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<strong>Supply</strong> <strong>Chain</strong>Leadership inUncertain TimesExecutive SpeakerSeriesBroad Graduate School<strong>of</strong> <strong>Management</strong>Michigan StateUniversityC. Kevin HarringtonVP, Global Business OperationsGlobal <strong>Supply</strong> <strong>Chain</strong> <strong>Management</strong> (GSCM)Cisco Systems, Inc.AMR Confernce © 2008 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution 1
The Complexity <strong>of</strong> theGlobal MarketplaceAgendaHow This Changesthe Game for SCMOur Opportunity as<strong>Supply</strong> <strong>Chain</strong> LeadersAMR GSCM Confernce All Hands © 2008 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution 2
The Complexity <strong>of</strong> theGlobal MarketplaceAgendaHow This Changesthe Game for SCMOur Opportunity as<strong>Supply</strong> <strong>Chain</strong> LeadersGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential3
Cisco GloballySan Jose, CALondonOttawa, CanadaBoxborough, MARichardson, TXHerndon, VARaleigh, NCAmsterdamTel AvivDubaiBangalore• 66,000 employees in 70 countries• 300+ <strong>of</strong>fice locations• Headquarters• 1/3 Engineering/IT, 1/3 Sales, 1/3 all othersShanghaiSingaporeSydneyGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution4
FY’08 Fiscal Year RevenueTotal $39.5B13% Y/Y• Record revenue <strong>of</strong> $39.5B… up 13% Y/Y• Cash flows from operations <strong>of</strong> $12B… up 20% Y/Y• Product order growth approximately 12% Y/Y• Service order growth approximately 25% Y/YGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution6
FY’08 Revenue Increased 13% y/yFY’08Year/YearGrowthRouters $7.9B 14%Switches $13.3B 7%Advanced Technologies $9.7B 21%Other $2.1B 7%Services $6.4B 18%Total $39.5B 1 13%1 As a result <strong>of</strong> rounding, figures may not total. For detailed results, please see Cisco’s Investor Relations Website at http://investor.cisco.com/results.cfmGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution7
Market Capitalization LeadershipCisco$135BCisco$10BTop 12Competitors$71BCisco$110B Top 11Competitors$60BTop 11Competitors$34BJanuary 1995 November 2005 July 2008GSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution8
Market TransitionsOur strategy is guided by the markettransitions that affect our customers.All in One:Data/Voice/VideoNetwork <strong>of</strong>NetworksNetwork asPlatformCollaboration/Web 2.01997 2000 2006 2008GSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution9
Collaboration – The Network as the Platform…“Cisco’s strategy is a story basedon change—the market transitionsthat affect our customers.Through multiple transitionsin the last decade and overthe next 3–5 years, the networkwill evolve from the plumbing<strong>of</strong> the Internet— providingconnectivity—to the platform thatenables people to experience life.”John Chambers,President and CEO, Cisco SystemsGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution10
End-to-End Alignment:Vision, Strategy, ExecutionCiscoGSCMOperating CouncilBoards and CouncilsSr Leadership OffsiteFunctional TeamsSr Leadership MeetingsExtended Leadership MeetingsManager Development ProgramsPortfolio PrioritizationGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution11
The Complexity <strong>of</strong> theGlobal MarketplaceAgendaHow This Changesthe Game for SCMOur Opportunity as<strong>Supply</strong> <strong>Chain</strong> LeadersAMR GSCM Confernce All Hands © 2008 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution 12
Global Factory and DistributionInfrastructureAustin, TXOntario, CAEl Paso, TXJuarez, MXGuadalajara, MXSouth Hampton, UKGalway, IEToronto, CanadaNaperville, IL Kortrijk, BEAtlanta, GASt Petersburg, FLHouston, TXRoermond, NLPardubice, CZBrno, CZZalaegerszeg, HUTiszaujvaros, HULonghua, ChinaLaem Chabang, THChennai, IndiaPenang, MYSingaporeFutian, ChinaTokyo, JapanDoumen, ChinaShanghai, ChinaHong Kong, ChinaShenzhen, ChinaPCBA SitesBox Build SitesPCBA/Box Build SitesService Provider VideoTechnology Group (SPVTG)LinksysStrategic Logistic Centers4 EMS Partners, 5 ODM/OEM Partners31 Manufacturing Sites4 Logistics Partners17 Logistics SitesGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution13
