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© 2008 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialAMR Confernce 1© 2007 Cisco Systems, Inc. All rights reserved. : Not for Distribution 1
Supply Chain Leadership in Uncertain Times
Supply Chain Leadership in Uncertain Times
C. Kevin Harrington VP, Global Business Operations Global Supply Chain Management (GSCM) Cisco Systems, Inc.
C. Kevin Harrington VP, Global Business Operations Global Supply Chain Management (GSCM) Cisco Systems, Inc.
Executive Speaker Series
Broad Graduate School of Management Michigan State University
Executive Speaker Series
Broad Graduate School of ManagementMichigan State University
© 2008 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialAMR Confernce 2© 2007 Cisco Systems, Inc. All rights reserved. : Not for Distribution 2© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 2
AgendaAgenda How This Changes the Game for SCM How This Changes the Game for SCM
Our Opportunity as Supply Chain Leaders Our Opportunity as Supply Chain Leaders
The Complexity of the Global Marketplace The Complexity of the Global Marketplace
© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 3
AgendaAgenda How This Changes the Game for SCM How This Changes the Game for SCM
Our Opportunity as Supply Chain Leaders Our Opportunity as Supply Chain Leaders
The Complexity of the Global Marketplace The Complexity of the Global Marketplace
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 4© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 4
Cisco Globally
San Jose, CA
Herndon, VA
Boxborough, MAOttawa, Canada
Raleigh, NCRichardson, TX
London Amsterdam
Tel Aviv
Bangalore
Shanghai
Singapore
Dubai
Sydney
66,000 employees in 70 countries300+ office locationsHeadquarters1/3 Engineering/IT, 1/3 Sales, 1/3 all others
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 5
2000(cont)
Acquisitions Total: 125+
1995
1996
1997
1998
1999
1999
2001
1993 2007
1999
1994
2000
2002
2003
2004
2005
2005(cont)
2006
2008
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 6
Total $39.5B 13% Y/Y
Record revenue of $39.5B… up 13% Y/Y
Cash flows from operations of $12B… up 20% Y/Y
Product order growth approximately 12% Y/Y
Service order growth approximately 25% Y/Y
FY’08 Fiscal Year Revenue
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 7
FY’08 Revenue Increased 13% y/y
FY’08 Year/Year Growth
Routers $7.9B 14%
Switches $13.3B 7%
Advanced Technologies $9.7B 21%
Other $2.1B 7%
Services $6.4B 18%
Total $39.5B1 13%
1 As a result of rounding, figures may not total. For detailed results, please see Cisco’s Investor Relations Website at http://investor.cisco.com/results.cfm
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 8
January 1995 November 2005 July 2008
Cisco
$10B
Top 12Competitors
$71B
Cisco
$110B Top 11Competitors
$60B
Cisco
$135B
Top 11Competitors
$34B
Market Capitalization Leadership
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 9
1997 2000 2006 2008
Collaboration/ Web 2.0
Collaboration/ Web 2.0
Network as Platform
Network as Platform
Network of Networks
Network of Networks
All in One: Data/Voice/Video
All in One: Data/Voice/Video
Our strategy is guided by the market transitions that affect our customers.
Market Transitions
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 10
John Chambers, President and CEO, Cisco Systems
Collaboration – The Network as the Platform…
“Cisco’s strategy is a story based on change—the market transitions that affect our customers. Through multiple transitions in the last decade and over the next 3–5 years, the network will evolve from the plumbing of the Internet— providing connectivity—to the platform that enables people to experience life.”
