Warehouse network

IT giant, Cisco Systems has speeded delivery of its spare parts in the region by opening a number of local depots. These will allow the company to improve its service levels and sell higher level support agreements.

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By  Laura Barnes Published  June 1, 2005

|~||~||~|Cisco Systems has set up a network of bonded warehouses across the Middle East and North Africa (MENA) region in response to growing demand for its spare parts and services in the local market. The depots, which are operated by DHL and TNT, will allow the IT networking giant to offer its customers a higher and quicker level of service. Previously, Cisco held its spares for the region in a central EMEA facility in Holland, with a smaller depot in Dubai. However, because of transit times and customs procedures, it could take nearly a week for a part to be delivered to the end user or local reseller, which was impacting on Cisco’s service levels. “We decided to open up depots in this region because of two major factors: customers’ requirements and our partners’ requirements to receive parts locally and customs cleared,” says Stephen Boyd, CA territory manager, subsaharan Africa, Cisco Systems. “In the past there was a timeline for goods arriving here from Amsterdam. The goods left the Netherlands, then they arrived at ports in the Middle East and then came through customs clearance. This all took up to five or six days,” says Boyd. “Furthermore, even with a hub in Dubai we still could not guarantee immediate delivery throughout the Middle East or Indian region, as the part had to go through customs at various points, which meant that service levels were not always met,” he adds. To improve this situation, the company has opened a network of facilities across the region, as part of a wider global policy. These hubs mean that the company can guarantee delivery of parts in as little as two hours, as they are both physically closer to the customer and already customs cleared. “The opening of the local depots ensures our partners can provide the level of onsite service that customers demand, even if it is two hour, four hour or next day service level agreements (SLAs),” says Tarek Ghoul, channel manager, GCC, Cisco Systems. These depots will thereby enable the company to offer better support and also sell higher level SLAs, which will allow it to generate some return on its investment and win market share. “It was customer requirements that drove this expansion, and our ability to provide support services to compliment the overall solutions that we have installed,” says Boyd. “[The change] was not really made from a problem prospective but rather from a business opportunity prospective instead,” he adds. Under the expansion plan, Cisco has opened 14 depots: two in Egypt, three in Saudi Arabia, two in Pakistan and one each in Kuwait, the UAE, Bahrain, Lebanon, Morocco, Oman and Jordan. All of these facilities are located in 3PL warehouses, operated by either DHL or TNT. Despite the new facilities, the general process for ordering spare parts remains the same as it did before the depots opened. Customers place their requests via an online service or by telephoning one of Cisco’s technical assistance centres (TACs). The global TAC service has four bases — Brussels, San Jose, Bali and Sydney — which provide 24 hour coverage. When a call is received, a TAC representative works with the end customer or partner to diagnose the problem. If from the diagnosis, it is decided that a spare part is needed, then the call is transferred to Cisco’s central logistics group, which triggers the delivery of the part. In the past, the request for a spare part would then see the product leave Holland or be despatched from the regional hub in Dubai to reach the customer; however, it is now sent from one of the local depots. In selecting the location for its facilities, the key aspect for Cisco was proximity to its customers in order to meet the two hour SLA delivery targets. This means that even with the benefits of the GCC Customs Union, in terms of removing clearance problems, the company opted for a series of smaller facilities across the Gulf rather than one central point. “With all the intentions in the world we could not get goods from the Jebel Ali Free Zone into Riyadh in that time [two hours],” says Boyd. ||**|||~||~||~|Having decided which cities it needed facilities in, Cisco then had to select the 3PLs to run them. This was decided on a country-by-country basis and depended upon a range of factors, including available warehousing close to major cities, which is where most of Cisco’s clients are based. A further consideration was which vendor had the largest network and reach within a country, which would thereby ensure a wider coverage for Cisco’s clients and resellers. “We effectively work with different vendors across the region to provide a solution, so they are not wholly Cisco-owned and managed facilities. Instead, they are outsourced to experts in the field and dependent upon the territory this dictates the vendor and whether it is TNT or DHL,” says Boyd. With such a wide range of different locations, a major challenge for Cisco is keeping track on what products are located where, and deciding how many it needs at each site. The company presently supports 12,100 SKUs around the world, but the number of items and the amount held in each depot varies according to the number of customers, the type of equipment used in customers’ systems and support contract requirements. “It can vary between different depots from 50 to 100 [SKUs] to as low as 10 or 20, depending on the types of network and contracts we are supporting,” Boyd comments. To manage its spares inventory across its range of warehouses worldwide, the networking giant uses MCA Solutions’ Service Planning & Optimisation (SPO) solution. This system automatically calculates the optimal number and type of parts to be held in each location based on a range of factors, including product penetration rates and customer usage. “We have a central system that we manage and plan with imagery planning parameters and imagery planning systems, which allows us to effectively determine with each contract that we need to have x number of spare parts in locations x, y and z to meet the obligations of each contract,” Boyd explains. The MCA solution is also integrated with Cisco’s TAC call centres and website, as well as with the back end systems used by its 3PLs. As such, when a part order is received, it is seamlessly transmitted to the facility closest to the customer, which then undertakes the delivery. “Inside the facility, it is the vendor’s system that is used, but to get the message from us to them we use an electronic EDI interface. So we have our own system on our side, we transmit our requests and then they, the vendor, use their system,” states Boyd. Furthermore, the realtime integration between the 3PLs’ back end systems and Cisco’s operations means that as soon as a part is dispatched a signal is sent to Cisco’s central warehouse in Holland, which then despatches a replenishment part. The 3PL operating the local site is responsible for organising the shipment. “If a part needs to be shipped to an end customer, a replenishment signal will be sent to Europe, and from there, the central warehouse deploys the part using the 3PL’s standard delivery process,” says Boyd. “From a logistics point of view, everything churns on a daily basis, so parts will be distributed from the central warehouse in Amsterdam via the vendor’s hubs,” he explains. Opening depots throughout the region has already had a strong effect on Cisco’s business. The IT vendor is able to offer a higher level of service, which is keeping customers more satisfied, while also allowing it to grow its service contracts business by 30-40% year on year. “The market has been accelerating very fast over the past few years. We began operating depots on a global scale a couple of years ago, and now we have more depots opening with the passing of each year. I think our growth can be put down to companies having business criticality and us being able to provide for this with depots scattered across the whole network,” says Boyd. In the future, Cisco may add to the 14 facilities it now has in the region by moving into smaller cities. However, in the short term, at least, it is more likely to expand its floorspace at the current locations. “At the moment we have depots in major cities across the Middle East. Our customers are based in the big cities like Riyadh, Dubai and Muscat. There may well be expansion into secondary cities, but in the near future we are more likely to see a continued extension of what we already have. We work on gradual phases not blips,” concludes Boyd.||**||

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