Outsourcing the Quote-to-Cash Process: Deliver Cheaper, Faster, and Better

1. Outsourcing the Quote-to-Cash Process: Deliver Cheaper, Faster, and Better April 4, 2005 Balaji Subramanian Senior Manager, Cisco Remarketing Global Operations, Processes, and SystemsCisco Systems balajis@cisco.com Brian Carey Principal Pittiglio Rabin Todd & McGrath (PRTM) bcarey@prtm.com

2. Agenda • Introduction to Cisco Systems and Cisco Remarketing • Order-to-Cash Outsourcing Project Summary • Guiding Principles for Outsourcing the Quote-to-Cash Process • Project Summary, Conclusions, and Next Steps for Cisco Remarketing • Questions and Answers

3. Supplier Scorecard Introduction to Cisco Systems Revenue (millions) Cisco is the worldwide leader in networking for the Internet Cisco proved in the 1990’s that it could successfully manage rapid growth Sales and Marketing 10% Direct Fulfillment Supplier Management Finance 40% Employee Services 50% IT 50% Customer Service 60% Contract Manufacturer Customer Manufacturing 90% Date: February 2003 Cisco is recognized as an innovator in supply chain strategy and operations Cisco has extensive outsourcing experience in several core business areas

4. Introduction to Cisco Remarketing • Sales of refurbished Cisco equipment • Authorized, tested, and supported by Cisco • Formed in 2001, has grown to a $100M business

5. Order-to-Cash Outsourcing Project Summary

6. The Remarketing value chain – “before” Sales & Marketing Finance Demand/ Supply Planning Operations Process Design IT Management Manage customer portal Take orders Fulfillment & Logistics Invoicing & Collections Manage returns Manage refurbished inventory Manage repair inventory Refurbish products Fulfillment & Logistics Managed by Cisco Managed by repair partner

7. The issue… • Quote-to-cash (QTC) processes were characterized by ad hoc, manual tasks and independent information systems • Systems were not integrated with Cisco’s core ERP system • Scalability was a major issue Create quote for customer (manual) Customer submits order Existing Interface Customer checks order status Enter order (manual) Automated Email Pack and ship order Phone Call System generates invoice Managed by Cisco Daily Data Feed Collect payment from customer Managed by repair partner

8. The solution… • Outsource the quote-to-cash processes and systems • Enable the ability to scale quickly without investing in additional headcount or impacting productivity levels • Increase focus on core competencies: • Sales • Marketing • Demand/Supply Planning • Operations Management • Finance

9. The process… • Documented the high-level requirements for the quote-to-cash outsourced model in a comprehensive RFP • Identified a “long list” of potential outsource partners and issued the RFP to nine candidates • Selected a “short list” of three candidates and conducted site visits in the US and Europe to evaluate each potential partner • Updated RFP scores based on site visit findings • Candidates were evaluated based on capabilities, total cost of doing business, financial stability, and relationship strength • Required all Remarketing team members to participate in a final vote for the outsource partner

10. The implementation challenges… • Since the Remarketing business team was very passionate about the functionality of the solution, the initial design had more than the “bare bones” requirements, and the overall scope had to be reduced to obtain a reasonable go-live date • Remarketing organization did not have the required subject matter expertise during the design phase of the project • Remarketing and the outsource partner had significant cultural differences • Outsource partner did not effectively manage the overall project schedule • Outsource partner organizational design did not provide adequate support

11. Guiding Principles for Outsourcing the Quote-to-Cash Process

12. The Cisco Remarketing supply chain was designed using five core disciplines 1 2 Use your supply chain as a strategic asset Focus on process and project management excellence 5 3 Use metrics to drive business success Build and effectively manage collaborative relationships 4 Design your organization for performance

13. Levers Configuration What Gets Done Where Processes How We Manage Relationships Who Are Our Partners Organization Who is Responsible Systems Get Information in Time to Make Decisions Customer Service Strategy Channel Strategy Outsourcing Strategy Supply Chain Strategy Components Asset Location Strategy Operations Strategy #1: Use your supply chain as a strategic asset …and focused on which relationships we should leverage… We did not want to build internal infrastructure to support growth, so the supply chain design needed to focus on an outsourcing strategy • …and asked: • Which core competencies we will retain? • What should we outsource? • How many partners do we need? • What is each partner’s role?

14. #1: Use your supply chain as a strategic asset • We leveraged each partner’s core competencies to build a supply chain that could provide the highest efficiency at the lowest total cost IT Partner Sales and Business Operations Demand-Supply Planning Refurbish Operations Order Fulfillment Customer Service Invoicing and Collections Cisco Remarketing Repair Partners QTC Outsource Partner Designated Core Competency

15. Build supply chain processes that satisfy four criteria: Processes support the business and operations strategy Processes enable end-to-end supply chain management Processes are simple and streamlined Processes are reliable, with tight links with data and information systems Utilize best-in-class project management techniques Define roles and responsibilities for all project participants Establish guidelines for communication, escalation, and decision making Plan all resource requirements, and review workloads regularly Define schedules for status updates and regular management reviews #2: Focus on process and project management excellence

16. #2: Focus on process and project management excellence • Keys to success • Make the initial release as simple as possible • Leverage best-in-class processes and systems offered by your partner • Document project management, governance, communication, and escalation processes—from the start • Dedicate business and IT resources to the project and make resource management a priority • Ensure project team members have end-to-end process expertise • Require very detailed business requirements and process descriptions