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 11
CiscoCisco
Operating Council Boards and CouncilsSr Leadership Offsite
Sr Leadership MeetingsExtended Leadership MeetingsManager Development ProgramsPortfolio Prioritization
End-to-End Alignment: Vision, Strategy, Execution
GSCMGSCM
Functional TeamsFunctional Teams
© 2008 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialAMR Confernce 12© 2007 Cisco Systems, Inc. All rights reserved. : Not for Distribution 12© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 12
AgendaAgenda
Our Opportunity as Supply Chain Leaders Our Opportunity as Supply Chain Leaders
The Complexity of the Global Marketplace The Complexity of the Global Marketplace
How This Changes the Game for SCM How This Changes the Game for SCM
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 13© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 13
Global Factory and Distribution Infrastructure
PCBA Sites Service Provider Video Technology Group (SPVTG)
Box Build Sites Linksys
PCBA/Box Build Sites Strategic Logistic Centers
Longhua, China
Pardubice, CZ
Tiszaujvaros, HU
Houston, TX Hong Kong, China
Tokyo, Japan
Penang, MY
St Petersburg, FL Laem Chabang, TH
Roermond, NL
Galway, IE
Singapore
Guadalajara, MX
Zalaegerszeg, HU Futian, China
Shenzhen, China
Ontario, CA Atlanta, GA
El Paso, TXJuarez, MX
Naperville, IL
Brno, CZ
South Hampton, UK
Shanghai, China
Austin, TXToronto, Canada
Kortrijk, BE
4 EMS Partners, 5 ODM/OEM Partners31 Manufacturing Sites
4 Logistics Partners17 Logistics Sites
4 EMS Partners, 5 ODM/OEM Partners31 Manufacturing Sites
4 Logistics Partners17 Logistics Sites
Chennai, India
Doumen, China
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 14
Increasing Complexity Leading Influencer of Supply Chain Strategy
Source: McKinsey, “Managing Global Supply Chains,” 2008
Which of the following factors, if any, currently have the most influence over your supply chain strategy?
What’s shaping strategy?% of respondents,1 n-273
Total Europe Developing Markets2
North America
Increasing complexity of products/services 47 60 44 35
Rising energy prices 36 33 45 39
Increasing financial volatility 29 17 34 38
Increasingly global labor markets, including rising wage rates 20 17 20 18
Shifting industry structures or forms of corporate organization 18 19 11 18
Adoption of increasingly scientific, data-driven management techniques (eg, tracking technology) 17 4 16 25
Exposure to differing regulatory requirements in different geographies 15 8 20 20
1Respondents could select up to 3 answers; those who answered “other” or “don’t know” are not shown.2Includes China, India, and Latin America.
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 15© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 15
Benefits of Cisco’s Global Supply Chain Architecture
Lead time/proximity to major market geographies
World class talent and technical skills
Access to top tier suppliers
Logistic channels
Cost optimization
Tax and legislative benefits
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 16
Mx1.0
Mx 2.0
Transforming a Complex Supply Chain Requires a Long-Term Approach
Vision and Aspiration
Alignment and Deployment
2005Worldwide
Manufacturing
2008Global Supply
Chain Management
Manufacturing Excellence (Mx):
Our intention to become the
undisputed leader in Supply
Chain Management
Manufacturing Excellence (Mx):
Our intentionto become the
undisputed leader in Supply
Chain Management
Expanding our Capabilities and Strategic
Intent
Expanding our Capabilities and Strategic
Intent
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 17
Transformation Must be Balanced with Operational Excellence
Business TransformationBusiness Transformation
Operational ExcellenceOperational Excellence
Drive PerformanceMake CommitmentsDrive PerformanceMake Commitments
“Leadership Example”Drive Transformation
“Leadership Example”Drive Transformation
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 18
Strategic Activities
Strategic IntentStrategic Intent
GovernanceGovernance
RoadmapRoadmap
People and MindsetPeople and Mindset
Core strength is reinforced and supported by strategic activities
CORECORE
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 19
E2E Supply Chain Excellence: Strategic Framework
Historical Focus
(pre-2003)Mx Supply Chain
(2003–2007)
Component Suppliers
Channel Partner
New Product
IntroductionPCBA
FactoryOur
DockDF
FactoryCustomer
ExperienceSupply Chain
Design
E2E Supply Chain(Today)
Inno
vatio
n
Cus
tom
er V
alue
Customer
VISI
ON
VISI
ON
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 20
STR
ATE
GY
STR
ATE
