Cisco''s Extended Enterprise Delivers Competitive Advantage

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.

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 of 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.

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 fit the process
As your systems and processes adapt to a new way of doing business, your organization 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