Supply Chain Manager of the Year: Steve Darendinger Champion of change
Outsourcing, risk management and involving purchasing in product design are some of the strategic initiatives that Steve Darendinger has spearheaded at Cisco Systems and throughout his career.
By James Carbone -- Purchasing, 9/21/2006 2:00:00 AM
Steve Darendinger's career has come a long way since his first job working in a stockroom at Intel in 1975. He has worked for a variety of electronics companies including Sun Microsystems, AT&T and Manufacturers Services Limited among others in positions ranging from commodity management director to vice president of materials and logistics.
Today he is vice president of advanced sourcing and supply chain strategy management for networking equipment maker Cisco Systems in San Jose, Calif. At Cisco and at his previous positions, Darendinger has been an agent to make the firms' supply chain practices and supplier management more strategic and effective.
“Steve Darendinger is a champion of change,” says Angel Mendez, senior vice president of global manufacturing and Darendinger's boss at Cisco Systems. “It is his number one attribute. He has the ability to adopt and lead change.”
Darendinger is responsible for developing supplier management programs, cross-divisional supply chain strategies, risk management plans, and sourcing for emerging technologies and geographies.
Since he joined Cisco's supply chain organization in 2001, Darendinger has driven many changes at Cisco, including supplier base reduction, greater involvement of supplier management in new product introduction, and increased risk management strategies. In addition, he also led the charge to refine Cisco's outsourcing strategy so it can better leverage its business with electronics manufacturing services (EMS) providers and better use their capabilities.
 Outsourcing, risk management and involving purchasing in product design are some of the strategic initiatives that Steve Darendinger has spearheaded at Cisco Systems and throughout his career. |
Darendinger says the key to developing effective supply chain management programs is keeping the customer in mind.
“The things that we do within our supply chain are driven around customer success,” he says. “We provide opportunities and solutions for customers. “
Supporting MX
Many of the initiatives that Darendinger led or supported are in conjunction with Cisco's Manufacturing Excellence (MX) initiative that began last year. Mendez says the idea of MX is to set “aspirational” goals to drive world class performance in manufacturing as well the supply chain in quality, delivery, cost and other areas. (See related story.)
Many of the initiatives have produced tangible results. For instance, Cisco's commodity suppliers have been reduced by 75% since 2003. Semiconductor costs have been cut 19% and electromechanical devices by 13% since last year. Component defects from suppliers were reduced 20% from 2005 and the company has also increased the number of new product part numbers going to preferred suppliers from 70% to 90% over the last two years.
Darendinger says the changes and improvements that have been made in supply chain management at Cisco resulted from a collaborative team effort involving supplier management, engineering, manufacturing and suppliers.
One example of collaboration is Cisco commodity managers becoming more involved with engineers in new product introduction and influencing what technology and which suppliers Cisco will use. Commodity managers are co-located with engineering and help define the technology requirements and business requirements that Cisco needs. They help determine what investment needs to be made and how Cisco's roadmaps align with suppliers.
Commodity managers help decide if new suppliers need to be added for technology reasons and help determine which technology should be used. For example, commodity mangers working with engineering helped determine when Cisco switched from synchronous DRAM to double data rate DRAMs and which suppliers were used.
The involvement of commodity managers in design has produced positive results. For instance Cisco's CRS-1 router launched on time last year and made cost targets without having any quality or leadtime issues because of the upfront involvement of commodity management with design and manufacturing.
Downsizing suppliers
Darendinger says involvement of commodity management in new product introduction has also helped Cisco with another key initiative: supplier base reduction. In early 2001, Cisco had close to 1,500 suppliers, and 80% of its spend was with about 200 suppliers.
Now Cisco has about 600 total suppliers and 90% of its spend is with just 95 suppliers, says Darendinger. Cisco reduced its ASIC suppliers from 20 to three. For standard products such as passives and low-end semiconductors it cut its number of suppliers from 300 to 150.