Increasing Complexity Leading Influencer <strong>of</strong><strong>Supply</strong> <strong>Chain</strong> StrategyWhat’s shaping strategy?% <strong>of</strong> respondents, 1 n-273Which <strong>of</strong> the following factors, if any, currently havethe most influence over your supply chain strategy?TotalEuropeDevelopingMarkets 2NorthAmericaIncreasing complexity <strong>of</strong> products/services 47 60 44 35Rising energy prices 36 33 45 39Increasing financial volatility 29 17 34 38Increasingly global labor markets,including rising wage ratesShifting industry structures or forms <strong>of</strong>corporate organizationAdoption <strong>of</strong> increasingly scientific, data-drivenmanagement techniques (eg, tracking technology)Exposure to differing regulatory requirements indifferent geographies20 17 20 1818 19 11 1817 4 16 2515 8 20 201Respondents could select up to 3 answers; those who answered “other” or “don’t know” are not shown.2Includes China, India, and Latin America.Source: McKinsey, “Managing Global <strong>Supply</strong> <strong>Chain</strong>s,” 2008GSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution14
Benefits <strong>of</strong> Cisco’s Global <strong>Supply</strong><strong>Chain</strong> Architecture• Lead time/proximityto major marketgeographies• World class talentand technical skills• Access to top tier suppliers• Logistic channels• Cost optimization• Tax and legislative benefitsGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution15
Transforming a Complex <strong>Supply</strong> <strong>Chain</strong>Requires a Long-Term ApproachM x 1.0Expanding ourCapabilities and StrategicIntentAlignment andDeploymentM x 2.0ManufacturingExcellence (M x ):Our intentionto become theundisputedleader in <strong>Supply</strong><strong>Chain</strong> <strong>Management</strong>2005WorldwideManufacturingVision andAspiration2008Global <strong>Supply</strong><strong>Chain</strong> <strong>Management</strong>GSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution16
Transformation Must be Balanced withOperational ExcellenceBusiness TransformationDrive PerformanceMake Commitments“Leadership Example”Drive TransformationOperational ExcellenceGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution17
Strategic ActivitiesCOREStrategic IntentPeople and MindsetRoadmapGovernanceCore strength is reinforced and supportedby strategic activitiesGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution18
E2E <strong>Supply</strong> <strong>Chain</strong> Excellence:Strategic FrameworkInnovationVISIONCustomerHistoricalE2E M x <strong>Supply</strong> <strong>Chain</strong>Focus(2003–2007) (Today)(pre-2003)Customer Value<strong>Supply</strong><strong>Chain</strong>DesignNewComponentProductSuppliersIntroductionPCBAFactoryDFFactoryOurDockChannelPartnerCustomerExperienceGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution19
E2E <strong>Supply</strong> <strong>Chain</strong> Excellence:Strategic FrameworkVISIONSTRATEGYCustomerExcellenceGlobalGrowthProduct andBusinessModelInnovationSocialResponsibilityTransformationalProductivityEXECUTION12 Capabilities19 Initiatives14 World-Class MetricsGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution21
AMR: Cisco Breaks into Top 10Leader<strong>Supply</strong>ProductDemand<strong>Supply</strong>ProductDemandWinners(Higher price/earnings multiples)OperationalExcellence(Perfect order,total SCM cost)<strong>Supply</strong>DemandLaggardProductLosersLaggardDemandInnovation Excellence(Time to value, return on R&D)LeaderGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution22<strong>Supply</strong>Product
2008 Ranking:AMR Research—Top 25 <strong>Supply</strong> <strong>Chain</strong>s2007 20081Apple14Best Buy2Nokia15Nike3Dell16SonyEricsson4Proctor & Gamble17Walt Disney5IBM18Hewlett-Packard6Wal-Mart19Johnson & Johnson7Toyota20Schlumberger8 Cisco21Texas Instruments9Samsung22Lockheed Martin10Anheuser Busch23Johnson Controls11PepsiCo Cisco24Royal Ahold12Tesco25Publix Super Markets13CokeSource: AMR Research, 2008GSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution23
Award CriteriaThe AMR ranking is based on innovation in supply chaindesign and management, as well as operational excellenceand contribution to outstanding business resultsCompany FinancialPerformance [60% weight]• ROA• Inventory turns• Revenue growthOpinion Component:[40% weight]• Panel <strong>of</strong> AMR Researchexperts• Peer PanelGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution24
Award Metrics8 CiscoSystems99030413.7%9.522.6%4.09Up three spots from last year on strongfinancials, Cisco extends its own considerablelearnings into its channel, most notablywith its Lean Forward initiative.GSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution25
Why Globalize?GrowthInnovationTalentGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution26
Where Are All the People Going To Be?7296325222305USA392Europe18033680520768796SouthAmericaAfricaAsia2007 2050GSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution27
