In the year 2000, Cisco Systems had delighted in forty-quarters characterized by a staggering growth. At some instance, it had outdone GE as a highly valued business globally. Cisco was faced with the fortunate challenge being unable to meet its demand. As a solution, it ventured into long-term obligations with its major component producers and manufacturing partners. In addition, it also built up its constituent inventories. Because of communication gaps amid the numerous levels of the company’s suppliers, triple, and double orders were implemented in order to lock in limited components in the boom. The company was entangled in a spiteful cycle of theatrically inflated sale estimates. Cisco never saw the advance of the economic downturn until later. Consequently, Cisco was made to make the greatest and historical inventory write-down in May 2001. $2.2 billion was deleted from the company’s balance sheet for inventories it had ordered but possibly not utilize. The company’s stock depressed to less than $14 considering that thirteen months prior to the blunder, the stock value had been $82, and the share prices of the company fell intensely.
Cause of the Share price Change
Flaws had caused the change in the Share Prices in the company’s system. In the 1990’s the company’s products were manufactured based on contracts with manufacturers. Cisco had adopted a policy of shipping wholly assembled machines straight from the manufacturers and then sold them to their customers. This policy resulted in many problems later in the business. the arrangements that Cisco had with its contractors led to pile-up of inventory. As a flaw of the company, it failed to note that the projections Cisco had made w...
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...upply chain was organized in the form of a pyramid. Cisco was located at the central point of the pyramid. On the second level, there was a number of manufacturers in a contract with the company and responsible for the assembly of machines. Such manufacturers depended on big sub-tier firms for goods such as optical equipment and processor chips. In turn, the latter was also dependent on other larger base companies that supplied the commodities worldwide. The supply chain was characterized by poor communication that generated problems for Cisco. Once Cisco realized the problem in its supply chain and projection, it established a group of engineers and executives to formulate an ‘e-Hub’ counteractive program. The program helped the company in determining the accurate figure of manufacturers that would abide by an order by using the Partner Interface Process technology.
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