© 2008 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialAMR Confernce 1© 2007 Cisco Systems, Inc. All rights reserved. : Not for Distribution 1

Supply Chain Leadership in Uncertain Times

Supply Chain Leadership in Uncertain Times

C. Kevin Harrington VP, Global Business Operations Global Supply Chain Management (GSCM) Cisco Systems, Inc.

C. Kevin Harrington VP, Global Business Operations Global Supply Chain Management (GSCM) Cisco Systems, Inc.

Executive Speaker Series

Broad Graduate School of Management Michigan State University

Executive Speaker Series

Broad Graduate School of ManagementMichigan State University

© 2008 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialAMR Confernce 2© 2007 Cisco Systems, Inc. All rights reserved. : Not for Distribution 2© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 2

AgendaAgenda How This Changes the Game for SCM How This Changes the Game for SCM

Our Opportunity as Supply Chain Leaders Our Opportunity as Supply Chain Leaders

The Complexity of the Global Marketplace The Complexity of the Global Marketplace

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AgendaAgenda How This Changes the Game for SCM How This Changes the Game for SCM

Our Opportunity as Supply Chain Leaders Our Opportunity as Supply Chain Leaders

The Complexity of the Global Marketplace The Complexity of the Global Marketplace

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Cisco Globally

San Jose, CA

Herndon, VA

Boxborough, MAOttawa, Canada

Raleigh, NCRichardson, TX

London Amsterdam

Tel Aviv

Bangalore

Shanghai

Singapore

Dubai

Sydney

66,000 employees in 70 countries300+ office locationsHeadquarters1/3 Engineering/IT, 1/3 Sales, 1/3 all others

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2000(cont)

Acquisitions Total: 125+

1995

1996

1997

1998

1999

1999

2001

1993 2007

1999

1994

2000

2002

2003

2004

2005

2005(cont)

2006

2008

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Total $39.5B 13% Y/Y

Record revenue of $39.5B… up 13% Y/Y

Cash flows from operations of $12B… up 20% Y/Y

Product order growth approximately 12% Y/Y

Service order growth approximately 25% Y/Y

FY’08 Fiscal Year Revenue

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FY’08 Revenue Increased 13% y/y

FY’08 Year/Year Growth

Routers $7.9B 14%

Switches $13.3B 7%

Advanced Technologies $9.7B 21%

Other $2.1B 7%

Services $6.4B 18%

Total $39.5B1 13%

1 As a result of rounding, figures may not total. For detailed results, please see Cisco’s Investor Relations Website at http://investor.cisco.com/results.cfm

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January 1995 November 2005 July 2008

Cisco

$10B

Top 12Competitors

$71B

Cisco

$110B Top 11Competitors

$60B

Cisco

$135B

Top 11Competitors

$34B

Market Capitalization Leadership

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1997 2000 2006 2008

Collaboration/ Web 2.0

Collaboration/ Web 2.0

Network as Platform

Network as Platform

Network of Networks

Network of Networks

All in One: Data/Voice/Video

All in One: Data/Voice/Video

Our strategy is guided by the market transitions that affect our customers.

Market Transitions

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John Chambers, President and CEO, Cisco Systems

Collaboration – The Network as the Platform…

“Cisco’s strategy is a story based on change—the market transitions that affect our customers. Through multiple transitions in the last decade and over the next 3–5 years, the network will evolve from the plumbing of the Internet— providing connectivity—to the platform that enables people to experience life.”

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CiscoCisco

Operating Council Boards and CouncilsSr Leadership Offsite

Sr Leadership MeetingsExtended Leadership MeetingsManager Development ProgramsPortfolio Prioritization

End-to-End Alignment: Vision, Strategy, Execution

GSCMGSCM

Functional TeamsFunctional Teams

© 2008 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialAMR Confernce 12© 2007 Cisco Systems, Inc. All rights reserved. : Not for Distribution 12© 2007 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialGSCM All Hands 12

AgendaAgenda

Our Opportunity as Supply Chain Leaders Our Opportunity as Supply Chain Leaders

The Complexity of the Global Marketplace The Complexity of the Global Marketplace

How This Changes the Game for SCM How This Changes the Game for SCM

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Global Factory and Distribution Infrastructure

PCBA Sites Service Provider Video Technology Group (SPVTG)

Box Build Sites Linksys

PCBA/Box Build Sites Strategic Logistic Centers

Longhua, China

Pardubice, CZ

Tiszaujvaros, HU

Houston, TX Hong Kong, China

Tokyo, Japan

Penang, MY

St Petersburg, FL Laem Chabang, TH

Roermond, NL

Galway, IE

Singapore

Guadalajara, MX

Zalaegerszeg, HU Futian, China

Shenzhen, China

Ontario, CA Atlanta, GA

El Paso, TXJuarez, MX

Naperville, IL

Brno, CZ

South Hampton, UK

Shanghai, China

Austin, TXToronto, Canada

Kortrijk, BE

4 EMS Partners, 5 ODM/OEM Partners31 Manufacturing Sites

4 Logistics Partners17 Logistics Sites

4 EMS Partners, 5 ODM/OEM Partners31 Manufacturing Sites

4 Logistics Partners17 Logistics Sites

Chennai, India

Doumen, China

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Increasing Complexity Leading Influencer of Supply Chain Strategy

Source: McKinsey, “Managing Global Supply Chains,” 2008

Which of the following factors, if any, currently have the most influence over your supply chain strategy?

