Wallis Belcher
SCM 3660
Company Profile- Cisco
3/17/15
Why do they outsource manufacturing? * Since Cisco went public in 1987, they have seen an almost continuous growth in net sales inquired by the company. When adding a service sector to the company’s operations around the 2000’s, service began to become a large and significant part of the company’s sales and income. This growth in demand caused Cisco to consider other alternatives such as outsourcing. Cisco originally outsourced their manufacturing activities in order to sustain the company’s rapid growth. In the decision to outsource, the company would gain the advantage of more flexibility and costs savings as they didn’t have to invest in their own manufacturing facilities. In addition to this, they would be able to keep up with the rise in demand in products. When Cisco made the decision to outsource, this required the company to adapt and extend supply chains. With over 1,000 suppliers, Cisco must outsource its manufacturing activities in order to keep up with growing demand. The company currently makes a majority of its revenues off of switching and routing, however it offers many other products that are also beginning to see growth. All of these products each require its own, unique supply chains. Cisco viewed that the way to keep up with all of these supply chains, was to outsource nearly all of its manufacturing. Should they consider insourcing some of it? * Cisco should start making the efforts to insource and integrate its supply chain. Although outsourcing can be beneficial, it can also complicate the supply chain in a numerous ways. The first reason Cisco should consider integrating and insourcing their supply chains is because they offer both products and services now. This complexity adds to the multiple supply chain lines that only create another obstacle. One of the keys to success within a company’s supply chain is trust. You need a flat structure in order for more direct and faster communication, which in turn helps build trust between companies. In addition, when outsourcing occurs, many operations are out of your reach. When a catastrophe occurs, production is slowed and revenues decrease. Cisco felt the effect of this directly in 2011 when Japan was hit with a tsunami. This is just one of the many examples of why Cisco should consider more insourcing- if the company wasn’t nearly entirely outsourced, they wouldn’t have been as affected by the tsunami. Another reason why Cisco should consider insourcing is the number of success that can emerge from it. When insourcing occurs, integration is more likely and easier to happen. This means lower production costs, reduced inventories, faster response time, fewer stockouts, higher customer satisfaction, increased retention and much more. It is much more beneficial to consider insourcing and integration into Cisco’s supply chain. Why do economic downturns adversely them? * Economic downturns adversely Cisco for a few different reasons. First, because Cisco relies so heavily on outsourcing, they must predict to suppliers the amount of sales they are expecting. In addition, they are bounded by contract to purchase these supplies. When the markets take a turn for the worse, Cisco is still obligated to purchase supplies from suppliers. In 2001, this hit Cisco when there was an economic downturn. Cisco was forced to incur $ 2.25 Billion in excess inventory.