Cisco”s Extended Enterprise Delivers Competitive Advantage

by Barbara Siverts

April 14, 1999

Most companies face similar global market and competitive pressures -- ever-shortening product life cycles, a need to lower costs, and increasing requirements from customers. Traditional methods no longer seem to work. But the emergence of the Internet and e-Commerce provide a new opportunity to create an Extended Enterprise ­ one that enhances value for all supply chain partners.

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Building Excellence:
The
Extended Enterprise

Corporate executives want answers
to tough questions, such as:

  • How do I give my customers
    a simple, quick, and cost-effective method to purchase and configure a product
    and have it easily serviced?
  • Can I build global delivery
    capability to capture new markets?
  • How can I shrink product
    development time to maximize market share?
  • How can I avoid inventory
    build-up and minimize obsolescence costs through a fully linked supply chain?

Cisco has taken dramatic
action to answer these questions and has achieved impressive results:

  • Cisco now receives more
    than 70 percent of its product orders via the Internet–more than $22 million
    in business each day–through the Cisco Connection Online (CCO) Internet Web
    site.
  • More than 50 percent
    of products customers order are fulfilled by Cisco’s manufacturing partners;
    Cisco never handles these products but has complete visibility and control
    of their manufacture.
  • Cisco has reduced new
    product time to volume by three months, enhancing revenues by more than $100
    million annually.
  • Cisco has created a
    scalable, beyond-the-enterprise quality system that enables 50,000 product
    tests to be performed per day, with only 50 test engineers, while sustaining
    more than a $10 billion revenue run rate.

Other leading companies have
also dramatically overhauled their supply chains:


  • Wal-Mart1
    established networked applications with its supplier Proctor & Gamble (P&G).
    Each time Wal-Mart sells an item, the sale automatically triggers a replenishment
    request at P&G. The result: dramatic improvements in customer service because
    inventory is always fully stocked.
  • General Electric2
    uses Internet commerce to purchase more than $1 billion worth of products
    over the Internet from more than 1,400 suppliers. GE’s lighting division in
    Cleveland, Ohio, implemented an online purchasing system in 1996 that eliminated
    paper requisitions and forms, blueprint retrieval, and manual preparation
    of daily requests for low-value parts. The request-for-quote (RFQ) process
    has been reduced from seven days to one and has greatly expanded the volume
    of RFQs reaching prospective suppliers. GE has realized a 15% reduction in
    total purchasing cost resulting from increased competition between vendors,
    volume discounts by aggregating corporate-wide purchases, and lowering of
    purchasing headcount.

These examples show that
industry leaders have used a networked-based approach to achieving competitive
advantage. In the following pages you will see the benefits of such an approach,
benefits and capabilities Cisco has experienced from building its Extended Enterprise.
More importantly, you will have a guide to create your own Extended Enterprise.

Open the Enterprise

Technology isn’t beneficial
unless it is utilized–today’s technologies allow ultimate connectivity within
a supply chain. An Extended Enterprise differs from a traditional supply chain
in the extent to which a company can integrate with its partners. An Extended
Enterprise is a company’s extended enterprise of customers, suppliers, and other
partners that make up a networked fabric of communication and information exchange,
using innovative applications of networked technologies to extend processes
through the entire supply-chain enterprise. The key principle of an Extended
Enterprise is that it extends end-to-end–from a company’s customers all the
way through to its component suppliers. The linkages along this chain are the
critical pieces that give an Extended Enterprise its power, enabling real-time
movement of communications and information to each participant in this extended
enterprise.

Benefits of an
Extended
Enterprise

Traditional supply chain integration
provides some degree of cost savings, improved communication, and partnership.
These benefits are limited, however, by the tools and approaches of the past.
Much like the introduction of integrated planning systems-MRP-in the 1970s,
which for the first time integrated supply-and-demand functions across a company,
this new approach to supply chains takes an enterprise to an entirely new level
of ability and benefit. You don’t need to trade-off lower costs for customer
satisfaction, or quality for time to volume. Integrating your supply chain enables
you to maximize all of these simultaneously, creating efficient operations and
a competitive advantage. The following benefits are achievable to a much higher
level than before:

Faster-time-to-volume

Links between internal primary
data repositories and business applications and those of your partner allow
faster product development and distribution with higher product quality. Engineering
change orders (ECOs) update the bill of materials (BOM) database and this feeds
customer configuration and manufacturing systems. These systems are shared with
key suppliers simultaneously, allowing coordinated action and faster time to
volume.

Increased customer
satisfaction

Customers have access through
the Internet to independently browse and price products, order and configure
them, view shipment schedules, monitor delivery, and receive copies of invoices.
Customer satisfaction increases with the customer’s ability to control what
they see and when they can see it.

Reduced cost of
sales

Through a customer self-service
model, automation of the process means that fewer customer support representatives
are required to maintain customer satisfaction levels. This enables rapid growth
within a company and also frees support staff to work on higher value-added
activities.

Lower purchasing
costs

With direct links to suppliers,
an Extended Enterprise streamlines procurement, eliminating paper orders, and
expediting receiving. Purchasing staff focus on more strategic activities such
as negotiating, partnership, and business development.

