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382 SUPPLYCHAINMANAGEMENT AND THEINTERNETTable 2Benefits of Cisco’s Extended Supply Chain
Information System90% of business transacted over the Internet
Reductions of 45% in inventory as a percent of sales
Order cycle time reductions of 70%
Time to volume—the time required by production lines
to scale for mass manufacturing—cut by 25%
Improved service system using Internet-based self-service
70% of customer service inquiries resolved online
Higher customer satisfaction levels
Rapid creation and marketing of new products
Ship directly from the manufacturer
Ability to scale up continuously to meet rapid market
growth
Ability to reallocate employees to higher productivity
jobs (double the revenue per employee as
competitors)facilitates information flows across the entire supply
chain. The e-Hub permits information sharing about de-
mand forecasts, supply status updates, event alerts, and
inventory levels for components, and provides the basis
for collaborative planning and execution. Additional fea-
tures include an Internet-based customer service and sup-
port system, product testing using the Internet, the use of
“dynamic replenishment” software to link customer or-
ders to supply chain producers, and a sophisticated sys-
tem for data mining of the information system. The ben-
efits of this system are considerable and are outlined in
Table 2. By early 2000, Cisco had the largest market capi-
talization of any firm in the world.
In the wake of a steep decline in spending for net-
works, however, this remarkable system floundered and
then broke down The capacity of the Cisco supply chain
to scale up to meet market growth did not work well in
reverse; that is, Cisco was unable to scale down as quickly
or effectively. The result was an enormous buildup of in-
ventory and a $2.5 billion inventory write down against
Cisco’s earnings.
The problem, according to one study (Lakenan, Boyd,
& Frey, 2001), came from the misalignment of goals and
business plans between Cisco and its supply chain part-
ners, who are mostly contract equipment manufacturers.
Various units of the supply chain used different standards
for making decisions, and the informal communication
that could have uncovered these differences did not hap-
pen. The formal contractual relationships between Cisco
and its suppliers were unable to capture the tacit rules
necessary for an effective relationship, and the informa-
tion flowing through the supply chain was not rich enough
to make adjustments to changing market conditions. The
source of the differences was a mismatch between Cisco’s
need for production flexibility and its suppliers’ need for
predictability, which made it difficult to turn off the push
part of the production system fast enough to adjust to
deteriorating market conditions. What could have been
done differently? According to Lakenan et al., firms like
Cisco need to think in terms of a supply web with differ-
entiated production capabilities and greater flexibility ofcapacity utilization. This involves not only more flexibility
in product design but also a greater willingness for strate-
gic supply partners to make adjustments and adaptations
to the supply web as conditions warrant.Dell Computer
Dell is rightfully seen as one of the closest approxima-
tions of an extended, real-time enterprise. Dell’s business
model has always been direct sales to end users, who are
primarily enterprises (Mendelson, 2000). Its role is to as-
semble and rapidly deliver the final product based on cus-
tomer configuration, with all components outsourced. A
large and growing portion of Dell’s sales are made over
the Internet, which also is the medium for much of Dell’s
customer support and a key element of the integrated in-
formation system linking customers to the supply chain.
Except for a brief interlude, Dell has always been a direct
sales firm that provided build-to-order machines, which
facilitated its adoption of the Internet for sales. Addition-
ally, the initial emphasis on speed of operation and low
inventory also contributed to the adoption of the Internet.
The direct sales model already contributed valuable infor-
mation about end demand and market shifts, along with
indicators about how service and support could be used to
add value to the product. In many ways, Dell’s operations
were defined in Internet terms before the emergence of
the browser-based Web. Dell was already an information-
intensive firm that used this information to accelerate the
speed and leanness of its operation.
The Internet built on and accentuated Dell’s business
model and corporate culture. This helps account for Dell’s
status as the primary example of an Internet-based firm.
Dell’s position rests on its ability to create and manage an
information system that integrated the production and
delivery of components, assembly of machines, and di-
rect sales, distribution, and servicing of those machines.
One measure of the ease of transition to the Internet was
the rapid jump in Internet sales from $1 million per day
in early 1997 to $50 million per day in 2000 (Kraemer &
Dedrick, 2001). At the same time, the transition brought
significant increases in efficiency and customer satisfac-
tion.
Much like Cisco, Dell’s Internet capabilities extend
from customer to suppliers. The ability to custom con-
figure the machine effectively brings the customer inside
Dell. Further, the Internet permitted Dell to provide cus-
tomers with rich information about the product, includ-
ing the cost for each variation of the machine. Customers
became much better informed about the product and the
purchase experience, and felt like they were on the shop
floor making choices and understanding those choices.
The Internet provided better tracking information to cus-
tomers at a lower cost to Dell than the telephone. Also
service was made easier by using the Internet to provide
downloads and even to diagnose problems. The develop-
ment of a customized Web site for customers provided
Dell with asset management capabilities. The Internet-
based volume of rich information about customers al-
lowed Dell to seek out and use this customer information
to develop products and services. As a result, marketing
strategies can be quite differentiated and the Internet can