Cisco Systems at Credit Suisse First Boston Technology Conference - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

UNIDENTIFIED SPEAKER: (technical difficulty) corporate security program -- part of the portfolio. In addition, we've chosen 2 (ph) strategic executive councils within Cisco. Given the importance (ph) to Cisco of its manufacturing supply chain, and the importance of Cisco to a large number of companies within that manufacturing supply chain, I'm particularly pleased that Mr. Pond kicks off the conference.

RANDY POND, SVP OF OPERATIONS, SYSTEMS, AND PROCESSES, CISCO SYSTEMS: Thank you very much. Good morning, everyone. Well, it's a pleasure to be here although the weather could be a little nicer. I left cold weather just to show up in cold weather. I was sort of expecting the desert to be nice.

I'm going to be a pacer, so bear with me. I'm a walker, unfortunately.

What I want to do this morning is sort of share some of the things we're doing in manufacturing at Cisco really around sort of driving more efficiency in the facts (ph) of the organization and to talk about providing what we believe is more runway to actually improve the performance of the organization.

So, before I start, I wanted to remind everyone that if, in the course of this morning's conversation, I give anything that looks like I'm changing our guidance, I'm not. Let's be very clear. That's not my purpose this morning. They will take me out (ph) and beat me if that happens, even by accident. And I've got someone in the front row that leaps on the stage and chokes me if I start down this path.

So what I want to do is I really want to start (ph) with what we see the vision of the future. And for us, it's really all around crafting business architecture and technology architecture to drive an intelligent (ph) information network. This has been sort of the vision of the business moving forward.

Over the last year, we've crafted for the business a very busy chart that sort of establish 3- to 5-year goals and FY '05 initiatives and really sort of drives, well, what does this intelligent information network really mean to the business? And it's all around architecting the network into platforms with people, process, productivity, and profits (technical difficulty)

And then for me specifically, what I'm honing in on, is that the 3- to 5-year goals is all around Cisco being synonymous with productivity, as well as driving financial leadership and performance in the business, and then really stepping up to driving quality, processes, and the sensitive (ph) orientation of the businesses we don't have today. This year, it's all around quality, security, systems, and processes, and raising the culture around customer satisfaction to a new level for the organization.

So if we just step into manufacturing within the baseline (indiscernible), today we're supporting about 155 product families. IT business has (indiscernible) primary contract manufacturing project. We have 2 ODM relationships today. That doesn't include (indiscernible), which have several on their own. We supported our 14 manufacturing sites, of which I really owned 1. We've got about 307 units (ph) that are sort of active commodity partners. We've got about 1,000 legacy partners that we sort of collected over the years of rapid acquisition and in the boom that took place, we were doing business with almost anyone to ensure supply continuity. We've got about 50,000 partners businesses (ph) in the business, and we're running a $25 billion business with about 18 (technical difficulty) hundred Cisco employees.

When we talk about new Cisco manufacturing, beyond the capital (ph) we'll start with a conversation about core and context. We are big believers in Geoffrey Moore (ph). Geoffrey has done a ton of work for us in manufacturing. We were very early adopters of his work in the core and context (ph) space.

And from his definition, core is any process is that contributes directly to driving certain (ph) advantage for a business. And the key to core is differentiation in your target markets.

Context is everything else you do in this business or play your promises (ph) to customers. And the key to context is productivity. Geoffrey referred to me and Cisco as the king of context. I'm sort of the Chief Context Officer. I'm driving a new level of efficiency and effectiveness in the business that we haven't actually seen in the past. We were sort of coming off the boom, we had the best. And as we come out again, we're trying to reground ourselves so we can drive productivity in the business from efficiency, not just through rapid growth.

This conversation is not around core competency, and it's not around core businesses. I actually wouldn't use that term core, but unfortunately, Geoffrey put it in his book. And we have had to live with it. It's confusing to about half the population.

To make it simple for us to actually deal with inside the utilization, we created a 2-by-2 (ph) diagram where we've core and context on one axis and mission critical and non-mission critical on the other. This lets us provide the work in a way that we can sort of decide what we have to do inside of Cisco and what we can choose to either outcast (ph) or outsource.

The definition of mission critical is if we feel it has an immediate and dramatic impact on the business. We've taken this 4-block matrix and driven it into manufacturing to help us really hone in on what are those things we have to do in the organization. And the surprising part is if you look at it, what we do with most of the central (ph) and relationship and relationship work around (indiscernible) management, demand frame (ph) -- so why (ph) has it relates in terms of promises to our customers -- just around all the support for new product introductions.

What we've chosen not to term core inside of Cisco is all the basic of manufacturing execution. We don't buy parts, store parts -- I don't know subject numbers (ph), I don't grow final assembly except to a very small degree. And I fundamentally don't do any distribution in logistics (ph) worldwide. Today, more than 90 percent of our products are booked, automatically scheduled, routed to our subcontract partners, filled (ph), and shipped with no 1 (indiscernible) anything in (indiscernible). This has been a huge boon for us as a the business.

As you move down the list into non-mission critical, there are things like training and calibration come into play. And when you get over to the non-mission critical context, that's where you talk about desktop support and basic maintenance.

What we've done is created a fleet of tools that allows us to run our supply chain remotely so that I can control quality. I can control content. I can control the use of my ADL, but not have to people on site, and not have to do the work myself -- ourselves. It's allowed us to field the organization beyond sort …