OPRE 6366: Global Supply Chain Management———————————————————————-

UT at Dallas - School of Management

Cisco Systems Case Supplement 1

1 Case Summary

1. Read the case.

2. Various articles on Cisco appear in the popular and semi-academic literature. Reading 1-2 of these recentarticles can help you in your write up.

3. Write a paragraph to summarize the case.

4. Write at least one paragraph on the most surprising and significant information that you found in the caseor articles on Cisco. This can be one of Cisco strategies that you were not aware of before. Or it can relateto Cisco’s supply chain / product development practices. It can also be about the size of the operationsCisco runs on its own or with suppliers. Explain why this information is new and important for you.

2 Comprehension Questions

1. Make a list of types of Cisco product families. For example, router is a product family and ASR 9000 is aproduct in that family. What is the difference between a router and a switch?

2. What do overlapping circles refer to in Cisco’s organization? What is the purpose of organizing in such away?

3. Cisco reduced the number of its contract manufacturers in the 2000s down to four, what are the benefitsand risks of fewer contract manufacturers?

4. Dell uses a pull (lean) system to allow customers to customize computers. Is customization important torouter (individual or business) customers, explain? Cisco Lean intends “to convert Cisco and its extendedsupply chain to a system in which product was built only after a customer has actually ordered it”. Doesthis pull system conflict with the practice of using overseas contract manufacturers, explain.

5. Each ASR 9000 chasis is a box that can accommodate up to eight slots inside for line cards or circuit boards.How does Cisco facilitate postponement through these generic chassis? Which inventory benefits from thispostponement in the sense that it can be reduced due to aggregation of demand, is it the chassis inventory,line card inventory, circuit board inventory, or any other inventory, explain.

6. Cisco seems to be very worried about the launch of the Viking router? Is Viking the most complicatedproduct that Cisco has ever launched? If not, why is Cisco so worried, explain.

7. What is Jabil? What is the relationship between Cisco and Jabil? According to the case, what is Jabil’sinvolvement in Viking router manufacturing?

1This supplement is prepared by Metin Cakanyıldırım (metin@utdallas.edu) to complement/update Stanford Graduate School ofBusiness case Cisco Systems, Inc., # GS-66. The ideas presented here are for class discussion so they do not relate to any Cisco policy.

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3 Case Study Questions

After the Conclusion, the case write-up has 4 questions. Answer those.

4 Long-Term Risks of Single Sourcing

Cisco is committing to produce Viking at a single source Foxconn. Moreover, the Viking production mostly takesplace within two-hour driving distance of the Hong Kong fulfillment center. “Cisco ran the risk of being overlydependent on a single supplier and whatever financial and operational constraints it had”.

What are the potential risk factors in and around Hong Kong? Some risk factors are natural disasters (flood,tornado, earthquake), medical emergencies (bird flu or similar outbreaks that halt trade), accidents (fires), sabo-tage, political unrest. Can you add to this list? Discuss which of these adverse events are more likely.

Suppose that a severe typhoon damages the infrastructure (power lines and bridges) in Hong Kong and GuangZhou, and makes it useless for three months. What actions can Cisco take to satisfy customer needs for routers?Organize your thoughts/discussion/proposed plan in 2-3 items so that it can be briefly presented to executives inan executive summary.

5 Report Format

Once you are done with above questions, you are ready to write an executive summary to discuss Cisco’s contin-gency plans to handle a 3-month disruption in the Viking supply chain. Please include additional ideas or pointsyou feel that are relevant to make your judgement. But put these into the main body of your report not intothe executive summary. Executive summary is for you to clearly express your suggestions. Do not delve intojustifications in your executive summary.

You are encouraged to use printed or online resources besides the case write up. There are plenty of reportson Cisco on the Internet. Moreover, you can use UTD library, newspapers and journals to gain insights andformulate ideas. For any resource that you use, you must provide the associated reference. For online resources,please refrain from dynamic links (which include characters like “?, &”) as much as possible.

