© 2008 Cisco Systems, Inc. All rights reserved.Cisco ConfidentialAMR Confernce 1 © 2007 Cisco Systems, Inc. All rights reserved.: Not for Distribution

© 2008 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialAMR Confernce 1© 2007 Cisco Systems, Inc. All rights reserved. : Not for Distribution 1

Globalization: Changing the Game of Supply Chain Risk Management

Globalization: Changing the Game of Supply Chain Risk Management

Steve Darendinger

Senior Vice President

Global Supply Chain ManagementJune 4 2008

Steve Darendinger

Senior Vice President

Global Supply Chain ManagementJune 4 2008

© 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 SCMHow This Changes the Game for SCM

Our Opportunity as Supply Chain LeadersOur Opportunity as Supply Chain Leaders

The Complexity of the Global MarketplaceThe Complexity of the Global Marketplace

© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 3




© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 4

Why Globalize?

Innovation TalentGrowth



USAUSA

SouthAmericaSouth

America AfricaAfrica

AsiaAsiaAsiaAsia

EuropeEurope

Where Are All the People Going To Be?

18031803

52225222

768768

392392

632632

36803680

796796

729729729729

305305

520520

20072050

© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for DistributionGSCM All Hands 6© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 6

1000 1820 1913 1950 2005 2025

50%

75%

25%

1500

100%

DevelopedEconomies

EmergingEconomies

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


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%


“Do You Know?” Video


Types of Chains by Performance

Competitive Advantage / Profit

Co

mp

lexi

ty

Low

High

Business ImpactTraditional

® Joseph L. Cavinato. 2007

Chains that Tie Down the Firm(force the system toconform to it)

3

Synergistic Chains(let’s eliminate duplicative costs and gain buying power)

7

Trading Company Model

(find and build business opportunities among markets)

17

Brand Entity(innovate and market)

15

Information Networks(competitiveness in the information)

16

Project Logistics Chains (efficiently create and deliver in project situations)

10 Solutions Business(wrap specialized services around product mixes)

14

Don’t Know (our third party logistics firms handle it)

2

Extended Supply Chain(supplier to customers - efficiencies)

9

Cash-to-Cash Cycle (speed and retain cash flow)

6

Demand Chain(feed customers in ways that are efficient for them)

8

Innovation (push growth opportunities)

13

Supply Integration(model and lead supplier/firm/customer linkages)

12

Market Dominance and Blocking(keep others out of market)

11

Micro-Chain(balance the components of supply and demand)

5

Nano-Chain(efficiently feed the economics of the internal system)

4

None(current functions are fine as-is)

1

McDonaldsMcDonalds

Cash to CashCash to Cash




Co

mp

lexi

ty

Low

High




3


7



17


15


16



14


2


9


6


8


13


12


11


5


4


1

Procter & GambleProcter & Gamble

Demand ChainDemand Chain




Co

mp

lexi

ty

Low

High




3


7



17


15


16



14


2


9


6


8


13


12


11


5


4


1

Hewlett PackardHewlett Packard

Brand EntityBrand Entity




Co

mp

lexi

ty

Low

High










Solutions Business(wrap specialized services around product mixes)












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


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.”


AgendaAgenda



How This Changes the Game for SCMHow This Changes the Game for SCM


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, TXHong 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 Partners

31 Manufacturing Sites

4 Logistics Partners

17 Logistics Sites

4 EMS Partners, 5 ODM/OEM Partners

31 Manufacturing Sites

4 Logistics Partners

17 Logistics Sites

Chennai, India

Doumen, China


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)


Customer ExperienceCustomer Experience

Country of OriginCountry of Origin

Local ManufacturingLocal Manufacturing

Landed CostLanded Cost

Local SourceLocal SourceCounter TradeCounter Trade

Distributor Financials

Distributor Financials

Social Responsibility/GreenSocial Responsibility/Green

Risk ManagementRisk Management

Business Model InnovationsBusiness Model Innovations

18

Supply Chain Complexities in a Global Marketplace

Any Innovation

Any Business Model

Anywhere in the World

Any Innovation

Any Business Model

Anywhere in the World


External factors drive supply chain solutions

External factors drive supply chain solutions

Marketplace Complexity

New business dynamics demand differentiated and localized service, speed, quality, and innovation

requirements

Marketplace Complexity

New business dynamics demand differentiated and localized service, speed, quality, and innovation

