Cisco Case Study (Inventory Issue)
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Transcript of Cisco Case Study (Inventory Issue)
Inventory DisasterAT
RAHUL BABAR
CISCODesigns, manufactures and sells networking
equipments.
ISSUE
Lacking adequate demand and inventory visibility.
Was caught with piles of inventory due to slowing demand.
No experience with a downturn(40 straight quarters of stout growth with last 3
quarters showing growth as high as 66%)
Continued the high order patterns High build rates
Substantial inventory accumulation
CISCO was unable to see the slowing demand and continued high production.
Third fiscal quarter of 2001 sales plunged to 30%
RESULT
$2.2 billion inventory Drop in stock by 50%
(almost a year ago it was $82 which sunk to $13.63) 8500 people laid off
Chambers (CEO) claimed it was not the fault of system developed by
company to forecast nor the management.
Solvik (CIO) defended system saying it could have been worse if not for this
system.
Evidence showing system flaw
Less sophisticated lesser companies identified decrease in demand. CISCO with more
sophisticated forecasting capability failed to do so.
Others decreased their supply but
CISCO did not lower their supply
CISCO believed in their system blindly
Assumed they won’t suffer negative growth because they didn’t see that in
past.
CISCO was able to identify Japan slump so
why they failed to identify demand fall ?
When client wants 100 pieces he asks 120 from suppliers.
Whereas a person would say 100 but a system would record 120, and run the
algorithm for decision making.
So there are certain limitation when working with automated systems.
Software ignored economic parameters like:
Debt levels Economic spending
Interest rates Bond market, etc.
Conclusions
Do not completely rely on automated systems for decision making purposes.