Cisco Systems, Inc. is an IT company that specializes in the selling of networking and communication products and services. It is a B2B company where they sell its products primarily to large enterprises and telecommunications service providers, but it also markets products designed for small businesses and consumers such as routers, modems, and home network management software. The products and services aim to transport data, voice and video communication within buildings and campuses as well as around the globe. The services include routing, switching, home networking internet protocol telephony, optical networking, security, …show more content…
As a result, the contractors accrued large amount of inventory without factoring in the demand for Cisco’s demand. Even when the economy slowed down, the contractors still continued to produce and places inventory at the same time resulting the excess inventory. Finally, Cisco could not use the excess inventory of raw materials because the demand had fallen tremendously after the economy downturn. Cisco has also entered into long-term commitments with its manufacturing partners and certain key component makers. Cisco ended up with no choice but to sell the raw materials off as scrap which caused them to write off worth of $2.2 billion.
Figure 2: Source from: EMSNOW: Extracting value difficult supply chain (2006)
In addition, Cisco’s forecaster also failed to notice that their projections were unnaturally inflated where many of Cisco’s customers had ordered similar equipment from Cisco’s competitors, and planning to close the deal with the party that as able to deliver the goods first. As a result, this caused the order doubling up. Another reason behind the piling up of Cisco’s inventory was also due to their supply chain management system failed to show the increase in demand, which represented overlapping orders. For instance, as mentioned from the case study, if three manufacturers competed to build 10,000 routers, to the chipmakers it looked as if there was sudden demand of order for 30,000 machines, therefore Cisco