the company's supply chain is that it operates as one functional team. Most companies our size that deal with a similar level of complexity organize into some form of divisional structure. That is not the case at Cisco. We have one functional organization for global supply chain management that looks after all products, regardless of division. I think that distinguishes us, certainly among tech companies and, I assume, among companies in other industries as well.
The complexity here is a great challenge and the first level of that is just the breadth of the products. We have more than 200 product families and more than 150,000 specific products. These range from products where we make millions of units a month or a quarter to ones where we only make hundreds or even dozens of units each week or month. And we sell to a variety of segments. Cisco is the largest provider of internet technologies to the world, which is its core business. But it also has products in the consumer space, most notably the Linksys brand, which produces routers and other products that consumers buy at retail stores and use in their home or small business to power their LAN [local area network] or other entertainment and home networking products.
On the other side of the spectrum, Cisco's service provider division sells to large and mid-sized telecommunications and cable companies around the world. The products these companies need are highly specialized, very complex and very expensive so that is the high end of our product line. In the middle is the segment that really made the company. That's where we have the switching and routing technologies that allow enterprises and small businesses to power the internet.
Another interesting challenge for us is that we go to market in many parts of the world through partners. So we sell through value-added resellers and distributors as well as having direct sales to corporations and to service providers and enterprises. And then to add to the fun, the lion's share of our products are configure to order. This isn't true of the product bought through retail channels, of course, but the majority of our products are ordered in much the same way as you would order a Dell computer, where you specify the components you want. So our supply chain is a configure-to-order supply chain offering a very wide range of products around the world through multiple segments and channels. These products can have a very high level of complexity and have product life cycles that vary from extremely short to quite long.
To add one more level of complexity to this mix, we outsource the lion's share of our production, but we also make a number of product lines in our own factories. The split is about 90/10.
So all of that panorama presents us with quite a bit of complexity. Even so, over the last couple of years, we have dramatically improved our inventory turns and delivery performance. We are pretty happy with these results but Cisco's goal is to be the number one supply chain company in the world. We have to get very creative every single day.
Q: What are some of the best practices that have allowed you to make those improvements?
Mendez: One of the areas we have focused on is finding ways to put together a collaborative planning effort with our customers by extending our traditional demand management processes outward to them. Given the various market segments we serve, it always is challenging to produce high-accuracy forecasts. This is particularly true in the service provider space, because the business models of the cable and telecom operators in this space are changing. These companies are now competing with one another and offering converged services like voice and data and the ability to download video. As this happens, they see the need to upgrade and grow their networks, which means their demand profiles are changing, but not in entirely predictable ways.
So with these customers particularly we wanted a collaborative planning effort that would allow us to see as early as possible what large projects were coming that would impact the demand for these complex products. The products in this sector take a lot of factory capacity and custom equipment as well as very complex electronics, which all equates to longer lead times. And they have to be delivered to the highest quality standards, because these are products that really run our customers' revenue streams.
So we have used collaborative technologies and tools to get ourselves inside the tents of our customers, so to speak. This is a bit of a human factors challenge as well because it brings up a lot of trust issues and requirements for openness and transparency on both sides. But the earlier we get visibility, the better our service levels will be. Where we have implemented this successfully, we have seen dramatic improvements in delivery performance. By dramatic I mean, for example, a shift from 65 percent on-time delivery to service levels in the high 90s. So those are pretty dramatic improvements. Again, this is in the area of service providers, which is where we are seeing the most volatile demand right now.
The challenge is how to scale it. We can't possibly put a planner in every one of our 200 to 300 large accounts, so it is difficult to scale. So we are turning to Web 2.0 and other supply chain tool sets to figure out how to do that. Right now we are in the midst of deploying new demand management tools that will allows us to cover more ground with these processes.
Q: What are some of the practices you use in dealing with contract manufacturers?
Mendez: That is another interesting differentiator for us that has developed especially over the last couple of years. The challenge is how to control the supply chain when it is not inside your walls. This is particularly important when dealing with configured products, because you have to transmit that configuration to the manufacturer, keep control of it while it is being made and make sure that the right version of the software is loaded, and so on. The way we tackle that is to instrument our supply chain through a series of quite intricate network connections. So, basically, every piece of production and test equipment that exists in the factories of Cisco's partners is connected to Cisco's network. We call that network Autotest and it has roughly 20 clients around the world, each of which is wired into a proprietary network. The network really is a collaborative platform, but it transmits real-time status information that allows us to monitor and control the quality of configuration and production.
Say, for example, that we have a piece of test equipment that suddenly reveals that a particular board assembly is outside of its Six Sigma parameters and failing more frequently than it should. We see that real time, even though the factory may be in Malaysia and may be run by one of our partners. We can get right on it.
Having this visibility also helps us prevent configuration errors. The Autotest network allows us to raise the quality standard because we are far more capable of quickly reacting to problems. Its ability to flag problems in real time results in our being able to quickly snap and react to anything that may be going outside the limits. The idea is to have real-time collaboration with our partners, which we believe is a competitive differentiator for us. That is why we spend quite a bit of time and money nurturing and expanding this network. Then, because the information is captured, the manufacturing engineer or the quality engineer for a product gets customized report cards for those things for which they are accountable. We can slice and dice that information by product family, by SKU, by factory, or whatever. It really does provide us a tremendous amount of visibility and control.
Q: Are there other collaborative tools you are using?
Mendez: There are a whole series of tools in Web 2.0 and we are embracing all of them in some fashion. One of the advantages of being large is that we can derive great benefits from some of these new technologies just because of our scale. For example, we are taking a lot of our supplier communications to blogs and portals where there is more real-time interaction. Our design teams are moving from a world where designers sit in a room working on a design and the team meets once a day or once a week to a world where there is real-time interaction through these tools. This results in faster development cycles and quick resolution of problems.
We also have a new product line that we launched in October 2006 called Telepresence. This is a very high-end video conferencing methodology that allows companies to really collaborate using video. This is not at all like the video conferencing we have seen before, where you have a little television at the end of a board room. Our technology is a whole different game.
We also acquired WebEx, which is known for the quality of its web video conferences. We are very active in leveraging these technologies across our supply chain partners. We hope that by this fall, all of our supplier factories and distribution centers will be equipped with Telepresence, which will allow us to have face-to-face meetings via video in a way that is very natural and high end. From a human factors perspective, it will be very much like being in the same room. When you don't have to go to Thailand to visit your factory, but can just turn on the system, you will have much more interaction.
We believe that today's flat and complex world calls for a whole different level of collaboration between suppliers and customers. That may sound trite because the supply chain has always had to find ways to collaborate, but the real issue here is how to scale that and how to make it faster and richer and able to handle greater levels of complexity. At Cisco, we believe that success in the future will depend on adoption of these collaborative technologies. We intend to try and lead the way.
Cisco Systems, www.cisco.com
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