John Chambers, Chairman, and CEO, Cisco Systems James Steele, program director for supply chain risk management at Cisco Systems, Inc. (Cisco), woke up one morning in March 2011 with an urgent phone call from one of the risk managers and member of one of Ciscos supply chain risk management teams based in San Jose, California. A warning system related to weather monitoring systems alerted of a high probability of suffering a high magnitude earthquake on the east coast of Japan. Once James arrived at his office, the very first activity was to open the map of key locations of facilities for Ciscos electronics components in Japan and the companys Japanese-sourced suppliers. The threat came true, and, after a 9.0 magnitude earthquake, Japan suffered a tsunami, which caused severe damage, power failures, and meltdowns at nuclear facilities. It has been one of the largest disruptions to global supply chains in modern history. Alarmed, James got in contact with John Chambers, Chairman, and CEO at Cisco Systems, informing him that the incident management protocol for a Black Swan or force majeure event had been activated within the Global Business Operations and Supply Chain Operations Departments, at the highest degree. Steele informed, Cisco has about 250 tier-1 suppliers in Japan, many of them the sole source for high-level engineering components. John Chambers expressed, The main purpose now is to guarantee continuity of supply; the lowest impact in operations as well as financial performance. Steele mobilized a team of 10 risk managers to better understand the potential impact of such a disruption. The following morning, Cisco had assembled a 100-person war room to figure out which orders were and could be affected, accounting for all of the major suppliers within Japan, at least all the tier ones.2 2 Risky business at Cisco Systems, Robert J. Bowman. Supply Chain Brain, November 15, 2011. The Company Cisco, whose name comes from the city name, San Francisco, was founded in 1984 by Leonard Bosack and Sandy Lerner, a couple working in IT at Stanford University. Cisco is the kind of success story that is told often about Silicon Valleythe idea nurtured at home that reaches world-class level.3 3 Cisco Systems Inc.: Collaborating on New Product Introduction, Maria Shao and Hau Lee. Case GS-66 Stanford Graduate School of Business, June 2009. Cisco started in the market with routers and switches. Fifteen years after the foundation, routers, and switches were still core products for the company, but they had expanded to include solutions based on their initial products, such as Internet Protocol (IP) communication, call center systems, Tele-Presence, and many other communication-related solutions. Cisco solutions can serve from small businesses with minor requirements, such as video-conferencing or Wi-Fi access points, to big corporations requiring Data Center and Cloud Services.4 4 Cisco Systems, Inc. 2011 Annual Report. Cisco started with an initial funding from the venture capital firm Sequoia Capital and went public 6 years later. That made a market capitalization of U.S. $224 million, enough to be listed on the Nasdaq stock exchange. In late March 2000, Cisco had become the most valuable company in the world, with a market capitalization of more than US$500 billion. Eleven years later, in November 2011, a market capital of about U.S. $94 billion still qualifies Cisco as one of the most valuable companies.5 5 Chron 200 Market capitalization, Fost D. San Francisco Chronicle, May 5, 2006. A key moment for Ciscos development was the growth of the Internet in the second half of the 90s and the big change it implied in the telecom market. Once the IP protocol was almost universally adopted, the importance of multi-protocol routing declined, and Cisco managed to become a vital supplier in a market whose growth rate was explosive. To keep up with the growth of the Internet, Cisco gained access to the required new technologies through acquisitions and partnerships. Cisco maintained its own R&D activity not only by developing new technologies and products but also by acquiring other companies, making agreements for jointdevelopment projects, and selling products coming from other companies. This growth model was almost unique in the high-tech world. At that time, distrust among competitors and a common idea that a company looking outside for technological aid was showing its weakness prevented many companies from behaving like Cisco. Therefore, leveraging markets as well as technology was not common practice in the Industry. As a result, recently, Ciscos acquisition policy has scooped up some 160 companies over the last 10 years. In any year, there are at least 10 companies we are trying to integrate, said Angel Mendez, Ciscos senior vice president of worldwide manufacturing.6 6 Cisco Systems Inc.: Collaborating on New Product Introduction, Maria Shao and Hau Lee. Case GS-66 Stanford Graduate School of Business, June 2009; Cisco Systems Inc.: Acquisition Integration for Manufacturing, Nicole Tempest, Charles A. Holloway and Steven C. Wheelwright. Case OIT-26 Stanford Graduate School of Business, February 2004. Ciscos Supply Chain Ciscos supply chain has been evolving to a prevalence of outsourcing and globalization. Twenty years ago, original equipment manufacturers in the electronics industry were more vertically integrated, mostly performing their own manufacturing. However, nowadays, Cisco relies on contract manufacturers for almost all of its manufacturing needs, reaching more than 95% of their 12,000 products. Cisco uses a variety of independent third-party companies to provide services related to printedcircuit board assembly, in-circuit testing, product repair, and product assembly.7 7 Cisco Systems Inc.: Collaborating on New Product Introduction, Maria Shao and Hau Lee. Case GS-66 Stanford Graduate School of Business, June 2009. Arrangements with contract manufacturers are carefully crafted to guarantee quality, cost, and delivery requirements, as well as capacity, cost management, oversight of manufacturing, and conditions