 Managing suppliers is a team effort at Cisco. At top from left: Janis Deroche, Ian T. Honmyo, Steve Darendinger, Todd Myers and Susan Mc Donough. Bottom from left : Linda Guzzi, Karen Ashley, John Kern, Prasa Sabada and Deborah J. Casaubon. |
Darendinger says Cisco had to cut its supplier base because managing so many suppliers is costly and time consuming. He said in the 1990s Cisco needed a lot of suppliers for capacity reasons.
“If you look at the growth at that time, we were growing so fast and launching products at a rate that was probably faster than any company,” he says. The company had 25% quarterly growth in some years.
“The amount of growth was so tremendous we had to focus on getting the capacity we needed,” says Darendinger.
However, after the dotcom crash, Cisco's growth eased, and the company didn't need as much capacity or as many suppliers.
Darendinger also led the charge to reduce Cisco's number of EMS providers from 13 to four. By reducing its number of EMS suppliers, Cisco can leverage its spend with its manufacturing partners and work more closely with them to better meet its customers' requirements..
Reducing the number of EMS partners was no easy task. Cisco had to choose the EMS providers that could not only support all of its products, but also build in the volumes it needed and in various geographic locations. In fact, while there are only four EMS providers used by Cisco, they have 15 facilities around the globe.
Linda Guzzi, senior director of global transformation management, is responsible for the management of EMS providers. Until recently she reported to Darendinger. She says the EMS providers' capabilities were thoroughly reviewed.
 “We are 100% reliant on EMS partners so we have to be in lock step with them,” says Linda Guzzi, senior director of global transformation management. |
“We have done a better job of understanding our EMS partners' full suite of services and their global footprint as well as their investments and disinvestments,” says Guzzi. “There has been a significant amount of 'disinvestment' or closing down facilities in some of the high-cost regions.”
She says besides manufacturing expertise, Cisco looked closely at the EMS providers' new product introduction capabilities as well as their design know-how. By using just four EMS provider partners, Cisco has deepened its relationships and commitments to them.
“We are 100% reliant on these partners so we have to be in lock step with them both from a strategic alignment and day-to-day operation,” says Guzzi. “I think we are taking partnering to a new level.”
Risky business
In reducing both EMS and component suppliers, suppliers are evaluated by Cisco on risk. Cisco has developed a risk management program which continues to be refined by Darendinger's advanced purchasing group.
“With risk, there are a million opportunities a week to have a problem with part numbers and shipments and the lots that get produced by our suppliers and the transactions that take place,” says Darendinger.
Cisco's risk management team develops strategies to mitigate long lead times or sole-sourced parts.
 “Risk management is important. Every component has a risk rating,” says John Kern, vice president of global commodity management. |
“Every component has a risk rating,” says John Kern, vice president of global commodity management.
Risk rating factors in everything from the chance of natural disasters or geopolitical activity disrupting supply to whether a supplier is a single source for a part.
Kern says Cisco digs deep into the supply chain to determine risk. For example a power supply is comprised of numerous components. “We dig deep into what are the components of that power supply, what are the supply chain risks associated with those components and ask what we need to do differently with our power supply manufacturer to mitigate risk,” says Kern.
“We also take a look at our EMS partners,” says Darendinger. “Do they have a business continuity plan so they can shift product right away from one facility to another if something happens? Do they have an alternative plan that get us up and running in a period of time?”
As a way to reduce risk, Cisco has a dual-sourcing strategy. Cisco may use two different EMS providers with facilities in two different regions or one EMS provider with facilities in different geographies.
Engineers and commodity managers involved in design also use component risk ratings in new product introduction. “You don't want to launch a product with a key component that is going end-of-life,” says Darendinger.
Now what?
While Darendinger has led or supported many key initiatives at Cisco that have produced results, there is more work to do. For instance, Cisco is in the midst of a Lean initiative with its EMS providers as part of its MX strategy.
Cisco is converting its four major EMS providers to Lean, which will take about a year. Fifteen manufacturing sites are involved. Two of the EMS providers have converted and the other two will convert by early next year. Transition to Lean has had a big impact on the manufacturers as well as suppliers.
With Lean, replenishment methodology switches from push to pull. That means suppliers don't ship parts to a forecast provided by Cisco, but rather to orders that Cisco receives from customers.
For EMS providers, converting to Lean means less inventory and more frequent delivery of parts to production lines by suppliers.
