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Right to the core
27 May 2010 | Richard Brass Tyrannical, secretive - and a huge success. Richard Brass investigates how Apple devised the ultimate supply chain In each of the past two years, AMR Research has named Apple’s supply chain the best in the world. Its operation, the supply chain consultancy says, marks “an epic shift away from the 20th-century production-efficiency mentality to a new era of value based on ideas, design and content.” And the financial results are remarkable. Quarterly revenues of $13.5 billion (£9.1 billion). Net quarterly profit of $3.1 billion (£2 billion), with earnings per share twice what they were at the same time last year. Sales of a key product more than double those of a year before, with a gross margin of over 40 per cent. A war chest of $40 billion (£27 billion) in cash and securities. That’s without taking into account Apple’s latest blockbuster, the iPad, which launches in the UK this week. Even in these cash-strapped times, consumers in the US, where it went on sale last month, camped outside stores overnight to get their hands on it at $499 (£336) apiece. It shifted half a million units in the first fortnight.
Appeal to the market From its early days as a pesky maverick annoying the big players in its industry, through turmoil, near-collapse, key departures and returns, Apple has emerged as one of the most successful money-making machines of all time. Even in a dire economic climate its ground-breaking products are lapped up by ever-enthusiastic consumers in numbers that drive other companies into frenzies of self-examination in the search for ways to emulate such formidable success.
Right to the core | Official CIPS Magazine – Supply Management
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In the first three months of this year alone, Apple shifted more than eight million iPhones, a product that, although released three years ago, still has no real competitors. It also sold almost three million Macs and nearly eight million iPods, a device that has been largely superseded by more recent Apple innovations but is still in high demand. It’s a safe bet the iPad, too, will fly off shelves in other countries as soon as it arrives, whatever disasters may befall international markets and the global economy in the meantime. So what’s the secret? In a ferociously competitive industry famous for copycat tactics, and an economic environment which is delicate at best, how is Apple producing such impressive growth, selling ever-growing volumes of premium-priced products, keeping healthy margins and building a cash pile that would be the envy of any business? The usual answer is to do with design and marketing. The smooth lines of Apple products, their clean, elegant functionality and simple, shiny musthaveness are a big part of their success. Similarly, its marketing operation could teach any business a few things about massaging demand. Apple builds excitement about a product by closely guarding information and letting just a few appetising tidbits slip into the public domain. Then it presents a highly choreographed launch that brings salivating technology journalists from all over the world, desperate for a glimpse of the latest masterpiece. None of that would work without a strong supply chain operation behind it. And in this less glamorous area, Apple is regarded by some as just as leading-edge as it is in the front-end disciplines of making nice things and getting people to want them. The company is famously secretive – and that includes speaking to SM about its supply chain operations. So here we talk to analysts and former employees to find out how Apple does it, and how it has overcome obstacles.
Supply chain excellence Apple, according to AMR, demonstrates “an intoxicating mix of brilliant...