Cisco has one of the most complex supply chains in the IT industry, with more than 600 suppliers and some 50,000 purchased parts supporting almost 200 product families. Our partners provide electronic manufacturing, test, design, transportation, logistics, and other services. With this breadth of supply and critical fabrication partners, managing supplier relationships is a complex, demanding, and ongoing process.

Supply Chain Management

Cisco believes that a world-class supply chain allows us to offer our customers world-class products and services. We select suppliers whose standards align with our values, particularly with regard to business integrity. And we conduct quarterly business reviews of our suppliers’ business activities, financial stability, engineering practices, and quality procedures.

When necessary, we request third-party audits of a supplier’s business operations to assess their adherence to each point of our Supplier Code of Conduct. Despite a business model that is heavy on outsourcing, Cisco’s supply chain management structure gives us significant control over our supply chain, helping to ensure that deliverables meet our cost, quality, and delivery expectations.

Social Responsibility

Since 2004 Cisco has taken a leadership role in supply chain social responsibility. We support the Electronics Industry Code of Conduct (EICC), the Global e-Sustainability Initiative, and other key industry coalitions. As a member of the EICC steering committee, we have been able to help guide the expansion and management of this groundbreaking group, and we have actively contributed to the development of standardized methodologies, tools, and processes for assessing and monitoring supply chain social responsibility across our industry sector.

Cisco’s involvement in these supply chain initiatives reflects our commitment to working within the industry to improve the environmental, labor, health, and safety performance of our common supply base. Cisco’s Supplier Code of Conduct reflects the common rules developed through the EICC, but also includes additional requirements specific to our business and operating model.

Supplier Code of Conduct

The Cisco Supplier Code of Conduct forms the basis for our supply chain social responsibility program. All contracts with suppliers make reference to the Supplier Code of Conduct, and suppliers agree to the tenets of the Code before working with us.

Cisco’s supplier assessment process evaluates supplier performance on Supplier Code of Conduct issues. Our assessment is consistent with the process developed collaboratively within the EICC. It consists of:

• Risk assessment of each supplier facility
• Review of the systems for those facilities that are identified as being most at risk
• A process for conducting third-party facility audits (where appropriate)
• Corrective action program

Progress and Future Plans

In 2007 our supplier assessment process started with our participation in the EICC Joint Pilot Audits. The pilot consisted of third-party audits of more than a dozen EICC member facilities in China, including both contract manufacturers and commodity suppliers. Using the EICC-designed tools and reporting format, the audits focused on the labor, environmental, health, safety, ethics, and management system aspects of the code of conduct. The results of these audits enable Cisco to identify potential opportunities for improvement and work with our suppliers to resolve any challenges.

Beyond our supplier assessment program, Cisco is also evaluating other aspects of supplier performance, including ozone-depleting chemical use, energy consumption, and waste disposal programs.

For FY08 Cisco plans to expand the scope of its supplier assessment process to include our first-tier supply base, as well as any key commodity suppliers that participate in Phase II of the EICC joint audits that will take place at the end of 2007. We plan to report metrics around this program in the 2008 Cisco Corporate Citizenship Report.

Supplier Diversity

Many of Cisco’s suppliers are small businesses or independent contractors that provide a number of services. Diversity among these suppliers is an important aspect of Cisco’s supply chain philosophy. We believe diversity is good for our business in a variety of ways.

• Regional diversity gives us access to worldwide skills and markets, and provides business resiliency if disruptions should occur in a particular region. It also helps reduce transportation costs.
• Cultural diversity, with suppliers offering different viewpoints and styles of interacting, helps us develop and market products that fit the needs of the broad global community.
• Social diversity promotes inclusiveness that benefits communities and local economies.

Any time we engage a new partner, we conduct an assessment that takes into account financial, technological, geographic, and political risks. In this way, we try to avoid possible problems by making sound business resiliency decisions at the outset. Regional diversity helps us balance the risks to the supply chain posed by such factors as potential civil unrest, natural hazards, and economic uncertainties.

The Cisco Global Supplier Diversity Business Development (GSDBD) program was established more than 15 years ago to provide equal access to businesses owned by minorities, women, disabled people, and military veterans, as well as to companies in Historically Underutilized Business Zones (HUBzones). Cisco has an internal goal of awarding 10 percent of our supplier expenditures to such businesses.

The GSDBD team also provides ongoing supplier diversity training throughout Cisco’s business units. To help identify diverse suppliers, Cisco is working with external inclusion organizations as well as with Cisco’s own employee networks. We also have implemented a vendor management tool that allows us to manage and prioritize certified diverse suppliers.

For the past four years, Cisco has been recognized for our supplier diversity efforts by DiversityBusiness.com. Cisco ranks as one of the top 50 U.S. companies providing multicultural business opportunities, based on feedback received from more than 350,000 women- and minority-owned businesses.