for use of their intellectual property. Cisco has not entered into significant long-term contracts with any manufacturing service provider. The company generally has the option to renew arrangements on an asneeded basis, formalized mainly in yearly agreements. These arrangements generally do not commit Cisco to purchase any particular quantities, beyond certain amounts covered by orders or forecasts covering discrete periods of time defined by default as less than one year. Additionally, the Cisco outsourced model became more sophisticated when it came time to internalize the challenges of Ciscos strategy of using acquisitions and partnerships in order to expand. Most of these companies had their own supply and manufacturing facilities around the globe, whose products should be delivered through Ciscos existing distribution channels. However, the main explicit acquisition criteria for deciding in which companies to integrate included not only achievement of short-term and long-term gains along with sharing similar understanding of the market or similar culture with Cisco, but also having a similar risk-taking style.8 8 Cisco Systems, Inc. 2011 Annual Report; Cisco Systems Inc.: Acquisition Integration for Manufacturing, Nicole Tempest, Charles A. Holloway and Steven C. Wheelwright. Case OIT-26 Stanford Graduate School of Business, February 2004. This manufacturing model was explained by Carl Redfield, Cisco vice president of manufacturing and logistics at Cisco, in these terms: Cisco wants to add value by managing the supply chain and focusing on product design and development. Exhibit 6-1 summarizes Ciscos current value chain challenges, which are the main drivers for Ciscos current business model.9 Exhibit 6-1. Ciscos value chain challenges. Cisco Systems Inc.: Acquisition Integration for Manufacturing, Nicole Tempest, Charles A.Holloway and Steven C. Wheelwright. Case OIT-26 Stanford Graduate School of Business, February 2004; Balance Sourcing, Laseter, T. San Francisco:Jossey-Bass, 1998. Complementarily to outsourcing and globalization, Cisco tried to boost efficiency. In early 2006, Cisco formally introduced the orientation toward just-in-time manufacturing based on a pull model known as Cisco Lean.10 The goal of this model was to convert Cisco and its extended supply chain into a system in which the product is configured to order and it is finally built only after a customer has actually ordered it, using mostly standard components.11 Lean orientation combined with a great level of outsourcing introduced a paradigm shift within Ciscos supply chain, moving from the traditional view to the holistic end-to-end view supply chain management (see Exhibit 6-2). 10 Cisco Systems Inc.: Collaborating on New Product Introduction, Maria Shao and Hau Lee. Case GS-66 Stanford Graduate School of Business, June 2009. Exhibit 6-2. Holistic Ciscos supply chain. In order to reach efficiency, the lean model required Cisco to have as few suppliers as possible. However, contingencies in a tense supply chain may need some levels of redundancy in sourcing to assure availability. But while reducing the base of suppliers, Cisco had to face several additional challenges from the lean model. They needed to reduce inventories while hoping for shorter and more predictable lead times across an easier to control and synchronize extended supply chain. A lean approach also encourages component standardization. It faces product differentiation demanded by the market through different configuration of these standard components.12 12 Cisco Systems Inc.: Collaborating on New Product Introduction, Maria Shao and Hau Lee. Case GS-66 Stanford Graduate School of Business, June 2009; Cisco addresses supply chain risk management, Miklovic D. and Witty R. Case Study ID G00206060 Gartner Industry Research, September 17, 2010. Ciscos key supply-chain decision makers understand supply chains as dynamic systems that need to be continuously adapted to the current context in which they are operating. Nowadays, activities are much more intertwined from an operational as well as financial point of view. We are driving an adaptive supply chain in a very large outsourced model across a very large spectrum of products and geographies. This is somewhat unique, expressed Mendez.13 This way of managing the supply chain placed Ciscos supply chain in the sixth position in the prestigious Gartners Supply Chain Top 25 in the 2011 ranking. 13 Cisco Systems Inc.: Collaborating on New Product Introduction, Maria Shao and Hau Lee. Case GS-66 Stanford Graduate School of Business, June 2009. The consequences of this pattern of changes toward a disperse network have been quite relevant. Ciscos supply chains have become extensively stretched to significant levels of supply chain dependence on globalization. The opportunities provided by the benefits of outsourcing together with globalization have been the main driver for supply chains to fully focus on seeking efficiency. But, this efficiency is not free, and now Ciscos supply chains are facing higher vulnerabilities. Supply Chain Risks Todays electronics supply chains face risks from many factors including political upheavals, regulatory compliance mandates, increasing economic uncertainty, rapid changes in technology, demanding customer expectations, capacity constraints, the effects of globalization and natural disasters. These threats may come from both internal and external sources of risk, explained Steele. The first one, related to contingencies inside the supply chain, has to do with how the supply chain is looking for efficiency.14 Some actions can be taken by the supply chain manager to prevent and control these internal forcesfor instance, process orientation action, prevention, monitoring supply chain key nodes, and visibility. 14 What is the right disruption management for your supply chain?,

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Question= How should the supply chain complexity align with supply chain risk management?

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subject- supply chain management