Jabil and Cisco Working Together
[Good article on how Cisco supply chain works and how
Jabil fits in. We're talking hand and glove here. Though
several months old, I thought it worth posting. - Peter]
DISTRIBUTION & LOGISTICS REPORT (August 1997)
By Heidi Elliott, Associate Editor
Online system helps Cisco balance supply and demand
Having a supply chain management program that
gives distributors and contract manufacturers almost
instant access to incoming orders, Cisco Systems Inc.,
San Jose, has remained nimble while growing at a
frantic clip.
"We've been able to grow with fewer people, less
suppliers and less lines down," says Peter Rukavina,
director of supply operations. Even as sales have gone
from $2.2 billion in fiscal 1995 to $4.1 billion in 1996,
the company has continued to outsource its materials
management and production to distribution and
contract manufacturing under the auspices of its
Single Enterprise Program. "In a word, it's flexibility.
They can react to [demand changes] a lot quicker,"
Rukavina says of distributors and subcontractors.
A year ago, Cisco introduced an online order system
for customers called Cisco Connect Online. The service,
which uses software by Oracle Corp., Redwood Shores, CA,
allows customers to place orders right into the company's
internal system. The system won't let customers order
incorrect parts, eliminating delays in processing of
faxed orders. Historically, one-third of faxed orders
contained errors that delayed processing up to three days.
Since going online, 30% to 40% of Cisco's orders are coming
via the Internet, estimates Blaine Erwin, director of
Business Trade and Technologies at Forrester Research,
Cambridge, MA. That translates into more than $1 billion
in router orders.
Extending the factory
The online system works in conjunction with Cisco's Single
Enterprise Program, in which Cisco sets up subcontractors as
an extension of the Cisco factory. The nearly three-year-old
program already allowed distributor Avnet Inc., Great Neck,
NY, and contract manufacturer Jabil Circuit Inc.,
St. Petersburg, FL, to view Cisco's demand forecasts
through a direct link to its manufacturing resource planning
(MRP) systems. Now they have the ability see orders almost as
soon as Cisco's customers place them. "That entire flow-through
is where the innovation comes in," says Forrester's Erwin.
"It allows demand information to flow through and be visible
to the supply side."
The enterprise program essentially treats Jabil and Avnet
as Cisco employees though it is not directly linked to the
online order system. "They ship right to the customer,"
says Randy Pond, vice president and plant manager at Cisco.
Inside the Jabil plant, Jabil takes parts from Avnet and its
own stockrooms as needed to make the Cisco boards. On a
weekly basis, Jabil gets an updated 12-month demand forecast,
which gives it a window on how to allocate its own production
capacity. Once assembly is completed, the computer system
prompts Cisco to pay for the parts used.
In establishing the enterprise program, Cisco wanted to
combine the expertise of distribution and contract
manufacturing, says Rukavina. Also, as Cisco grew, it
wanted to have direct relationships with suppliers yet
didn't want to manage those relationships. Cisco started the
program with Avnet and Jabil, but has expanded it to other
distributors on a smaller scale.
Trust was the key
There were some minor problems with the software that were
eventually hammered out, but the biggest hurdle was building
trust among the three parties, particularly between contract
manufacturers and distributors. "They looked at one another
as significant competition," says Rukavina. "Every little
mistake was blown up, and someone would question the
commitment of the other parties." Trust developed as
the program fell into place.
For Cisco, the set up allows the company to react rapidly to
changes in demand. That flexibility is a real draw for Cisco,
notes Erwin. "If you shave weeks off the process of bringing
supply in, that in turn gives them quick turnaround and short
lead times for [its own] distributors," he says. "It's just,
across the board, a very smart move." |