Another key challenge for Cisco moving forward is developing supply chains in emerging geographies such as India, says Darendinger.
“We're deciding how we want to establish our supply chain for the indigenous customer, and longer term, where India fits within our overall supply chain,” says Darendinger. He notes that from an infrastructure standpoint, India is about 10 years behind China. The supply base there is also limited.
“Solectron, Flextronics and Jabil are there, but they are not producing a tremendous amount yet, but over time they will,” he says, adding that India's advantage is that it has an educated workforce with a lot of technical expertise. The challenge for Darendinger and Cisco will be to develop the capabilities of Indian suppliers to world class levels as quickly as possible ahead of its competition.
MX drives supply chain
 Angel Mendez: “The top two challenges are speeding up our new product introduction to world-class levels and forecasting accuracy and demand management.” |
Many of the supply chain initiatives at Cisco Systems are being driven by its Manufacturing Excellence initiative, championed by Angel Mendez, senior vice president of global manufacturing.
Mendez says Cisco took a close look at all of its processes to determine if the company has optimal capabilities to address a changing marketplace. Now there is a proliferation of technologies such as voice over Internet protocol and wireless, which is “growing like crazy,” he says. In addition, “the Internet and networking is booming in emerging countries so there is a geographic challenge for Cisco,” he says.
Cisco's manufacturing strategies and supply chains need to be able to support new geographies and products areas. The idea of MX is to make “aspirational” improvements to manufacturing and the supply chain rather than just incremental improvements to help Cisco better compete in the global marketplace. The goal is to be world-class in everything including new product introduction, cost, quality and delivery.
Cisco scrutinized its processes and its and determined what it did well and where it needed to improve.
“We did a deep dive into all dimensions,” says Mendez. “Quality, delivery, cost procurement, risk management, and technology were all areas we evaluated. The procurement process was the highest-scoring area,” he says. “Quality was strong, but there were opportunities for improvement. The top challenge identified was in speeding up our new product introduction to world-class levels. And the second one was forecasting accuracy and demand management,” he says.
Web Exclusive: What makes a supply chain manager of the year?
“Champion of change,” “team player” and “collaborator” are phrases that people who have worked with Steve Darendinger use to describe his management style.
“He is a champion of change and this is a critical thing,” says Angel Mendez, senior vice president of global manufacturing at Cisco. Darendinger reports to Mendez.
Mendez notes that change can be difficult for a company such as Cisco which has good market share, healthy margins and a good business model. “He helps me mentor other members my team and does a great job of coaching and developing people.”
John Kern, vice president of commodity management for Cisco, says Darendinger is a consensus builder. “He collaborates with his team to gain consensus to the way we attack a problem. He facilitates the dialogue amongst the team and gets us rallied around what is the best way to solve the problem. He listens to the inputs and helps drive consensus and gets us to really collaborate.”
Linda Guzzi, senior director of global transformation management, agrees with that assessment. She says Darendinger is “revered among his peers and subordinates as a key team player.”
“He is an authentic individual who absolutely wants to do what is right for the business and people are so willing to work with him as a result of that,” she says. Guzzi reported to Darendinger until recently.
Darendinger is good at leveraging the talent in his organization, according to Guzzi. “He provided a framework and vision of where we are going that really empowers us. He lets us take ownership and accountability for our business.”
She says that attribute is similar to the late Gene Richter who was CPO at IBM. Guzzi worked for Richter, who headed purchasing organization that won Purchasing’s Medal of Professional Excellence award three times.
Mel Friedman, former vice president of supplier management at Sun Microsystems, says Darendinger helped make purchasing more strategic at Sun in the 1990s. Darendinger worked for Friedman in purchasing. Sun’s supplier management group, headed by Friedman, also won Purchasing’s Medal of Excellence.
“He had a vision about what commodity management should be and was creative in his thinking. He pushed to make commodity management strategic.”
Darendinger also pushed for Sun to have the company outsource printed circuit board assembly. “Steve was instrumental in outsourcing boards,” says Freidman. “Solectron was chosen and the trend to outsource continued. We eventually outsourced systems.”
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