17. #3: Build and manage effective collaborative relationships Collaborative relationships fall along a continuum Limited Collaboration Extensive Collaboration Transactional Cooperative Coordinated Synchronized • Tightly integrated processes and systems • Ability to negotiate and compromise • Long-term commitment • Master internal collaboration first • Ensure each partner has a stake in the outcome • Plan and develop processes and systems together • Trust your partners (but have a contingency plan) • Set clear expectations on both sides • Leverage best-in-class skills from partners

18. #3: Build and manage effective collaborative relationships • Keys to success • Use the RFP process to uncover potential problems • Plan for sufficient overhead (3-5 X more than developing processes internally) • Validate the capabilities outlined in RFP responses through site visits • Ensure candidates demonstrate they understand the scope of development • Clearly define all resource requirements at the start of the project

19. #4: Design your organization for performance • An effective supply chain organization is tailored to the business strategy and built on four principles: • Organize around the skills you need, not the skills you have • Every process needs an accountable function or individual • Know, grow, and keep your core capabilities • Form should follow function—the organization should mirror the process

20. #4: Design your organization for performance • Outsource partner’s support organization design did not position them to succeed • Diluted project accountability • Weak communication and collaboration Team Leader 10% EMEA Project Coordinator 20% IT Support/Help Desk 20% Customer Srv. Mgr. 5% Finance Manager 20% Acct Service Mgr. 10% CS Team Leader 100% Acct Representative 50%-75% CIO CS Agents (2) 100% IT North America IT Manager 10% US Development Java 10% Development XML 10% Business Manager 30% Finance Manager 14% Customer Srv. Mgr. 23% IT Operations and Help Desk 50% Development Reporting Tools 20% Team Leader 35% Account Leader 23% CS Supervisor 69% Utah IT Manager 20% Development ERP 10% Acct Reps (2) 100% Credit Collections 85% Cash Application 13% Transaction Mgmt. 28% Report Analyst 39% Accountant 13% Inventory Analyst 16% CS Agents (3) 100%

21. Financial Analyst 100% Acct Representative 100% CS Agents (2) 100% Shared Resources < 100% #4: Design your organization for performance • Keys to success • A single point of contact • Clear communication channels • Full accountability • Dedicated resources GLOBAL VP Operations Global Business Mgr. 100% US Business Manager 100% EMEA Business Manager 100% IT Owner Global Project Mgr 100% CS Supervisor 100% Acct Representative 100% Development Java 100% Development XML 100% Development Reporting Tools 100% Shared Resources < 100% CS Agents (3) 100% Financial Analyst 100% Shared Resources < 100%

22. #5: Use metrics to drive business success • Why use metrics? • To gauge the health of your supply chain • To drive desired behaviors • To ensure processes meet customer requirements

23. #5: Use metrics to drive business success • We selected a small set of focused metrics to help us measure the overall customer experience Portal Response Time Order Quality On-Time Delivery A/R Aging RMA Defect Pareto Order Creation and Submission Order Management Order Fulfillment and Logistics Invoice, Collections, and Financial Reporting Returns Management Customer Service Case Resolution Cycle Time System Up-Time/Availability Data Integrity

24. Project Summary, Conclusions, and Next Steps for Cisco Remarketing

25. The results • Highly successful outsourcing of the quote-to-cash process with no negative impact on revenue or customer satisfaction • Today we can process more orders: • In less time • With fewer errors • At a lower cost • Operating costs are significantly lower • Previous: 8% - 10% of revenue • Current: 1.5% - 2% of revenue

26. The results • We can now support a 94% same-day order ship rate at much higher order volumes • Visibility to order information has improved significantly • All order details now reside in a centralized data warehouse • Access to data helps us better manage daily operations and long-term planning

27. Conclusions • If you decide to pursue a quote-to-cash outsourcing initiative, focus on these strategic elements of supply chain management • Ensure your supply chain strategy supports your business strategy • Outsource processes that are not core competencies to a partner or partners that can best manage them • Focus on process AND project management excellence • Leverage your partner’s best-in-class processes and systems and do not be afraid to roll out functionality in phases • Build and effectively manage collaborative relationships • Address cultural differences as early as possible • Design your organization for performance • Emphasize accountability and organize around the skills you need, not the skills you have • Use a focused set of metrics to drive business success • Align processes and systems with customer expectations

28. Next steps for Cisco Remarketing • Implement the new organizational support model with dedicated resources • Streamline processes and dedicate resources to processes, where appropriate, to maximize accountability and productivity • Continue to align metric targets with customer requirements • Transfer additional operations to the outsource partner when appropriate • Detrash operations • System of record for DGI/WIP and work orders

29. Appendix

30. Overview of Cisco Remarketing’s quote-to-cash outsource model • Cisco Remarketing • Sales and Marketing • Finance • Demand-Supply Planning • Operations, Processes, and Systems • Inventory data • Quality data • Supply receipts • Customer data • Price data • Product data • Credit check limits and guidelines • Bookings and revenue • Warranty data • Customer A/R aging • Metrics and reporting • Order backlog and history • Inventory data • Special inventory inquiries • Program feedback • Supply data • Repair BOMs • Forecast • Sales support • Quotes • Repair Partners • Refurbishment Operations • Inventory Management • Outsource Partner • Customer Portal and Reporting Tool • Customer Service • Invoicing and Collections • Order Management • Inventory Management • Fulfillment and Logistics • Returns Management • Cisco Customers • Direct Accounts • Distributors • New orders • Payments • Order inquiries • Order backlog • Invoices • Credit memos • Inventory data • Price changes • Order email confirmations • Inventory data • Shipment information • Returns data