GY
VISI
ON
VISI
ON
E2E Supply Chain Excellence: Strategic Framework
Customer Excellence
Global Growth
Product and Business
Model Innovation
Transformational Productivity
Social Responsibility
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 21
Social Responsibility
E2E Supply Chain Excellence: Strategic Framework
EXEC
UTI
ON
EXEC
UTI
ON 12 Capabilities
19 Initiatives
14 World-Class Metrics
STR
ATE
GY
STR
ATE
GY
Customer Excellence
Global Growth
Product and Business
Model Innovation
Transformational Productivity
VISI
ON
VISI
ON
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 22
AMR: Cisco Breaks into Top 10
Innovation Excellence (Time to value, return on R&D)
LeaderLaggard
Winners(Higher price/
earnings multiples)
Losers
SupplyDemand
Product
Supply
Demand
Product
Demand
Supply
Product
SupplyDemand
Product
Laggard
Leader
Operational Excellence
(Perfect order, total SCM cost)
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 23
Source: AMR Research, 2008
2008 Ranking: AMR Research—Top 25 Supply Chains
Best Buy
Nike
SonyEricsson
Walt Disney
Hewlett-Packard
Johnson & Johnson
Schlumberger
Texas Instruments
Lockheed Martin
Johnson Controls
Royal Ahold
Publix Super Markets
14
15
16
17
19
20
21
22
23
24
25
18
2007 2008Apple
Nokia
Dell
Proctor & Gamble
IBM
Wal-Mart
Toyota
Cisco
Samsung
Anheuser Busch
PepsiCo
Tesco
Coke
1
2
3
4
5
6
7
8
11
13
12
9
10
8 Cisco
11
9
10
Cisco
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 24
Company Financial Performance [60% weight]
Company Financial Performance [60% weight]
ROA
Inventory turns
Revenue growth
ROA
Inventory turns
Revenue growth
Opinion Component: [40% weight]
Opinion Component: [40% weight]
Panel of AMR Research experts
Peer Panel
Panel of AMR Research experts
Peer Panel
The AMR ranking is based on innovation in supply chain design and management, as well as operational excellence
and contribution to outstanding business results
The AMR ranking is based on innovation in supply chain design and management, as well as operational excellence
and contribution to outstanding business results
Award Criteria
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 25
Award Metrics
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution
Up three spots from last year on strong financials, Cisco extends its own consider- able learnings into its channel, most notably with its Lean Forward initiative.
4.0922.6%9.513.7%3049908 Cisco Systems
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 26
Why Globalize?
Innovation TalentGrowth
© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 26
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 27
USAUSA
South America South
America AfricaAfrica
AsiaAsiaAsia
EuropeEurope
Where Are All the People Going To Be?
18031803
52225222
768768
392392
632632
36803680
796796
729729729
305305
520520
20072050
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 28© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 28
1000 1820 1913 1950 2005 2025
50%
75%
25%
1500
100%
Developed Economies
Emerging Economies
Share of Global GDP*Share of Global GDP*
*At purchasing power paritySource: The Economist, “The New Titans,” 16 Sept. 2006
Greatest Economic Shift in 100 Years
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 29© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 29
Back to the Future
1820
Source: World Bank/Angus Maddison. The World Economy: Historical StatisticsPricewaterhouseCoopers/Michael Milken Institute, Chairman, Fastcures/Goldman Sachs
The World’s Top 10 Economies
20502005
China 28.7%India 16.0%France 5.4%U.K. 5.2%Prussia 4.9%Japan 3.1%Austria 1.9%Spain 1.9%U.S. 1.8%Russia 1.7%
U.S. 28.4%Japan 10.6%Germany 6.4%UK 5.0%France 4.8%China 4.4%Italy 3.9%Spain 2.6%Canada 2.5%India 1.7%
China 25.6%U.S. 20.3%India 16.0%Japan 3.9%Brazil 3.5%Russia 3.4%Indonesia 2.3%U.K. 2.2%Germany 2.1%Mexico 2.0%
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 30
“Do You Know?” Video
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 31
Drivers of Supply Chain Complexity…
Source: Deloitte, “The Challenge of Complexity”, 2003
Pressure to drive down costsPressure to drive down costs
Quickening pace of product innovationQuickening pace of product innovation
Pursuit of new markets and channelsPursuit of new markets and channels
GlobalizationGlobalization
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 32© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 32
The Supply Chain Game Is Changing…
“…the goal must be to recognize, and use, the best, most-productive capabilities, wherever they are…This means going borderless…The challenge is how to do it.”