Reduced inventory
levels

Because real-time information
on forecasts, selling, and inventory levels travel immediately through the supply
chain, companies maintain lower inventory levels without increasing the risk
of part shortages. Inventory is an asset that is leveraged across the supply-chain
enterprise. Stockpiles of inventory within the supply

chain for “just-in-case” events are minimized because demand information is
directly available to the entire supply chain.

Cisco’s Initiatives
for Building Its Extended Enterprise
In 1992, Cisco
began to build its Extended Enterprise. Cisco, growing at the spectacular pace
of 100 percent a year at the time, believed that traditional business processes
couldn’t provide the level of communication integration necessary to maintain
and increase customer satisfaction. Cisco needed to take a new approach, one
that hadn’t been taken before. But with its knowledge of networking capabilities,
Cisco knew it was now possible.

Click for larger image.
Figure
1.

Cisco’s Online Customer
Ordering Rate

Cisco’s strategy was to focus
on its core competencies–the design and selling of innovative networking solutions–and
form partnerships with suppliers that could provide other key capabilities.
Cisco’s decision was based on its belief that suppliers add more value than
Cisco in areas such as manufacturing.

This decision to focus on
core abilities and hand off those functions where it couldn’t add more value
than its suppliers has contributed to Cisco’s growing revenues and creation
of shareholder value. But Cisco’s approach was also advantageous for its supply-chain
partners. Suppliers (typically low-margin businesses) enhance ROA by improving
asset turns; Cisco improves returns by managing down costs, and the supply chain
becomes more competitive as a result of lowered total system costs and improved
responsiveness. In addition, its CCO site has made the ordering process more
efficient for its customers–a 25 percent improvement according to surveyed
customers.

To achieve these positive
results, Cisco designed and implemented initiatives in several areas of the
supply chain. Rather than attacking them all at once, Cisco began small with
its automated product quality testing system to support suppliers who were feeding
production lines. Over time, these successful initial efforts were expanded
to incorporate more of the supply process and other initiatives were added.
Collectively, these initiatives have transformed how Cisco does business and
has allowed it to grow very rapidly while simultaneously building customer satisfaction,
responsiveness, product quality, and keeping cost much lower than competitors.
In short, Cisco’s Extended Enterprise is a tremendous competitive advantage.

The Technical
Foundation o
f
an Extended Enterprise

From a technical perspective,
an enterprise that builds an Extended Enterprise has put in place an open network
infrastructure and standards-based technologies that facilitate communication,
collaboration, and the sharing of knowledge–with prospects, customers, employees,
partners, and suppliers. The tools and technologies of the Internet revolution–a
common foundation, standards-based tools, platform-independent browsers, and
network-facilitated communication and collaboration–now make it possible to
build an Extended Enterprise.

Foundation technologies,
including network, security, distributed objects, directory services, and enabling
technologies, are key architectural elements in the creation of an Extended
Enterprise.

Network

The most basic building block,
the network is the physical interconnection of devices to enable information
transfer and access. When properly implemented, the network allows seamless
communication within the enterprise and across the supply chain. Key ingredients
of the network are its bandwidth capacity and the traffic-control capability.
Existing bandwidth of applications across supply-chain functions might be adequate
for today, but a single process change can create a sizable jump in network
traffic. Thus, you need the added capability of prioritizing or controlling
the traffic combined with bandwidth to allow maximum benefits to mission-critical
applications in the supply-chain process.

Security

The information access enabler,
security not only protects information, it enables information access to appropriate
users. The wider information is distributed–to suppliers, partners, customers,
and others–the more important the role that security plays. Just like a bank
needs protection from unauthorized access, an enterprise needs to protect sensitive
information, such as product data, from unauthorized disclosure. Yet partners
who need that information to perform their work should have ready and easy access
to it. Security techniques such as encryption at the application level, or used
in conjunction with Directory Services to further customize user access, play
an important role in enabling the information across supply-chain processes.

Distributed Object
Framework

This framework allows an object
to reside anywhere on the network and communicate with other distributed objects
transparently. Distributed object framework enables object reusability and business
logic encapsulation, reduces system maintenance and cost, and increases productivity
through plug-and-play development using existing off-the-shelf components. Removing
the physical boundaries of the system, information can be accessed by the constituents
of the supply-chain process regardless of where the information resides.

Directory Services

Directory services addresses
this ever-expanding volume of data by allowing classification of information
and users according to preset rules or profile for better access and distribution.

Enabling technologies follow
once you have a foundation in place. These could be either shrink-wrapped applications
with customizations to meet the business needs, or custom-developed applications.
Such enabling technologies as adaptive content, learning, collaboration, work-flow
management, among others, provide fundamental capabilities that applications
can build on to improve communication, collaboration, and work flow within an
organization. Depending on the key processes that must be automated within the
supply-chain process, the applicable enabling technology will not only help
facilitate the process, but will also make it scalable as the business grows.
For example, part of managing the remote manufacturing site is to ensure that
all manufacturing floor personnel are properly trained on new product procedures.
Distance Learning, as an enabling technology, will not only help greatly on
the delivery of information interactively from a remote location, but will also
enable similar educational activities without additional technology investment.