Greatest Economic Shift in 100 YearsShare <strong>of</strong> Global GDP*EmergingEconomies100%75%DevelopedEconomies50%25%1000 1500 1820 1913 1950 2005 2025*At purchasing power paritySource: The Economist, “The New Titans,” 16 Sept. 2006GSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution28
Back to the FutureThe World’s Top 10 Economies1820China 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%2005U.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%2050China 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%Source: World Bank/Angus Maddison. The World Economy: Historical StatisticsPricewaterhouseCoopers/Michael Milken Institute, Chairman, Fastcures/Goldman SachsGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution29
“Do You Know?” VideoGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution30
Drivers <strong>of</strong> <strong>Supply</strong> <strong>Chain</strong> Complexity…Pressure to drive down costsGlobalizationQuickening pace <strong>of</strong> product innovationPursuit <strong>of</strong> new markets and channelsSource: Deloitte, “The Challenge <strong>of</strong> Complexity”, 2003GSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution31
The <strong>Supply</strong> <strong>Chain</strong> Game Is Changing…“…the goal must be torecognize, and use, thebest, most-productivecapabilities, whereverthey are…This meansgoing borderless…Thechallenge is how to do it.”GSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution32
<strong>Supply</strong> <strong>Chain</strong> Complexities in aGlobal MarketplaceCustomer ExperienceCustomer ExperienceCountry <strong>of</strong> OriginLocal ManufacturingLanded Landed Cost CostAny InnovationAny BusinessModelDistributor Distributor Financials FinancialsLocal SourceLocal SourceCounter TradeAnywhere in theWorldBusiness Model InnovationsRisk <strong>Management</strong>Risk <strong>Management</strong>Social Responsibility/GreenGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution33
The Elephant in the RoomCurrent Economic Mess:What Caused It?• Housing-led recessionGlobal EconomicCrisis• Over-leveraged financials• Falling asset prices• Frozen credit markets• Weak household balance sheet• Globally connected financial weaknessGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution34
Global GDP y/y change• The cycle will continue• An economic upturn usually occurs• The downturn may be protracted8%6%'GDP percent change based onchained 2000 dollars4%2%0%-2%-4%1970197219741976197819801982198419861988199019921994199619982000200220042006Source: Bureau <strong>of</strong> Economic AnalysisGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution35
Stock MarketLong Term Trends Are Positive• This cycle has a lot <strong>of</strong> unknowns• Stay focused on the basics• Manage what you can controlPrice History - $INDU (10/1/1928 – 10/13/2008)Oct 1928 Jan 1940 Jan 1950 Jan 1960 Jan 1970 Jan 1980 Jan 1990 Jan 2000 Oct 200816,00014,00012,00010,0008,0006,0004,0002,0000Dow Jones Industrial AverageGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution36
Your Opportunity as a Global <strong>Supply</strong><strong>Chain</strong> LeaderThe current economic situation isunprecedented. Plan with deliberationThere are high levels <strong>of</strong> complexityin the global marketplace<strong>Supply</strong> chain management is drasticallychanging with these requirementsCollaboration is essential to managingcomplexity and increasing capacity inthe extended supply chainGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution37
Changing Your Game:Learning for Life and Leadership• Don’t Just Step Up—Step Out• Think and Learn Globally• Acquire Deeper Understanding<strong>of</strong> Interdependencies• Learn and Adopt Collaboration Tools• Become an Expert in Your Field• Work Smarter Not Harder….And Never Stop LearningGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution38
“In a time <strong>of</strong> drasticchange, it is the learnerswho inherit the future.Those who stop learningusually find themselvesequipped to live in a worldthat no longer exists.”-Eric H<strong>of</strong>ferGSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution39
GSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution40
Differentiators <strong>of</strong> Cisco’s <strong>Supply</strong> <strong>Chain</strong>HybridProductionModelWide-range<strong>of</strong> Products(from IP Phonesto the CRS)MostProducts AreConfiguredto OrderBreadth <strong>of</strong>Customers(Consumer toEnterprise;Global Markets)AcquisitionIntegration(125 to date)GSCM All Hands © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential: Not for Distribution41
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