Put your executive summary onto the first page. Then have at least 3 parts in the body of your report. Thefirst part should deal with questions in Section 4 and should justify your suggestions in the executive summary.The second part should concentrate on questions in Section 3. The last part should have your summary of thecase, the significant and new information you found out about Cisco, and answers to the comprehension questionsposed in Section 2 above. You should spend more time and effort on the discussion of the questions in Sections 4and 3. Comprehensive questions are also important but they can be answered in a couple of sentences. Suggestedsections and their order for the report:

• Executive summary

• Risks associated with sourcing, justification of suggestion in the executive summary; see Section 4

• Case summary, interesting fact(s), anything you want to add; see Section 1

• Answers to the case study questions from the case write-up; see Section 3

• Answers to Comprehension questions; see Section 2

The executive summary of the case is different from the summary of the case. An executive summary is morecritical and directed than a summary. When you are writing an executive summary, you often critically evaluatealternatives to come up with a decision, so there already is an underlying question that you are responding to.Summary does not require such an evaluation, it merely restates important facts. The executive summary in thiscase is directed towards the sourcing practices and disruptions at Cisco. On the other hand, a summary of thecase for example can include Cisco’s innovation or marketing issues.

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The body of your report (including all the figures and tables, but not the executive summary or references)should be at most 8 pages. If something is not relevant, do not put it into your report. You should be able towrite short and to-the-point, and present ideas as sharp as possible. Font size should be 10-12 in your report, youcan use single spacing or double spacing, or anything in between. Feel free to edit and revise your report multipletimes before submission.

The case report is a group exercise. You should do it in groups of 3 to 5. If you cannot arrange to be in agroup, please inform the instructor in advance of the report’s due date. Please put all of the group member namesand e-mail addresses on the report.

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6 Cisco Initiatives Prior to 2011

Cisco performed an internal study of its supply chain risk management capabilities. This initiative and its resultsare reported by Cisco officers John O’Connor, James Steele and Kristina Scott in a document titled “Supply ChainRisk Management at Cisco: Embedding End-to-End Resiliency into the Supply Chain”. This Cisco initiative wonISM 2012 Award for Excellence in Supply Management. Excerpts below are from the associated document(O’Connor et al. 2012):

Cisco was founded in 1984 and with annual sales of over $40 billion, Cisco Systems (CSCO) is the worldwideleader in networking - transforming how people connect, communicate and collaborate. The Customer Value ChainManagement (CVCM) organization is responsible for the planning, design, manufacture, delivery and quality ofthe company’s products and solutions. Supply Chain Risk Management (SCRM) is a centralized team that resideswithin CVCM. It partners with stakeholders across CVCM and other Cisco functions such as Engineering, Salesand Marketing as well as with external partners to ensure the business continuity of Cisco’s global supply chainunder any circumstances and to build the most resilient supply chain in the industry.

Rationale for the Risk Initiative. With the proliferation of lean manufacturing, outsourcing and globallydistributed operations, supply chains have become increasingly vulnerable to more types of incidents in moreregions of the world – from natural disasters and line-downs to political unrest and financial volatility. . . . As aresult, supply chains and the risks they face have gone from a back-office item to a prominent position on theboardroom agenda for many companies. With over 250 product families, 700+ direct suppliers, 5 manufacturingpartners in 30+ locations, multiple distribution centers and customers across the globe, Cisco’s supply chain riskexposure is both broad and pervasive. As a result, in October 2007 CVCM formed a 3-person SCRM team.Until that time, supply chain risk was handled on an ad hoc basis by enterprise risk generalists at Cisco. Inthe spring of 2008 the SCRM team, with support from CVCM leadership, began to develop and implement afour-pronged approach with the objective of mitigating potential risks from product design through componentselection, manufacture, test and delivery. The size of the SCRM team has since expanded to 9 employees and ismanaged by a Director reporting in to CVCM’s Global Business Operations function. With roll-out completedby the fall of 2009 the approach, consisting of processes, metrics and tools, provides Cisco with a world class riskplatform. This approach is utilized for sensing, managing and resolving any incident that threatens the businesscontinuity of Cisco’s supply chain and builds proactive resiliency to improve our overall time-to-recovery during adisruption.