What’s shaping strategy?% of respondents,1 n-273

Total Europe Developing Markets2

North America

Increasing complexity of products/services 47 60 44 35

Rising energy prices 36 33 45 39

Increasing financial volatility 29 17 34 38

Increasingly global labor markets, including rising wage rates 20 17 20 18

Shifting industry structures or forms of corporate organization 18 19 11 18

Adoption of increasingly scientific, data-driven management techniques (eg, tracking technology) 17 4 16 25

Exposure to differing regulatory requirements in different geographies 15 8 20 20

1Respondents could select up to 3 answers; those who answered “other” or “don’t know” are not shown.2Includes China, India, and Latin America.

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Benefits of Cisco’s Global Supply Chain Architecture

Lead time/proximity to major market geographies

World class talent and technical skills

Access to top tier suppliers

Logistic channels

Cost optimization

Tax and legislative benefits

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Mx1.0

Mx 2.0

Transforming a Complex Supply Chain Requires a Long-Term Approach

Vision and Aspiration

Alignment and Deployment

2005Worldwide

Manufacturing

2008Global Supply

Chain Management

Manufacturing Excellence (Mx):

Our intention to become the

undisputed leader in Supply

Chain Management

Manufacturing Excellence (Mx):

Our intentionto become the

undisputed leader in Supply

Chain Management

Expanding our Capabilities and Strategic

Intent

Expanding our Capabilities and Strategic

Intent

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Transformation Must be Balanced with Operational Excellence

Business TransformationBusiness Transformation

Operational ExcellenceOperational Excellence

Drive PerformanceMake CommitmentsDrive PerformanceMake Commitments

“Leadership Example”Drive Transformation

“Leadership Example”Drive Transformation

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Strategic Activities

Strategic IntentStrategic Intent

GovernanceGovernance

RoadmapRoadmap

People and MindsetPeople and Mindset

Core strength is reinforced and supported by strategic activities

CORECORE

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E2E Supply Chain Excellence: Strategic Framework

Historical Focus

(pre-2003)Mx Supply Chain

(2003–2007)

Component Suppliers

Channel Partner

New Product

IntroductionPCBA

FactoryOur

DockDF

FactoryCustomer

ExperienceSupply Chain

Design

E2E Supply Chain(Today)

Inno

vatio

n

Cus

tom

er V

alue

Customer

VISI

ON

VISI

ON

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STR

ATE

GY

STR

ATE

GY

VISI

ON

VISI

ON

E2E Supply Chain Excellence: Strategic Framework

Customer Excellence

Global Growth

Product and Business

Model Innovation

Transformational Productivity

Social Responsibility

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Social Responsibility

E2E Supply Chain Excellence: Strategic Framework

EXEC

UTI

ON

EXEC

UTI

ON 12 Capabilities

19 Initiatives

14 World-Class Metrics

STR

ATE

GY

STR

ATE

GY

Customer Excellence

Global Growth

Product and Business

Model Innovation

Transformational Productivity

VISI

ON

VISI

ON

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AMR: Cisco Breaks into Top 10

Innovation Excellence (Time to value, return on R&D)

LeaderLaggard

Winners(Higher price/

earnings multiples)

Losers

SupplyDemand

Product

Supply

Demand

Product

Demand

Supply

Product

SupplyDemand

Product

Laggard

Leader

Operational Excellence

(Perfect order, total SCM cost)

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Source: AMR Research, 2008

2008 Ranking: AMR Research—Top 25 Supply Chains

Best Buy

Nike

SonyEricsson

Walt Disney

Hewlett-Packard

Johnson & Johnson

Schlumberger

Texas Instruments

Lockheed Martin

Johnson Controls

Royal Ahold

Publix Super Markets

14

15

16

17

19

20

21

22

23

24

25

18

2007 2008Apple

Nokia

Dell

Proctor & Gamble

IBM

Wal-Mart

Toyota

Cisco

Samsung

Anheuser Busch

PepsiCo

Tesco

Coke

1

2

3

4

5

6

7

8

11

13

12

9

10

8 Cisco

11

9

10

Cisco

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Company Financial Performance [60% weight]

Company Financial Performance [60% weight]

ROA

Inventory turns

Revenue growth

ROA

Inventory turns

Revenue growth

Opinion Component: [40% weight]

Opinion Component: [40% weight]

Panel of AMR Research experts

Peer Panel

Panel of AMR Research experts

Peer Panel

The AMR ranking is based on innovation in supply chain design and management, as well as operational excellence

and contribution to outstanding business results

The AMR ranking is based on innovation in supply chain design and management, as well as operational excellence

and contribution to outstanding business results

Award Criteria

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Award Metrics

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Up three spots from last year on strong financials, Cisco extends its own consider- able learnings into its channel, most notably with its Lean Forward initiative.

