Apple – World’s Best Supply Chain

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, who until last year was an economic adviser to the White House.

It’s a cliché for a reason: Innovate or Die. It’s no mystery why companies emulate their most successful peers. Tried-and-true approaches often seem preferable to starting from scratch, whether for developing new products or running efficient supply chains. In this millennium information economy, companies that stay on top are those that come up with the most creative approaches the fastest. Both Gartner and Boston consultancy group have rated Apple as world’s number one in most innovative companies, for the fourth year in a row and it is better than the next Best Supply Chain, Dell by an emphatic margin. Probably, this is one of the reasons why Tim Cooks, who was earlier the Chief Operating Officer (COO) of Apple, looking after the End-to-end Supply Chain of Apple has been appointed as the new CEO of Apple. Apple Surpassed Oil Group Exxon to become the world’s most valuable company by Market Capitalization.

Apple might have lost a visionary and an inspiring leader but the whole world is discussing how Steve Jobs turned around the fortunes of a once loss making company to become the world’s most indispensable company. However, many people don’t know that one of the reasons behind Apple’s success is its Supply Chain? Apple has always been enigmatic about its Supply Chain so as to maintain a bolt from the blue element about its products. This averts competitors from imitate Apple’s products quickly and by the time competitors manage to come up with similar products, new products are launched into the market by Apple. Supply Chain has always been Steve Job’s one of top priority and Apple’s days of inventory has kept low during job’s reign.

Apple is worthy of its place in today’s hierarchy of esteemed companies by virtue of its unique accomplishments; its innovative products, services, and business models; its culture; and its processes and capabilities in areas such as supply chain management—not to mention the exceptional leadership of its co-founder and current executives. In addition, we don’t mean to say that companies should never emulate Apple or other truly exceptional businesses. Many companies can draw new insights from Apple’s achievements in design, brand loyalty, and retailing, to name a few things. Rather, our analysis is a cautionary tale suggesting that executives take a clear-eyed view of the companies they want to try to be like, as well as the returns and outcomes they expect from doing so.

supple chains

Apple always keeps fifty billion dollars in liquid assets and hence is able to force economies of scale. This leads to huge volume pricing discounts and enables Apple to own its entire inventory prior to a major product release. When a new technology comes up, it is very expensive to produce as the producer has to recover the fixed cost. Apple uses its large cash reserves to pay for the construction cost and in return gets exclusive rights to procure the output for an agreed upon period (6-36 months), and then for a discounted rate afterwards. This allows Apple access to latest technology before any of its rival. Such type of an agreement also helps Apple to prevent duplication of its products. At a later period, when its competitors also get access to the same technology, Apple is able to produce at a lower cost.

Apple owns more than 406 Retail stores world-wide. Due its outstanding customer service, design and on-site availability of service is what attracts and retains customers. According to Wall Street journal, Apple’s annual retail sales per is $157 billion. This is because they sell a single brand, have fewer SKUs and have lesser number of stores. The customer service people are selected through a round of interviews and undergo rigorous training before they start working at these stores.

We clearly see that one person who deserves credit for Apple’s triumph besides Steve Jobs is Mr. Tim Cooks. Before being appointed as the CEO, he was working as the COO. As per Apple’s website,     “ Before being named CEO in August 2011, Tim was Apple’s Chief Operating Officer and was responsible for all of the company’s worldwide sales and operations, including end-to-end management of Apple’s supply chain, sales activities, and service and support in all markets and countries. He also headed Apple’s Macintosh division and played a key role in the continued development of strategic reseller and supplier relationships, ensuring flexibility in response to an increasingly demanding marketplace.” Apple has built a closed environment where it exercise control over nearly every piece of the supply chain, from design to retail store because of its volume and its occasional ruthlessness—Apple gets big discounts on parts, manufacturing capacity, and air freight.

After all the above reasons, it is no wonder that Apple’s Supply Chain is one of the major reasons for Apple’s success and  ex-COO, Tim Cooks has been rightly appointed as the new CEO of Apple and earns full credit for company’s accomplishment.

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Seven Supply Chain Lessons:

  1. Customer comes first, cost cutting comes second: The philosophy of product development at Apple is to build “insanely great” products that customer wants to buy. Jobs pursued differentiation and value creation strategy. When the whole supply chain takes actions in sync with this strategy, the success is phenomenal! During 1983 to 1993 when Jobs didn’t take the helm of the company, cost reduction/profit maximization was the primary strategy which resulted in the spiral down of the company.
  2. Set impossible target: When Jobs decided that he wanted the face of Iphone to be scratchproof glass, he turned to Corning who developed the technology called “Gorilla Glass” but it’s just prototype in R&D lab. Jobs indicated clearly that he wanted a major shipment of Gorilla Glass within 6 six weeks which was beyond the capability of Corning. However, Job insisted on this request and later Corning converted one of its LCD production line to produce new kind of glass.
  3. Prioritize action: After Jobs returned to Apple in 1997, there was a wide array of unrelated product lines. Then, he announced that he needed only four product categories, namely, “Consumer”“Pro”“Desktop” and “Portable”. By segmenting products properly, Jobs reduced the intricacy of supply chain big time and his team can prioritize dealings required to support the strategy.
  4. Adopt process view: Jobs ensured that the functioning of microprocessor down to the experience of buying products at its stores was linked together. To do this, Apple increased internal integration by establishing common goal across business units.
  5. Simplify process: Apple eliminated unnecessary components which led to the reduction of inventory and smoother production process.
  6. Make drastic change when necessary: The integration of Ipod, Itunes and Itunes Store revolutionized music industry. However Jobs was anxious that someone would add music players in phone’s handset then, he decided to discontinue the sales of Ipod and created the Iphone. Drastic changes or “Reengineering” was necessary if external forces are strong.
  7. Enhance relationship via face-to-face meeting: Jobs believed great ideas couldn’t be developed solely via e-mail. From his experience, he created ideas from long meetings or even when you ran into someone. This lesson works well for both internal and external relationship.

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Conclusion: Supply chain management is everywhere from strategy formulation, product segmentation, product/process design down to customer satisfaction. Supply chain professionals embrace whatever concepts that help to create value. Even though Apple Supply Chain has some “hiccups” such as various problems of suppliers in Asia, they are definitely one of the role models in supply chain management. This operational edge is what enables Apple to handle massive product launches without having to maintain large, profit-sapping inventories.

Apple began innovating on the nitty-gritty details of supply-chain management almost immediately upon Steve Jobs’s return in 1997. At the time, most computer manufacturers transported products by sea, a far cheaper option than air freight. To ensure that the company’s new, translucent blue iMacs would be widely available at Christmas the following year, Jobs paid $50 million to buy up all the available holiday air freight space, says John Martin, a logistics executive who worked with Jobs to arrange the flights. The move handicapped rivals such as Compaq that later wanted to book air transport. Similarly, when iPod sales took off in 2001, Apple realized it could pack so many of the diminutive music players on planes that it became economical to ship them directly from Chinese factories to consumers’ doors.

– Siddharth Singh, NMIMS-Mumbai

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