Embedding End-to-End Resiliency Through Four Key Processes: Product Resiliency, Supply Chain Resiliency,Business Continuity Planning and Supply Chain Incident Management

• Product Resiliency: Process for engaging with Cisco Engineering and Product Operations (CVCM’s newproduct introduction function) to identify risk trade-offs in the early design and development phases ofCisco products. Specifically, CVCM-designed resiliency scorecards were developed to, for instance, identifyand “de-risk” single sourced and other risk components as well as drive resiliency upstream in the productdevelopment process. As a result of this CVCM-Engineering collaboration, as of December 2010, resiliencyscores have become a mandatory criteria in Cisco’s product launch gating process.

• Supply Chain Resiliency: Process for working with CVCM’s Global Supplier Management (GSM) andGlobal Manufacturing Operations (GMO) functions to assess and improve resiliency across Cisco’s supplybase, manufacturing and test equipment partners. SCRM targets the Top 100 products on a revenue basiseach year for this process and works to identify and mitigate (as possible) any circumstances that couldlimit these products from recovering in X weeks from a major disruption.

• Business Continuity Planning (BCP): Semiannual process, enabled by a unique web-based tool (developedby SCRM in partnership with IT) to engage all critical supply chain partners in providing Cisco with over36 resiliency data points such as emergency contact information, availability of alternate power suppliesand estimated time-to-recover (TTR). This unique data set provides the backbone of the company’s SupplyChain Incident Mgmt process by creating resiliency visibility into more than 1000+ supply chain nodes

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(at the site level) in over 50 countries. Additionally, critical components are mapped to each supplier site,capturing key resiliency information such as 2nd sourcing status and validating partners’ compliance withCisco’s BCP standards through audits and drills.

• Supply Chain Incident Management: Process for monitoring worldwide events on a 24/7 basis, identifyingand escalating any incident of concern, assessing impact and organizing a cross-functional response team tomitigate the risk to resolution. To respond to any event within a 2-hour timeframe, SCRM utilizes the NC4alert service, has developed a Crisis Mgmt Dashboard and a robust set of Crisis Playbooks that cover eventssuch as tropical cyclones and pandemics. The Supply Chain Incident Mgmt team, organized by SCRM, isresponsible for working an incident from alert to resolution. This process can last anywhere from a fewhours for a minor incident to over 70 days in the case of the recent Japan [Tohoku] earthquake incident; seebelow. Proactive drills and incident post-mortems aim to ensure continuous improvement.

As a group, these processes ensure that Cisco can respond quickly and effectively to mitigate risk from any incidentworldwide and that CVCM is making the right decisions and investments to ensure proactive resiliency is builtinto Cisco’s products and across the supply chain.

Results: SCRM’s approach and processes have delivered results consistently and effectively across a numberof highly visible incidents since 2008. In addition to the recent Japan earthquake incident response, key examplesinclude:

• Chengdu Earthquake (May 2008): To mitigate the impact of this 7.8 magnitude earthquake in central China(see Figure 3), SCRM processes and leadership were utilized to avoid any business disruption as a result ofover 20 impacted suppliers. Over 50% of these suppliers also had alternative sites/2nd sources based uponthe SCRM Product Resiliency processes. This incident was mitigated through the Supply Chain IncidentMgmt process with minimal impact to customers.

• Financial Crisis (late 2008 to mid-2010): After SCRM analytics revealed that 5 critical suppliers faced ahigh risk of disruption, CVCM instituted “last-time buys” as well as other options such as 2nd sourcing.Cisco was not impacted when all 5 of these suppliers ended up filing for bankruptcy. The SCRM financialassessment process developed during this incident has since become the template for our Financial RiskAssessment methodology, which is now applied to all Cisco supply chain partners.

• Iceland Volcano Eruption (April - May 2010): The eruption and ensuing ash cloud that disrupted UK andNorthern Europe air lanes placed both inbound order fulfillment (100+ major customers) and materials flow(50+ suppliers) and 2 critical mfg/distribution nodes at risk. SCRM leveraged its Supply Chain IncidentMgmt and BCP processes to develop effective logistics workarounds to mitigate all major customer impactsfrom this highly volatile event.

