Cisco Systems may be showing what is ahead for many companies as the recovery takes hold. Hit with a wave of strong demand as businesses begin spending more, Cisco's suppliers are unable to keep up, according to an article in MarketWatch by Benjamin Pimentel, based on interviews with several market analysts. (http://www.marketwatch.com/story/cisco-sees-strong-demand-but-suppliers-lag-2010-01-06?reflink=MW_news_stmp).

While predicting an upbeat January quarter for the San Jose, Calif.-based maker of networking equipment, JMP Securities analyst Samuel Wilson told Pimentel that "supply chain bottlenecks may be holding Cisco back."

"Our sources tell us that large customers are being told that supply chain constraints with third-party partners make it impossible for Cisco to ship orders this quarter, as sales have ramped faster than expected," he said.

Webush analyst Matthew Robison said the company has faced intermittent shortages for a range of electromechanical components such as semiconductors and connectors. "My sense is that it's one thing one week, and another thing another week," he said. "The whole food chain wasn't ready for the demand that's been seen lately."

Cisco spokesman John Earnhardt acknowledged the supply chain issues, saying the company is striving "to build upon our strong relationships with our suppliers to proactively manage our supply chain and minimize any potential impact to our customers."

"Similar to what is happening in the industry we are seeing some product lead-time extensions stemming from supplier constraints based upon their labor and other actions taken during the downturn," he said.

Not a bad problem to have after the past two years. While this rapid increase in demand certainly will not be mirrored in all industries, it does serve to alert companies to what could become cascading supply problems. Strengthening supplier relationships now may pay big dividends before the year is out.

- Jean V. Murphy, SupplyChainBrain

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