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It was the first day of Cisco’s annual Partner Summit, and Cisco worldwide channel chief Keith Goodwin was where he usually is at that time of year: on stage. The Cisco channel had gathered, and Goodwin was gearing up for the emphatic delivery of this year’s Partner Summit theme, “Write the rules. Own the game.”
But before the program announcements, channel hype and Unified Computing System excitement, Goodwin, senior vice president, worldwide channels, had another thing to offer partners.
Goodwin told the assembled guests at San Francisco’s Moscone Center in April that Cisco understood just how much the past year’s worth of Cisco supply chain woes had hurt them. Cisco understood, Goodwin said, “the impact it’s having on business.”
Goodwin’s apology came as Cisco partners were grappling at that very moment with a nearly yearlong product shortage that had left them without some of their most critical network building blocks. For partners, this meant frustrated customers, lost sales, and in some cases eyeing alternative product lines from rival vendors.
Following Goodwin to the main stage at the Partner Summit, Randy Pond, Cisco’s executive vice president of operations, processes and systems, described what was akin to a perfect storm of problems, all contributing to Cisco’s supply chain issues. There were component shortages galore from Cisco’s Asian suppliers, due to the effects of a government-induced stimulus in China, which had meant a number of former component factory workers were relocated and were unavailable when demand increased. Further, Pond said, the magnitude of the downturn -- and the rapidness of the recovery -- had caught the industry off guard.
Later in the conference, Cisco Chairman and CEO John Chambers admitted that Cisco had “misread” the situation.
By then, many of the Cisco faithful in the audience were knowingly nodding. It isn’t every day that a vendor as large, aggressive and protective as Cisco offers such a public trio of mea culpas. And at that point, many said they just wanted it all to be over: for lead times on key Cisco products to return to normal, for the endless guesswork to become actionable information.
|Anatomy Of A Shortage: Cisco Products That Came Up Short|
The $36 billion longtime networking market leader, sources said, was unprepared to deal with the stresses and strains put on its supply chain by the worldwide economic downturn. From its inability to get contract manufacturers to respond quickly to rapidly changing market conditions to systems that were unable to account for customers placing “the same order multiple times,” Cisco found itself essentially caught flat-footed, sources said.
While Cisco was not alone in its supply chain challenges (see “Battling for Components”), its shortages were more pronounced due to demand for its products.
Simon Minett, executive vice president for global operations and logistics at Westcon Group, one of Cisco’s top specialty distributors, said it wasn’t until at least five months after the problems became apparent that Cisco pressed into action.
“It hit broadly and deeply very quickly,” Minett said. “But these things don’t happen overnight. In the first few months of it happening, recovery was predicted. Month after month, that failed to be achieved. This caught Cisco by surprise, and not until they were some ways into it did they finally begin to take it seriously and respond.”
Cisco, in fact, pointed to just how vulnerable it was as a result of its supply chain shortcomings in its first financial disclosure statement on the crisis last November in a 10-Q filing with the U.S. Securities and Exchange Commission.
Cisco cited “multiple ordering” and “risk of order cancellation,” along with other factors, “may cause difficulty in predicting our sales and, as a result, could impair our ability to manage parts inventory effectively.”
If that wasn’t enough, Cisco acknowledged that efforts to improve manufacturing lead-time performance could have a negative impact on the company. “Increases in our purchase commitments to shorten lead times could also lead to excess and obsolete inventory charges if the demand for our products is less than our expectations,” the company wrote in the 10-Q.
Chambers is not taking the supply chain crisis lightly. He has asked his CFO, his top operations executive and his top manufacturing executive to make whatever commitments are necessary to meet customer delivery dates and ensure that Cisco has the right supply chain metrics for not only this quarter or the next, but more than a year down the road. Chambers calls that supply chain full-court press a “relatively inexpensive insurance policy” to once and for all get it right.
All in all, it has been an unprecedented situation for solution providers and for Cisco, long considered one of the best-run companies in the world.
NEXT: The Extent Of The Shortage