Last-time buy applies when a component cannot be bought from an alternative supplier and the only viablesupplier is going out of business or about to be disrupted for the foreseeable future. The business units usingthis component determine the demand of this component over its lifetime based on the products that include thiscomponent. Last-time buy amount is the lifetime demand in excess of the available inventory of the componentin the supply chain. To purchase a large amount with last-time buy, Cisco must know the supplier problems inadvance.

7 Disruption Caused by Tohoku Earthquake in March 2011

Multinational companies have tightly managed supply chains that span the globe. Lean / global supply chainshave pushed the costs down. Consumers benefit from the low costs. Examples: $10-shirts, $15 stopwatches,$80 bikes. When you are running lean and delivering globally, you become vulnerable to supply disruptions. Toachieve low costs, inventory is reduced and production is geographically concentrated to achieve economies ofscale. Examples: Chip production and car production are concentrated in Southern Japan.

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The Tohoku Earthquake occurred in Northeastern Japan at 14:46 local time (+15 US Central Time) on March11 and affected some facilities directly and most indirectly. The 9.0 magnitude earthquake was the most significantsupply chain disruption in modern times. It caused a tsunmai, Fukushima nuclear power plant disaster that ledto large ripple effects of Japanese transportation, power generation and transmission infrastructure failure as wellas supply and capacity shortages at manufacturers.

LCD TVs and related home theater products: Dallas-based Texas Instruments’ Miho manufacturingplant, northwest of Tokyo, suffered substantial damage in the earthquake. The plant produces analog chips andDLP chips for these products. It is not expected to return to full production until mid-July.

iPad 2, iPhones: Japanese semiconductor giant Toshiba Corp. produces roughly a third of the world’s chipsused to store data in cameras, smartphones and tablet computers. Toshiba has temporarily closed some of itsfactories. I expect some shortage of regular memory chips, but this is not critical because there are plenty of othermemory manufacturers. Not so for critical NAND chips that go into iPhones and iPads. A major NAND chipmanufacturer is Toshiba’s adversely-affected plant in Yokkaichi. Apple has released iPad 2 to the market and hassome in the supply chain. Apple stores in Dallas are receiving a few shipments daily from Apple and consumersare lining up in front of stores over night to get the shipments arriving in the morning. Once the supply chainis cleared of iPad 2, replenishments may not be available. Apple currently quotes 4-5 weeks of delivery time foronline orders, that time can be longer.

Digital cameras, computers, tablets, Blue-ray players: Japan is a major global supplier of chips usedin numerous electronic devices, as well as a major exporter of consumer electronics and their parts (plastics, smallmotors). Companies big and small are beginning to feel the pain.

Indirect Example of Wafers: Silicon wafer is the major input for chip production. Japanese wafer man-ufacturer Shin-Etsu stopped production. I expect some wafer shortage. So even after chip plants recover, theymay not find necessary raw materials.

Indirect Example of Capacity Shifting: Many factories (such as Sony) are voluntarily shut down sothat the electricity that otherwise would be used by them is diverted to humanitarian efforts. Some factories(Panasonic) are focusing on the production of batteries to be used in Northern Japan.

Cars: Consumers are more loyal to car brands than to chips. Toyota, Honda, Suziki, Nissan all suffered. Butthey have plants overseas, especially in the USA. Toyota has plants in Cambridge, Canada; Tijuana, Mexico; LaFayette, Princeton, Georgetown, Blue Springs, San Antonio, Long Beach in the USA. This is one reason why carsupply chain is not going to be affected as much as electronics. Another reason is that shifting of manufacturingof car parts does not require strict calibration/certification in comparison to chips. Such shifting can be donefaster and at a less cost. Auto manufacturing will recover faster and the cost/unavailability may not even be feltby the consumer. There can be temporary shutdowns not only of Japanese owned facilities but also others, suchas GM’s Shreveport facility. GM Shreveport manufactures pickup trucks and is experiencing shortage of Japaneseparts. It is currently shut down.

Electronics: There are many Japanese electronics companies: Sony, Matsushita Electric (owner/manufacturerof Panasonic), Hitachi, Canon, Fujitsu, Nintendo, Toshiba, Sharp etc. See Figure ??. TI, Sony, Panasonic andFujitsu have announced closures of multiple plants.