How to Create
Your
Extended
Enterprise

Keep in mind these maxims:

  • Start small – Pick a
    project that can be addressed in under four months but has potentially high
    impact to the business. For example, create a Web page available to your key
    suppliers to allow key business information such as inventory levels or ECOs.
  • Build on success – Complete
    follow-on projects that build on the initial efforts. Add to the initial supplier
    Web page more security and allow suppliers to download BOMs, for example.
  • Risk a little – Try something
    that hasn’t been done before in your organization; keep trying if initial
    efforts don’t meet expectations.
  • Be willing to scrap a
    system when needed – Initial efforts may need to be redone later as you expand
    your capabilities. Fast, simple initial projects can be done with minimal
    investment, leading to a faster ROI and making it easier to replace when necessary.

Steps Toward Your
Extended Enterprise

Building an Extended Enterprise
has several components–the business process, technology and applications, the
organizational model, and finally how these elements are used to address business
needs. Elements of each of these are included below in a guide to building your
Extended Enterprise.

Consider your goals
and
objectives

What strategic moves are you
making to become or remain a viable economic force in the market? Are you aiming
to increase market share and profitability? Are you focusing your efforts domestically
or to expanding globally? The actions you take to optimize your supply chain
should directly support your business goals.

Consider your core
competencies

These are the processes, the
knowledge, the innate superiority in your business processes. It is the thing
that you do especially well and is difficult for your competitors to duplicate.
Cisco determined that a core competency is design innovation, whereas GE determined
that a core competency is low-cost manufacturing. Determine your core competency
and focus on it.

Establish a scalable
architecture

Invest in the foundation and
enabling technologies that support your goals. This begins early in the process,
but must be considered through the rest of these steps. The goal is to create
an architecture that supports the shorter-term initiatives, but also supports
longer-term goals. Key investments here will allow for fast, effective expansion
of capabilities in the future.

Choose the right
opportunities

Look for areas within your
organization’s supply chain in which a change in approach could bring quick
wins. Evaluate the opportunities by asking questions such as: Does it provide
an adequate rate of return? Will the initiative be useful both short term and
long term? Can you measure the impact of the project? Is it achievable within
a reasonable time frame, such as six months or less?

Build win-win relationships
with partners whose strengths complement your own

Once you determine your core
competencies, look at developing partnerships with companies that complement
your strengths. Negotiate a business relationship with clearly defined roles,
responsibilities, and measurements. Develop business relationships that meet
your needs and those of the partner. Make your success interdependent–where
all parties can achieve their goals by working together.

Click for larger image.
Figure
2.

Cisco Revenue Growth

Share information

Using your foundation architecture,
business information can be available to your supply chain partners that was
once considered company proprietary. Network technology provides a significant
level of openness to information without compromising security.

Implement networked
applications

These applications should be
extensible across your entire supply chain so all constituents can use a single
system and process. Networked applications are a key element in the sharing
of information and systems among companies and their suppliers.

Automate processes beyond
company boundaries using networked applications.

Modify processes that can
be extended to your supply chain, remove those that add limited value, and implement
networked applications to connect to your supply partners automatically. The
same kind of potential previously unlocked by breaking information barriers
within a company can be captured by eliminating information barriers between
companies.

Realign your organization
to f
it the
process

As your systems and processes
adapt to a new way of doing business, your orga
nization
will also change. Fewer people will be required to “sit at the gates” between
you and your partners. Those individuals can take on new roles as relationship
managers with your closest partners, or they may focus on process improvement
across your entire supply chain.

CONCLUSION

Today, achieving an efficient
supply chain is not a matter of choice; it’s a matter of survival. The greater
time efficiencies, cost reductions, and improved customer satisfaction levels
are so dramatic that companies which ignore these opportunities risk falling
behind competitors that have embraced them.

Today, we live in an Internet
economy. By network-enabling your supply chain, you will take enormous strides
to achieving the benefits of a truly Extended Enterprise. The time to act is
now by visiting our website at http://www.cisco.com/ibsolutions.

About The Author

Barbara Siverts
Supply Chain Solutions Product
Manager

Cisco Systems

Barbara has 20 years of manufacturing
and business systems experience in a variety of roles. She is currently the
Supply Chain Solution Product Manager for Cisco’s Internet Business Solutions
Group, which helps customers understand how to leverage the network for strategic
business benefit and rapidly implement innovations to achieve those results.
She also held Information Systems management positions at Cisco in Manufacturing,
leading development teams in Logistics, Planning, and Document Control to rapidly
deploy global networked applications to support Cisco’s rapid growth. She also
led the manufacturing effort to develop and implement Multi-site capability,
providing Cisco with a flexible global manufacturing and order entry system,
and was also involved in implementing and upgrading the Oracle ERP system. Prior
to Cisco, Barbara was a Marketing Product Manager for MANMAN at ASK Computer
Systems. Barbara holds a B.S. degree in Business/Marketing from San Jose State
University.
 

Footnotes

  1. Source: Change at Checkout,
    Economist Survey
  2. Source: TPN Register,
    GEIS
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