4.0922.6%9.513.7%3049908 Cisco Systems

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Why Globalize?

Innovation TalentGrowth

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USAUSA

South America South

America AfricaAfrica

AsiaAsiaAsia

EuropeEurope

Where Are All the People Going To Be?

18031803

52225222

768768

392392

632632

36803680

796796

729729729

305305

520520

20072050

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1000 1820 1913 1950 2005 2025

50%

75%

25%

1500

100%

Developed Economies

Emerging Economies

Share of Global GDP*Share of Global GDP*

*At purchasing power paritySource: The Economist, “The New Titans,” 16 Sept. 2006

Greatest Economic Shift in 100 Years

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Back to the Future

1820

Source: World Bank/Angus Maddison. The World Economy: Historical StatisticsPricewaterhouseCoopers/Michael Milken Institute, Chairman, Fastcures/Goldman Sachs

The World’s Top 10 Economies

20502005

China 28.7%India 16.0%France 5.4%U.K. 5.2%Prussia 4.9%Japan 3.1%Austria 1.9%Spain 1.9%U.S. 1.8%Russia 1.7%

U.S. 28.4%Japan 10.6%Germany 6.4%UK 5.0%France 4.8%China 4.4%Italy 3.9%Spain 2.6%Canada 2.5%India 1.7%

China 25.6%U.S. 20.3%India 16.0%Japan 3.9%Brazil 3.5%Russia 3.4%Indonesia 2.3%U.K. 2.2%Germany 2.1%Mexico 2.0%

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“Do You Know?” Video

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Drivers of Supply Chain Complexity…

Source: Deloitte, “The Challenge of Complexity”, 2003

Pressure to drive down costsPressure to drive down costs

Quickening pace of product innovationQuickening pace of product innovation

Pursuit of new markets and channelsPursuit of new markets and channels

GlobalizationGlobalization

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The Supply Chain Game Is Changing…

“…the goal must be to recognize, and use, the best, most-productive capabilities, wherever they are…This means going borderless…The challenge is how to do it.”

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Customer ExperienceCustomer Experience

Country of OriginCountry of OriginLocal ManufacturingLocal Manufacturing

Landed CostLanded Cost

Local SourceLocal SourceCounter TradeCounter Trade

Distributor Financials

Distributor Financials

Social Responsibility/GreenSocial Responsibility/GreenRisk ManagementRisk Management

Business Model InnovationsBusiness Model Innovations

33

Supply Chain Complexities in a Global Marketplace

Any InnovationAny Business

Model Anywhere in the

World

Any InnovationAny Business

ModelAnywhere in the

World

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The Elephant in the RoomCurrent Economic Mess: What Caused It?

Housing-led recession

Over-leveraged financials

Falling asset prices

Frozen credit markets

Weak household balance sheet

Globally connected financial weakness

Global EconomicCrisis

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Global GDP y/y changeThe cycle will continueAn economic upturn usually occursThe downturn may be protracted

Source: Bureau of Economic Analysis

-4%

-2%

0%

2%

4%

6%

8%

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

'GDP percent change based on chained 2000 dollars

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This cycle has a lot of unknownsStay focused on the basicsManage what you can control

Stock Market Long Term Trends Are Positive

Price History - $INDU (10/1/1928 – 10/13/2008)Price History - $INDU (10/1/1928 – 10/13/2008)

Oct 1928 Jan 1940 Jan 1950 Jan 1960 Jan 1970 Jan 1980 Jan 1990 Jan 2000 Oct 2008

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0Dow Jones Industrial Average

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The current economic situation is unprecedented. Plan with deliberation The current economic situation is unprecedented. Plan with deliberation

There are high levels of complexity in the global marketplace There are high levels of complexity in the global marketplace

Supply chain management is drastically changing with these requirements Supply chain management is drastically changing with these requirements

Collaboration is essential to managing complexity and increasing capacity in the extended supply chain

Collaboration is essential to managing complexity and increasing capacity in the extended supply chain

Your Opportunity as a Global Supply Chain Leader

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Changing Your Game: Learning for Life and Leadership

Don’t Just Step Up—Step Out

Think and Learn Globally

Acquire Deeper Understanding of Interdependencies

Learn and Adopt Collaboration Tools

Become an Expert in Your Field

Work Smarter Not Harder

….And Never Stop Learning

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“In a time of drastic change, it is the learners who inherit the future. Those who stop learning usually find themselves equipped to live in a world that no longer exists.”

- Eric Hoffer

“In a time of drastic change, it is the learners who inherit the future. Those who stop learning usually find themselves equipped to live in a world that no longer exists.”

- Eric Hoffer

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Differentiators of Cisco’s Supply Chain

Hybrid Production

Model

Most Products Are Configured

to Order

Wide-range of Products

(from IP Phones to the CRS)

Breadth of Customers (Consumer to

Enterprise; Global Markets)

Acquisition Integration (125 to date)