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 33
Customer ExperienceCustomer Experience
Country of OriginCountry of OriginLocal ManufacturingLocal Manufacturing
Landed CostLanded Cost
Local SourceLocal SourceCounter TradeCounter Trade
Distributor Financials
Distributor Financials
Social Responsibility/GreenSocial Responsibility/GreenRisk ManagementRisk Management
Business Model InnovationsBusiness Model Innovations
33
Supply Chain Complexities in a Global Marketplace
Any InnovationAny Business
Model Anywhere in the
World
Any InnovationAny Business
ModelAnywhere in the
World
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 34
The Elephant in the RoomCurrent Economic Mess: What Caused It?
Housing-led recession
Over-leveraged financials
Falling asset prices
Frozen credit markets
Weak household balance sheet
Globally connected financial weakness
Global EconomicCrisis
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 35
Global GDP y/y changeThe cycle will continueAn economic upturn usually occursThe downturn may be protracted
Source: Bureau of Economic Analysis
-4%
-2%
0%
2%
4%
6%
8%
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
'GDP percent change based on chained 2000 dollars
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 36
This cycle has a lot of unknownsStay focused on the basicsManage what you can control
Stock Market Long Term Trends Are Positive
Price History - $INDU (10/1/1928 – 10/13/2008)Price History - $INDU (10/1/1928 – 10/13/2008)
Oct 1928 Jan 1940 Jan 1950 Jan 1960 Jan 1970 Jan 1980 Jan 1990 Jan 2000 Oct 2008
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0Dow Jones Industrial Average
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 37
The current economic situation is unprecedented. Plan with deliberation The current economic situation is unprecedented. Plan with deliberation
There are high levels of complexity in the global marketplace There are high levels of complexity in the global marketplace
Supply chain management is drastically changing with these requirements Supply chain management is drastically changing with these requirements
Collaboration is essential to managing complexity and increasing capacity in the extended supply chain
Collaboration is essential to managing complexity and increasing capacity in the extended supply chain
Your Opportunity as a Global Supply Chain Leader
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 38
Changing Your Game: Learning for Life and Leadership
Don’t Just Step Up—Step Out
Think and Learn Globally
Acquire Deeper Understanding of Interdependencies
Learn and Adopt Collaboration Tools
Become an Expert in Your Field
Work Smarter Not Harder
….And Never Stop Learning
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 39
“In a time of drastic change, it is the learners who inherit the future. Those who stop learning usually find themselves equipped to live in a world that no longer exists.”
- Eric Hoffer
“In a time of drastic change, it is the learners who inherit the future. Those who stop learning usually find themselves equipped to live in a world that no longer exists.”
- Eric Hoffer
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 40
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 41© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 41
Differentiators of Cisco’s Supply Chain
Hybrid Production
Model
Most Products Are Configured
to Order
Wide-range of Products
(from IP Phones to the CRS)
Breadth of Customers (Consumer to
Enterprise; Global Markets)
Acquisition Integration (125 to date)