Cisco is a “virtual manufacturer,” which means the production of the majority of our products takes place outside our direct control. We work closely with our supply chain partners to meet our delivery, quality, and cost requirements. We also monitor their ongoing compliance with the obligations we require under our Supplier Code of Conduct.

Sustainable practices are good business practices. By reducing carbon emissions, waste production, and natural resource demand in FY08, Cisco’s Global Supply Chain Management realized over $3 million in annual cost savings through manufacturing efficiency.

Some examples of our environmental and business successes include:

• Recycling IP handsets: By regrinding the excess plastic produced during the manufacturing process, we recycle approximately 13 percent of the plastic used in our IP phones, conserving materials and saving $880,000 a year.
• Customer choice of accessories: Customers can choose to opt out of receiving accessory kits they do not need, potentially saving 100 tons of material per year.
• CD documentation: Converting product documentation from paper manuals to CDs saves 2.7 million sheets of paper a year and at least $1.2 million.
• Reducing print size: By changing the format and reducing the font size in the printed material about China’s Restriction of Hazardous Substances Directives (RoHS) requirements that accompanies our products, we saved approximately $1 million in printing costs and 22 million sheets of paper annually.

Supplier Code of Conduct

Cisco’s Supplier Code of Conduct forms the basis for our supply chain social responsibility program. It reflects the common guidelines developed through the Electronic Industry Citizenship Coalition (EICC), but also includes additional requirements specific to our business and operating model. The Code covers the environmental expectations we have for our suppliers, as well as ethics, health and safety, labor rights, and management systems. In response to the EICC’s new membership rules, Cisco intends to convert our Supplier Code of Conduct to the EICC core code in FY09, with an addendum that highlights significant changes.

Cisco’s supplier assessment process evaluates the performance of our suppliers by means of:

• Risk assessment of supplier facilities
• Review of the management systems for those facilities identified as high risk
• Third-party facility audits, where appropriate
• Corrective action process

The foundation of this program is dissemination of the Cisco Supplier Code of Conduct to suppliers through our supplier management tool and as an addendum to all contracts with new and existing partners. To facilitate compliance, we help suppliers understand our interpretation of the elements in the Code. Cisco may request that some suppliers complete a Self Assessment Questionnaire to provide more information about their facilities, which may lead to a comprehensive third-party audit. In FY08 Cisco initiated about 20 third-party audits using the audit methodology developed through the EICC’s joint audit program. As a member of the EICC board of directors, Cisco seeks to ensure that EICC best practices and tools are applied throughout our supply chain.

Among the supplier facilities audited in FY08 were five key contract manufacturers, six component suppliers, and six original-design manufacturers working with our Linksys brand. Additionally, through the EICC joint audit program, Cisco received audit reports for an additional 14 component suppliers in China. In all, the 31 audit reports received in FY08 generated a large volume of findings, including innovative programs addressing workforce needs. Areas that required our attention included:

• Labor: Careful adherence to worker overtime and rest requirements, as well as fair treatment of supplier contract labor
• Environment Health and Safety: Safe handling and storage of chemicals and availability of and training for use of personal protective equipment for workers
• Intellectual Property Management: More rigorous attention to the detailed supplier management of Cisco’s proprietary information and improved scrap management procedures
• Management Systems: Assurance of an integrated and comprehensive management system for tracking worker training and labor and ethics management

Cisco is currently working with each supplier to address any findings and formulate an action plan to ensure alignment with the Supplier Code of Conduct. The program’s emphasis is on continuous supplier education and engagement.

Progress and Future Plans

Standardizing the process of measuring environmental impacts throughout a company’s supply chain is still in the formative stage. The scale and magnitude of the task requires collaboration with industry peers and supply chain partners. Cisco has prioritized our own efforts in supply chain management to focus on the issues of greatest impact.

In FY09 our goal is to work with our supply chain at various levels to identify and incorporate quantitative social and environmental metrics, including:

• Greenhouse gas emissions
• Energy availability and use
• Water availability and quality
• Land use and waste
• Hazardous materials