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.