Freescale Sendai plant is to be closed in the fourth quarter of 2011. This is a 1987 fab and Freescale was tryingto sell or close it before the earthquake. This was producing low end chips for cars.

Renesas shuts down fabs include Renesas Northern Japan Semiconductor, Inc., Tsugaru in Aomori prefecture,Tsuruoka factory in Yamagata, Naka Factory in Ibaragi, Takasaki factory in Gunma, Kofu factory in Yamanashi.The backend of line facilities are in Aomori and Yonezawa factory in Yamagata.

Fujitsu has suffered damages to buildings and production equipment in locations such as• Iwate Prefecture: Fujitsu Semiconductor Limited - Iwate plant (Kanegasaki-cho, Isawa-gun).• Miyagi Prefecture: Fujitsu Integrated Microtechnology Ltd. - Miyagi plant (Murata-cho, Shibata-gun)• Fukushima Prefecture: Fujitsu Semiconductor Limited - Aizu-Wakamatsu plant (Aizu-Wakamatsu-shi), FujitsuSemiconductor Technology, Inc. - Main plant (Aizu-Wakamatsu-shi), Fujitsu Integrated Microtechnology Ltd. -Main plant (Aizu-Wakamatsu-shi), Fujitsu Isotec Limited - Main plant (Date-shi).

Texas Instruments (TI) Fabs are damaged. Miho Fab has substantial damages (pipes for gasses and water,

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Figure 1: Japanese Electronics Manufacturers in 2011. Source: Objective Analysis..

equipment damage cannot be known without power, building slightly damaged), expects full production in mid-July. This fab produces DLP (digital light processing for projectors for home or IMAX theaters and TVs), analogdevices 10% of TIs revenue. TI expects to be able to shift 60% of the production at its Miho plant to otherfacilities. TI Aizu Wakamatsu fab also damaged but to a lesser extent, expects full production in mid-April. TIHiji Fab is not damaged and running regular operations.

Toshiba said last week it shut a semiconductor plant in the northern prefecture of Iwate. Toshiba had 0.07second power disruption at Yokkaichi plant on December 8, 2010. Toshiba said the power outage could cause a20% drop in its shipments over the next two months or so of chips known as nand flash memory, which are usedto store music, photos and data in products such as Apple Inc.’s iPhone and iPad. Toshiba has 35% of nand flashmemory market, slightly trailing behind Samsung which has 40%. Toshiba is giving priority to nand production.In case of wafer shortage (see wafer suppliers below), Toshiba is likely to use available wafers for nand chips.

Shin-Etsu produces silicon wafers needed to produce semiconductors, said last week it stopped operations atits manufacturing complex in Annaka, Gunma prefecture; the Kashima Plant in Kamisu, Ibaraki prefecture; andthe Shirakawa Plant in Nishigo Village, Fukushima prefecture. Disruptions at Shin-Etsu and Sumco corp. accountfor about 60 percent of the world’s electronic wafers

Sony closes plants. On March 14, 2011, Sony responded to power outages by voluntarily suspending operationsat several sites. The company is currently evaluating the full impact of the earthquake, tsunami and related poweroutages on Sony’s businesses and consolidated financial results. Manufacturing operations have been suspendedat the following affected production sites: Sony Chemical & Information Device Corporation, Tagajyo Plant(Miyagi Prefecture), Tome Plant, Nakada/Toyosato Sites (Miyagi Prefecture), Sony Shiroishi Semiconductor Inc.(Miyagi Prefecture), Sony Energy Devices Corporation, Koriyama Plant (Fukushima Prefecture), Sony EnergyDevices Corporation, Motomiya Plant (Fukushima Prefecture), Sony Manufacturing Systems Corporation, KukiPlant (Saitama Prefecture) [Surface mounting equipment etc.], Sony DADC Japan Inc., Ibaraki Facility (IbarakiPrefecture). Additionally, Sony Chemical & Information Devices Corporation, Kanuma Plant (Tochigi Prefecture),Sony Energy Devices Corporation, Tochigi Plant (Tochigi Prefecture) and Sony Corporation Atsugi TechnologyCenter (Atsugi, Kanagawa) temporarily suspended operations on a voluntary basis, to assist with the alleviationof widespread power outages.

