Logistics and Supply Chain Management, 4th Edition

THE SYNCHrONOUS SUPPLY CHAIN

147

use of shared information. The use of these systems has the potential to convert

supply chains into demand chains in the sense that the system can now respond

to known demand rather than having to anticipate that demand through a forecast.

Figure 7.5 describes the architecture of such a system.

One company that has recognised the importance of improving supply chain

visibility through shared information is Cisco Systems, a market leader in telecom-

munications and network equipment (see below).

Laying the foundations for synchronisation

In the same way that the conventional wisdom in production and manufacturing

is to seek economies of scale through larger batch quantities, similar thinking can

often be found in the rest of the supply chain. Thus companies might seek to ship

by the container or truck load, customers are discouraged from ordering in smaller

quantities by price penalties and delivery schedules are typically based on opti-

mising the efficiency of routes and the consolidation of deliveries. Clearly such an

Cisco Systems: creating a virtual supply chain through shared

information

Cisco Systems, one of the world’s leading players in the networking and tel-

ecommunications markets, has created a virtual supply chain in which almost all

manufacturing and physical logistics are outsourced to specialist contract manu-

facturers and third-party logistics companies. Only a very small proportion of their

20,000 different stock keeping units are actually ‘touched’ by Cisco.

Following a sudden collapse in sales as the Internet bubble of the closing years

of the twentieth century finally burst, Cisco was forced to write off over $2 billion of

obsolete inventory. Subsequent investigations highlighted the reason for this spec-

tacular fall from grace: inadequate visibility of real demand across the entire supply

chain leading to significant over-ordering of components.

Determined not to see a repeat of this catastrophic event – the size of the inven-

tory write-off created a new world record and led to a major financial setback for

the company – Cisco set out to build a state of the art communications network

to enable information to be shared across the ‘extended enterprise’ of their major

tier 1 suppliers and logistics service providers. This has been achieved through the

creation of an ‘e-hub’. The purpose of the e-hub is to act as the nerve centre and

to ensure real-time visibility of demand, inventory levels and production schedules.

Through its event management capability it can provide early warning of supply

chain problems.

As a result of its investment in creating supply chain wide visibility through

shared information, Cisco has enabled a highly synchronised network of global

partners to act as if they were a single business.

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

148

Demand

flow

data

Demand flow

management

Production

scheduling

PurchasingCreditBilling

111213 10

1

Scheduled

Request

E.T.A.

Requi-

sition

Available

Committed

Billed

Shipped

Finished

goods

inventory

status

Finished

goods

ware-

housing

Trans-

portation

DeploymentForecasting

3

2

Replenishment

requirements

Actual

demand

Allocation

Rated

shipments

Shipped Loads to pickAvailableForecast demand

Economic shipping units

5

4

89

Trans-

portation

planning

Inventory

planning

Promotion

scheduling

Inventory

costing

Networking

planning

Shipments

14 15

7

16

17

6

18

Locations

service areas

stocking rules

Routes

carriers rates

Receipts

adjustments

Transaction

reporting

Minimums

maximums

EOQ

Promotion

schedules

Figure 7.5 An integrated logistics information system

Source: Digital Equipment Corporation