at the end (minimum 150-words per question)
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Cisco Moves From Push Model to Pull Model
Cisco Systems (www.cisco.com) was a very profitable company in the 1990s. Then, the company’s stock dropped dramatically when its vaunted inventory forecasting system failed to predict the dot.com bubbles collapse in 2000—2001. The result of this miscalculation was that Cisco’s sales decreased by 50 percent, the company lost 25 percent of its customers, and it ultimately had to write off more than $2 billion in inventory. After that experience, Cisco’s supply chain managers vowed that the company would never be blindsided again.
Before the dot.com crash, Cisco’ supply chain used a push system, where products were made and inventory was built up in anticipation of market demand based on best-guess forecasts. Unfortunately, the push system did not work when demand dropped quickly and severely, as it did during and after the dot-com crash. Cisco knew that it had to create a supply chain System that reacted much more effectively than its push system.
Consequently, Cisco made major information systems investments to transform its push system into a pull system. The pull system enabled Cisco to extract timely data from suppliers and downstream business partners. Cisco optimized its forecasting algorithms by bringing together representatives from its marketing, finance, sales, supply chain, and IT departments, and from key customers. As part of the company’s sales and operations planning process, this group collaborates to create a common view of demand signals. This input drives an agreed-upon plan of action to align manufacturing capacity and inventory deployment and meet customer service levels. In essence, this group works together with the same data to optimally match supply and demand.
The result was that Cisco did not continue to build inventory that might sit in a warehouse waiting for customers who might never buy it. Therefore, cash was freed up for other purposes. Cisco was confident that it had better visibility into market demand and could manage its way through downturns. Unfortunately, the other shoe fell.
Cisco’s supply chain pull System enabled the company to weather the economic recession of 2008 and 2009. During the recession, Cisco reduced its inventory and product manufacturing to prevent filling warehouses with unsold product.
Then, in the last quarter of 2009, an unexpected increase in business demand for core networking infrastructure products caught Cisco and its manufacturing partners off guard. Cisco could not keep up with the sudden increase in orders, resulting in extremely long lead times, back orders, and customer dissatisfaction. Cisco told its customers that its product shortage resulted from a global shortage of raw materials used in the manufacture of key components, such as semiconductors.
Questions
1. Describe the disadvantages of the push system at Cisco.
2. Describe the advantages of the pull system at Cisco.
3. Explain why the pull system enabled Cisco to manage through an economic downturn but seemed to be unable to enable Cisco through an economic recovery