Cisco used its incident management tool to minimize the adverse effects of the earthquake.• Incident management activation was within 30 minutes of the initial the (NC4) alert of the earthquake. NC4is Cisco Supply Chain’s notification service that sends alerts to 3rd parties. Then the Supply Chain Incident

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Manager was aware of the event and informed the SCRM team lead, team members and the supply chain seniorleadership. See the top screenshot in Figure 2.• Business continuity planning (BCP) data and processes are deployed to identify direct suppliers, their asso-ciated sites and components and other critical facilities in the earthquake area within 12 hours of the initialearthquake. BCP data included the expected time-to-recover (TTR) for facilities, back-up power generation ca-pabilities, whether the supplier’s components were single sourced or had alternate sources. Within a day, theincident management team established contact with suppliers to inquire the impact of the incident on suppliersites, capacities and capabilities to continue to supply components. The team developed a snapshot of the supplierstatus and its evolution as circumstances changed over time. See the middle screenshot in Figure 2.• Incident management war room was established within two days of the earthquake to provide a central decisionmaking forum for all supply chain personnel involved in the mitigation of incident. The structure of war roomwas based on the supply chain crisis management playbooks that include predefined roles for supply chain leaders,contact information and protocols to assess and mitigate disruptions with a coordinated approach. See the bottomscreenshot in Figure 2.

According to O’Connor et al. (2012), “while leadership and hard work from across the extended CVCM [supplychain] organization (over 100+ resources involved in the extended War Room effort for 70+ days) as well as theefforts and partnership of our supplier base was responsible for the ultimate success of CVCM’s Japan response,the SCRM process provided the starting point, organizing principles and underlying data needed for this success.”

8 Refocusing on a Simpler Cisco: Fall 2011 Update

Cisco reports quarterly earnings on Nov 9, 2011. Cisco recently has focused on five of core businesses: routing& switching; collaboration & telepresence; data center virtualization; video; business transformation architecture.Its annual report calls 2011 as one of the most transformative years at Cisco.

Cisco has reduced its workforce by 15% and aims to reduce 2012 operating expenses by $1 B. This is asignificant target for a company that has earned about $43 B in fiscal year 2011. The revenue has increased 8%over a year. 80% of the revenue comes from products and 20% comes from services. Revenue from services grewat 14% while revenue from products grew at 6%. Revenue from switches were flat while router revenue increasedby 6%. The growth in router revenue is driven by high-end routers (ASR 1000, ASR 5000, ASR 9000). (CiscoAnnual Report 2011).

The company sits on a pile of cash: $44.6 B in 2011. Nevertheless, there is uncertainty about where to investthis. It has recently acquired Starent (router manufacturer) and Tandberg (video-conferencing vendor).

In other efforts to generate growth, Cisco over recent years attempted to enter new markets that are looselyrelated to the core business of networking. A case in point was consumer video cameras. “They were living alie” according to Brian Marshall, ISI Group. These efforts caused Cisco to lose its core markets to competitors:Hewlett-Packard, Juniper Networks and Alcatel-Lucent. “In many categories, Cisco’s share losses have stabilized.But investors will be watching the company’s margins to see if sales are coming as a result of price cuts. Thecompany recently introduced some new products, which should help. But there are still some areas where ‘Ciscodropped the ball completely,’ says Nikos Theodosopoulos, the UBS analyst.” (Worthen 2011).

One competitor that Cisco has not fought head-to-head is Hua Wei, the Chinese manufacturer. Hua Wei issaid to have its sights on large businesses, an important and loyal market for Cisco. When Hua Wei targets thismarket, it will gain market share from Cisco unless Cisco can find creative ways to fend this off.

9 Security Concerns with Huawei and ZTE: 2012 Update

Huawei is found to be a national security risk by the US House Intelligence committee on October 8, 2012. Thelandscape in the telecom industry has changed significantly after the Internet bubble of early 2000s. Nokia andSiemens merged their hardware segments to become Nokia Siemens, which later bought disadvantaged Motorola.In the meantime, Alcatel bought Lucent, but Alcatel (including Lucent) has not performed well. Ericsson has

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Figure 2: Cisco incident management tool screenshots from Tohoku earthquake.

