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December 13, 1999

E-Business 100
Cisco Simplifies Business

Illustration by James O'Brien onsidering that much of Cisco Systems' business is making the routers that direct traffic over the Internet, it should be no surprise that the Net plays a central role in the way the networking company conducts its business.

Cisco--which ranked No. 3 on the InformationWeek E-Business 100 list--started taking orders on its Web site four years ago, and online commerce has steadily increased ever since. Nearly 85% of orders, an average of $37 million a day, are placed on the company's Web site. That's a 71% increase over the number of Web transactions Cisco customers placed a year ago.

But E-commerce to Cisco is not so much about making more money as it is about simplifying business processes and improving customer relationships.

"Key initiatives like electronic commerce have been largely driven by improving relationships with our customers, improving their satisfaction with our services, and integrating our business models with theirs so we simplify things for both entities," says Cisco IS director Mark Tonnesen.

Cisco does not stock finished goods. So it's essential that it quickly and effectively communicate information about its products with its business partners. To this end, Cisco has developed an electronic supply-chain model that is used by its 32 manufacturing plants worldwide, 30 of which are not owned by Cisco. Orders are collected in an Oracle enterprise resource planning database and sent to one or more of the assembly vendors that build Cisco products over a virtual private network. Though the manufacturers run different types of ERP software, all are able to accept orders over the Internet and can interoperate with Cisco's supply-chain system. Using this model, Cisco can start manufacturing build-to-order products within 15 minutes of receiving an order. The system can track the status of orders as well as distribute software updates and specification changes to manufacturers.

The improved communications between Cisco and its manufacturers has cut product lead time in half, to two to three weeks from four to six weeks. "You can't do that with EDI. You can't do that with faxes," Tonnesen says. "You can't ensure that engineering changes, which are made to products all the time, are handled appropriately unless it's all integrated."

Cisco's E-commerce system has evolved as its business model changed. Today, more than half of Cisco sales are by resellers, much higher than in previous years. Though most resellers have business relationships with distributors, many prefer to place orders on the Cisco Web site. So Cisco developed an Extensible Markup Language online shopping cart based on Comergent Inc. software that links Cisco's E-commerce system to Ingram Micro and other distributors' sales and marketing software.

Rather than forwarding resellers' orders directly to the plants, orders can be routed to the distributor's ERP system. That way, a distributor can add features, such as offering the reseller a discount if it purchases a certain number of products.

Cisco also uses the Internet to cut operating costs. During the past four months, the company has deployed more than 1,700 IP-based telephones in 14 offices worldwide, cutting the costs of operating separate voice and data networks at these sites. The San Jose, Calif., company plans to deploy IP-based phones in another 12 offices by early next year. Additionally, Cisco is in the early stages of deploying a training program via the Web. Field engineers, resellers, and enterprise customers will be able to take certification courses that are streamed to them over the Internet or Cisco's intranet.

"We know how to use the Internet ourselves to improve productivity and gain a sustained advantage over competition," says Cisco CEO John Chambers. "It changes the way everyone works at Cisco, from the individual salesperson, the engineer, the person on the factory floor, through to senior management."

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