requirements

© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialPresentation_ID19

Evolution of Global Supply Chain Management

Consum

er

Big E

nterp

rise

Com

mer

cial

Mid

-Tie

r Ente

rpris

e

Servi

ce P

rovi

der

Segments

Disti

VAR

Direct

DVARSP

DMR

Chann

els

Emerging

EMEA

US / Canada

APAC

Japan

Th

eatr

es Holistic SolutionHolistic Solution


Customer ExperienceCustomer Experience

Country of OriginCountry of Origin

Local ManufacturingLocal ManufacturingRegulatoryRegulatory

Local SourceLocal SourceCounter TradeCounter Trade

Supplier Financials

Supplier Financials

Social Responsibility/GreenSocial Responsibility/Green


Business Model InnovationsBusiness Model Innovations

20

Supply Chain Risk in a Global Marketplace


Supply Chain Scope and Types of Risk

ComponentSuppliers

Customer\Distributor

PCBAFactory

OurDock

DFFactory

Plant disaster

Demand Risk Examples Gulf region disruption Service provider

downturn Disruptive technology

intro

Supply Risk Examples

Port closure

Componentdisruption


Understanding Supply Chain Risk

Moderate Severe Extreme

Lik

eli

ho

od

ComponentSupply

Disruption

Pandemic QualityIssue

Bankruptcy GulfCoast

Hurricane

LaborDisruption

TaiwanEarthquake

JapanEarthquake

WestCoast

Earthquake

Flood


Risk Management Example:Chengdu Earthquake

Manufacturing Sites

Logistics Centers

Suppliers

Impact AnalysisImpact Analysis Suppliers/Sites

Components affected

Emergency contacts

Partner ImpactPartner Impact

No Impact

No Impact

Moderate Impact(suppliers in region)

Customer/Rev$ Impact

Customer/Rev$ Impact

Time to Recover

Impact on delivery and revenue

Crisis events can dramatically impact revenue, compliance and customers


Risk mitigation is critical to supply chain and business viability

Risk MitigationRisk Mitigation


How We Measure Supply Chain Resiliency GoalGoalIndex MetricsIndex Metrics

Not ResilientNot Resilient

Very ResilientVery Resilient10

1

2

3

4

5

6

7

8

9

SubstitutesSubstitutes

Manufacturing Recovery

Manufacturing Recovery

TestRecovery

TestRecovery

Component Recovery

Component Recovery

Single / Sole Sourced

Single / Sole Sourced

Likelihood of Disruption

Likelihood of Disruption ??

??

? Weeks ? Weeks

? Weeks? Weeks

? Weeks? Weeks

% Range?% Range?


Supply Chain Risk: A leadership vacuum

Supply Chains face ongoing risk challenges

Companies face impact to business

Revenue, Continuity, Customer

There is a need for SCRM leadership

SCRLC has developed a framework

SCRLC can assume the leadership mantle


Supply Chain Risk: Discussion Points

China dependency mitigation

Evolving need for higher velocity & localized innovation models (OEM, ODEM, JDM) and the attendant risk

Reconciling ever-increasing environmental requirements with traditional supply chain considerations (cost, lead-time, quality)

Reconciling Lean initiatives with supply chain resiliency requirements

Globalization- Complying with Country of Origin requirements in an increasingly global outsourced / subcontracted supply chain






“The supply chain is not going to be about buying things. It will be about managing relationships.”

Today’s Supply Chain Challenge

Source: Supply Chain Management 2010 and Beyond, Michigan State Univ., Nov. 2006


Functional Focus

Internal Integration

External Integration

Collaboration

FollowersFollowers

LeadersLeaders

Supply Chain Evolution

Documented, clear supply

chain processes

Company-wide alignment of processes, measured

against common

objectives

Strategic PartneringStrategic

Partnering

Web 2.0 enabled

collaboration

Stage 1Stage 1

Stage 2Stage 2

Stage 3Stage 3

Stage 4Stage 4

Real time information, planning and decision making

Execution of customer requirements

Accelerate innovation

Increase efficiency

Shared objectives

Common processes

Performance metrics

WE ARE HERE


Supply-Demand Synchronization

Collaborative Design

Proposals Negotiations Reviews




Improve SupplierInteractions


Collaboration Drives Performance in the Extended Supply Chain

Collaboration ObjectivesCollaboration Objectives

Increase alignment across the extended supply chain through higher quality interactions

Improve and enhance the flow of real time data









Scaling Supplier Capability through Collaboration

Face-to-Face MeetingsFace-to-Face Meetings Design Reviews SBRs Exec Meetings

Design Reviews SBRs Exec Meetings

Commodity CouncilsCommodity Councils

Infrequent E-mail CommunicationsInfrequent E-mail Communications

Spreadsheet Cost Management

Spreadsheet Cost Management

TelePresenceTelePresence

WikisWikis

Quarterly WebEx Briefings

Quarterly WebEx Briefings

Online, Real Time Cost Management

and Quoting System

Online, Real Time Cost Management

and Quoting System


Collaboration Drives Performance in the Extended Supply Chain





Logistics Optimization

Delivery

Quality

NPI

Increase BusinessPerformance






Internal Supply Chain Wiki & Blog

WebEx TelePresence Websphere Portal C-vision

Internal Supply Chain Wiki & Blog

WebEx TelePresence Websphere Portal C-vision

Utilize EnablingTechnologies

Utilize EnablingTechnologies

Enhance CoreSystems andProcesses

Demand and Collaborative Planning

Cost Management

Product Data Management

Risk Management


Your Opportunity as a Global Supply Chain Leader

Supply chain management is drastically changing with these requirements

Supply chain management is drastically changing with these requirements

There are unprecedented levels of complexity in the global marketplaceThere are unprecedented levels of complexity in the global marketplace

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


Together We Can Change the Game of Supply Chain Management…

Together We Can Change the Game of Supply Chain Management…

“Innovation is a social process. And this process can only happen when people do that simple, profound thing—connect to share problems, opportunities, and learning.”

“Innovation is a social process. And this process can only happen when people do that simple, profound thing—connect to share problems, opportunities, and learning.”

A.G. Lafley, Ram Charan,“The Game Changer”, 2008

© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialAptos, 3/18/08 35

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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