Supply Chain Disruption Lessons from Cisco

In this article, we will show you how Cisco puts theory into practice to survive a natural disaster, political unrest, epidemic, and other supply chain disruption.

Supply Chain Disruption Concept

Do you feel disruption and risk management are too complicated to implement?

It's OK if you feel overwhelmed by theories because you're not alone. Based on the literature review of Behdani et al. 2012 called "How to Handle Disruptions in Supply Chains – An Integrated Framework and a Review of Literature", academic article in this area is centered around 2 themes, namely, Risk Management (before disaster strikes) and Disruption Management (after disaster strikes).

There are so many sophisticated methods to analyze disruption and risks. To be exact, if you read one article every day you will have different articles to read for more than 4 years straight! But when it comes to disruption management, there are less than 10 articles indirectly discussing this.

For practitioners, one question arises, how do I know disruption and risk theories actually work? Because it's quite difficult to put theories to the test and nobody wants to test them!

Supply Chain Disruption - Cisco Case Study

The only solid case study about supply chain risk is definitely from Cisco System. The company won the ISM 2012 Award for Excellence in Supply Management (category: process). And according to the U.S. Resilience Project, its methods have been tested under many extreme circumstances such as,

- 2008: Chengdu Earthquake in China
- 2009: H1N1 Outbreak in Mexico
- 2011: Earthquake/Tsunami in Japan
- 2011: Thailand Floods

There are unique ways how Cisco Handles major international business disruptions. They develop a system called "Risk Engine" which incorporates 100-year flood data, geological and geopolitical data, site incident data, supplier performance, and so on so they can predict the magnitude of disruptions. Another thing is a very extensive supplier database.

How to Prevent Supply Chain Disruption

However, the logic Cisco uses to manage the disruption is very robust and details are summarized in the infographic below,

Note: metrics data are for illustrative purposes.

In detail, the whole system Cisco develops is far more complex than this. But the purpose of this infographic is to extract the goodness that ordinary people in ordinary companies can use with confidence. Nevertheless, there are things to consider below,

- This article doesn't show you how to classify/identify risks. Then, it is highly recommended to adopt any method you feel comfortable with, a simple risk analysis method may work well. The reason is that, from my observation, Cisco manages suppliers at scale. If you can manage more than 1,000 suppliers (95% of your total spending). You are most likely to survive and thrive like Cisco.

- Robust risk mitigation strategies really work. The cross-functional team, inventory standardization, lean manufacturing, six sigma quality program, the backup suppliers, dual-sourcing, supplier negotiation, and collaboration are the basic foundation that is tried and true. These strategies will help you in both normal circumstances and situations under disruptions.

- Metrics look very simple and it's kind of nice to have something like this. But when you look closely, metrics are segmented by the level of impact (impact at the component level, process level, and site level). In general, you may not be able to get all levels of metrics.

- Even though there are some methods that can help you to quantify the financial impact of disruptions, it can be elusive. Because the impact of disruption is time-based, you need to determine the length of time under disruptions. In my opinion, you can segment the impact by product category (strategic or non-strategic products) or constrained materials (products with long lead-time).

- You need a very extensive database that you can pull out the necessary data easily, so assembling of war room will be productive. Also, Cisco includes many stakeholders in the war room such as internal parties, representatives of all related suppliers, logistics providers, and someone from the sales channel. This is definitely the secret sauce for success.

- Since Cisco outsources most of its manufacturing operations, this method may not work if you're a manufacturing company and you're in the impact zone. Yes, there is one paper discussing how the manufacturing companies in Japan survived disruptions (the hard way) called "Supply chain lessons from the catastrophic natural disaster in Japan" by Park et al. 2013. Common robust strategies are supplier collaboration and part standardization.

- The interesting point about the incident in Japan is that, even though you have the backup suppliers (someone you're not currently purchasing from but you can switch to if you want) or you currently do dual sourcing (you're buying the same products from 2 or more suppliers at the same time), if these alternative sources are in the same area, it's game over! So the alternative sources should be in totally different locations or ideally, in different countries.

- Lesson learned from Japan is that you need another kind of IT system project if you're in a manufacturing company. You need the offsite data storage that contains the manufacturing data such as BOM, routing, manufacturing procedures, and supplier/customer data. So when your own factory is hit, the alternative sources can use these data to start production.

References
- Behdani, B., Adhitya, A., Lukszo, Z., & Srinivasan, R. (2012). How to handle disruptions in supply chains–an integrated framework and a review of literature.

- O’Connor, J., Steele, J. B., & Scott, K. (2012). Supply Chain Risk Management at Cisco: Embedding End-to-End Resiliency into the Supply Chain. Institute for Supply Chain Management, Tempe.

- Park, Y., Hong, P., & Roh, J. J. (2013). Supply chain lessons from the catastrophic natural disaster in Japan. Business Horizons, 56(1), 75-85.

Books We Recommend

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Last review and update: July 5, 2022