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remained relatively stable during these changes and has become a market leader. Huawei has become the world’ssecond largest producer of telecommunication equipment.

Huawei has run into trouble with regard to intellectual property issues. For these reasons, it was sued byCisco in 2003 and by Motorola in 2010. Complaints were recorded by Huawei’s job applicants that they wereextensively questioned about their previous projects at other telecom companies. This time the situation ismore serious as the US House Intelligence Committee (2012) said: “the companies [Hua Wei and ZTE] failed toprovide evidence that would satisfy any fair and full investigation. . . . The investigation concludes that the risksassociated with Huawei’s and ZTE’s provision of equipment to U.S. critical infrastructure could undermine coreU.S. national-security interests.” It also made the following suggestions:

1. The United States should view with suspicion the continued penetration of the U.S. telecommunicationsmarket by Chinese telecommunications companies.

2. U.S. network providers and systems developers are strongly encouraged to seek other vendors for theirprojects. Based on available classified and unclassified information, Huawei and ZTE cannot be trusted tobe free of foreign state influence . . .

3. Committees of jurisdiction within the U.S. Congress and enforcement agencies within the Executive Branchshould investigate the unfair trade practices of the Chinese telecommunications sector, paying particularattention to China’s continued financial support for key companies.

4. Chinese companies should quickly become more open and transparent, including listing on a western stockexchange with advanced transparency requirements, offering more consistent review by independent thirdparty evaluators of their financial information and cyber-security processes, complying with U.S. legal stan-dards of information and evidentiary production . . .

5. Committees of jurisdiction in the U.S. Congress should consider potential legislation to better address therisk posed by telecommunications companies with nation-state ties or otherwise not clearly trusted to buildcritical infrastructure. Such legislation could include increasing information sharing among private sectorentities, and an expanded role for the CFIUS2 process to include purchasing agreements.

The report is strongly worded (see the phrases in red above). Suggestions above will limit the growth prospectsof Huawei. Hence, Chinese officials reacted a day after the release of the report. China’s Commerce Ministryspokesman Shen Danyang said: ”[the report] is merely based on subjective conjecture and untrue foundations,and made groundless accusations against China. [US] violated its long-held free-market principles and wouldundermine cooperation and development between the two countries.”

10 U.S. Resilience Project from 2012 to 2018

U.S. Resilience Project is an organization that advocates for better risk management. It organizes workshopsto discuss, share and improve risk management practices. It focuses on three areas: Disaster Resilience, EnergyResilience and Supply Chain Resilience.

Their evaluation of Cisco supply chain is in https://usresilienceproject.org/wp-content/uploads/2015/10/Cisco.pdf. Evaluation of some other companies including Intel, Boeing, DuPont, Procter and Gamble can befound at https://usresilienceproject.org/best-practices/supply-chain-resilience. A resilience project can involveidentification and mitigation of risks as in Table 1.

2The Committee on Foreign Investment in the United States (CFIUS) reviews foreign acquisitions, mergers and takeovers of U.S.businesses that raise national security issues.

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Table 1: Risks along with their triggers and mitigation strategiesRisk Trigger Mitigation

Demand Drop Slowing business activities Capacity/Inventory re-allocationDiscounts to boost demand

Rise Stockpiling Capacity/Inventory re-allocationInventory boost or push to downstreamContract re-negotiation of delivery penaltiesPurchase quota or price hikes to rein demand

Supply Drop Tier 1-3 supplier disruption Alternative suppliers & locations

Capacity Drop Own disruption Boost finished good inventory in advancePost-disruption subcontracting

Labor Drop Sickness, injury Alternative labor, Human resources supportCurfew, qurantine Remote work, automation

Transpor- Unavail- Infrastructure failure Avoid risky transportation nodes/modestation able Labor shortage Inventory push to downstream

Larger budget for freight cost spikes

Funding Rise Higher costs Adjust budgetsneeds Faster production/transportation Increase liquidity & cash position

All Faster information flow & decisionsabove Encouraged initiation & execution

11 Corona Virus Outbreak: 2019 - 2020 Update

Corona virus outbreak started in the city of Wuhan in December 2019. This virus causes respiratory problemsin humans that leads to death in about 2% of the cases. Wuhan is the capital of Hubei province and hosts morethan 10 million people. Wuhan is in central China that is historically less developed than Eastern China. In the2010s, China started implementing Central China Plan to develop this part of the country.

