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A Web Profit Prophet Spreads The Word

Business Week -- Web Smart 50 -- Streamlining

A Web-Profit Prophet Spreads the Word

Three months ago, Cisco Systems Inc. faced a threat that could easily have turned into a disaster. The networking-equipment giant was running dangerously short on the key components used to build its sophisticated Internet gear. That didn't happen. Cisco's automated inventory and ordering system, which connects to suppliers and contract manufacturers over the Web, foresaw the problem and instantly sent out electronic cries for help. Cisco was able to boost its inventory by more than a third. That allowed the San Jose (Calif.) company to deliver sales growth of 61% for its quarter ended July 29, triple the rate of rival Lucent Technologies Inc.

Cisco is already world famous as a pioneer at selling products on the Web, but behind the scenes, under CEO John Chambers' leadership, the Net is transforming practically every aspect of the way the company does business. In the process, its successes are inspiring other companies, like Ford Motor Co., to wire up to the Web and change the way they operate, too.

It's no wonder others are looking to Cisco for advice. The company saves more than $800 million annually--or 20% of its yearly profit--by using the Web for everything from controlling inventories to managing finances to recruiting. That's on top of the $40 million a day in Web sales--90% of its orders--that makes Cisco the world's largest e-commerce player.

Cisco's use of the Web is one of the main reasons for its astounding success, along with its technology and zealous devotion to customer service. Efficiencies achieved on the Web have helped Cisco maintain fat gross margins--above 60% for the past three years--even as networking players 3Com Corp. and Cabletron Systems Inc. struggled to make profits. "Cisco uses the Web like a weapon," says analyst Erik Suppiger of Chase H&Q.

Such Web obsession isn't merely encouraged, it's required. When Cisco's 35,000 employees are evaluated, they get brownie points--and bonuses--based partly on their ability to improve operations using the Web.Sharing the Wealth. One great idea was the system that spared Cisco that inventory shortfall last quarter. Already, 57% of Cisco's orders are input directly by customers from their PCs, zapped to the Web ordering system, and fulfilled by outside suppliers such as Flextronics International Ltd. Because Cisco's component suppliers also see the order, they can ship the parts needed and replenish their stockpiles in real time.

Cisco has become so famous for its use of the Web that its executives are in demand by others wanting to know its secrets. Cisco offers customers e-business consulting advice free of charge. It is only too glad to share its wealth of experience; after all, the more companies use the Web for business, the greater the demand for Cisco gear.By John ShinalReturn to top


Cisco Systems

John Chambers, CEOThe Project: An automated Web sales-and-inventory-tracking system linking Cisco with its suppliers, manufacturers, and customers.The Payoff: Savings of some $800 million annually, or 20% of its yearly profit.Return to top

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