To limit the spread of virus, China implemented travel restrictions and closed workplaces as well as schools.Also several thousands of people died in China and many more suffered from the disease, both of which led tolabor shortages, facility closings and disruptions in the supply chains.

Cisco’s Chinese facilities are mostly on the east and south of the country, respectively around Shanghai andShenzhen; see Figure 3. Facilities in these regions continue to produce components and deliver them on time atleast in February 2020. If the outbreak reaches Shenzhen or Shanghai and a vaccine cannot be found in a badscenario, there will be significant disruptions in Cisco supply chain.

The virus infected many people in several provinces. Some of these impacted provinces include Guangdong,Zhejiang, Shandong and Hubei, ordered from largest to smallest in terms of workforce size (Dun and Bradstreet2020). “Guangdong, Jiangsu, Zhejiang, Beijing, and Shandong provinces account for 50 percent of total employ-ment and 48 percent of total sales volume for China’s economy. At least 51,000 (163 Fortune 1000) companiesaround the world have one or more direct or Tier 1 suppliers in the impacted region.” Top four major sectors inthe impacted area account for three quarters of the businesses. From largest to smallest, these sectors are services,wholesale, manufacturing and retail. If the outbreak grows and further disrupts these business activities in theimpacted provinces, supply chains will experience shortages and delays in the near future.

Despite facility closings, labor shortages and virus-related disruptions, supply chains are currently performingwell. The impact of outbreak detected through its reflection on the delivery side of supply chains in the U.S.is minimal and isolated. This impact is certainly less than what happened in electronics and automobile supplychains in the wake of Japanese Tohoku earthquake in 2011.

One product that is reported to be short locally is wedding and prom dresses. According to ABC-affiliateWFAA and its report (Joy 2020), the prom dress retailer WhatchamaCallit does not expect deliveries from Chinauntil after the prom season in May, so seniors may want to arrange for their dresses earlier this year. Otherwise,

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Figure 3: Corona virus outbreak with respect to Cisco facilities in China and Taiwan in 2020..

they may have to buy larger dresses and have them adjusted to their sizes. Or they may have to pay more forthe dresses. If retailers cannot increase the supply quantities, they will increase prices to reduce the demand tomatch the supply.

ReferencesB. Worthen. 2011. As Cisco scales back, investors watch closely. Wall Street Journal, Nov 7, 2011.

Cisco Annual Report. 2011. Downloded from http://www.cisco.com/web/about/ac49/ac20/about cisco annualreports.html.

Dun and Bradstreet. 2020. Special Briefing: Business Impact of the Coronavirus. Downloaded from https://www.dnb.com/content/dam/english/economic-and-industry-insight/DNB Business Impact of the Coronavirus US.pdf.

Investigative Report on the US National Security Issues Posed by Chinese Telecommunications Companies Huaweiand ZTE. 2012. Report by US House Committee on Intelligence chaired by majority leader M. Rogers (Michi-gan 8th district Republican) and by ranking member C.A. Ruppersberger (Maryland 2nd district Democrat).Downloaded from http://intelligence.house.gov/legislation/committee-reports.

J. O’Connor, J.B. Stele, K. Scott. 2012. Supply Chain Risk Management at Cisco: Embedding End-to-EndResiliency into the Supply Chain. Downloaded from https://www.instituteforsupplymanagement.org/files/richterawards/ciscosubmissionsupportdoc2012.pdf.

W. Joy. 2020. Wedding gown, prom dress retailers facing shortages due to coronavirus. https://www.wfaa.com/article/news/local/wedding-gown-prom-dress-retailers-facing-shortages-due-to-coronavirus/287-ea11e178-aa69-4254-b24a-84ccd17269e7.

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