Apple Winners and Qualifiers

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The Apple case can be used to illustrate the issues of make or buy and managing the supply chain. It is best used in the middle part of an operations strategy course. It not only introduces the issues of managing suppliers but also affords the opportunity to reinforce other key topics, including developing an operations strategy, designing products, and managing lead times and inventory. Questions similar to the ones below have been found adequate to bring out the key issues in the case study. 1. How does Apple compete in its major markets: Macs, iPods and iTunes? 2. How has operations designed its supply chain to support these markets? 3. What must Apple do to maintain its competitive position in the future?

1 How does Apple compete in its major markets: Macs, iPods and iTunes? It is best here to consider each of Apple’s major markets separately before then looking at the overall picture. Within each market, it has also been found best to discuss the nature of the products before discussing how it competes in this market. 1) MAC PRODUCTS

The Mac product range currently consists of: • • • a) Desktops – iMac, Mini and Mac Pro Portables – MacBook, MacBook Pro and MacBook Air Servers – Xserve Product nature

The first question to ask is, what is the nature of the products that Apple designs, manufactures and sells? Its products involve the following key characteristics: • High-specification standard products – there is very little choice and models are continually discontinued to ensure the range does not proliferate (see Exhibit 6). It is important at some time to bring to the attention of participants that although the products are of a high specification, they tend to cost about the same as an equivalent specification from HP or Dell (see TN/1) Short product life cycles – products tend to be discontinued after 12 to 18 months and replaced with one of a higher specification sold for about the same price as the old one Relatively high margin – the products must be relatively high margin as Apple makes a 35% gross margin (see TN/2). They are at the luxury end of the desktop and portable computer market Niche – although the Mac products have annual sales of $10bn and 8 million units, they still only have 3% market share

• •

b) How it competes in this market The next step is to ask what the order-winners and qualifiers are for this market. At this point it is worth highlighting the differences between an initial purchase of a Mac (when someone is often moving from a PC) and a repeat purchase. The points raised are summarised in TN/2 and include: • Order-winners – Technical support – for both product hardware and software. This is more important for customers buying a Mac for the first time as there is a feeling of taking a ‘leap into the unknown’ by moving away from a PC Product design – concerns the form and functionality of the products – how they look and what can they do. Also important is the compatibility between hardware and software (both designed by Apple) and with other Apple products. Apple’s philosophy is to design products to work easily with one another, although this is not as important for the first sale as customers do not already own any Macs Brand name – some customers buy products simply because they are designed by Apple. This, in part, is a feature of compatibility, but Apple have also created a product image that attracts certain people

Qualifiers – Price – Apple products are generally seen as being good value as they are high specification, as shown TN/1. However, basic HP and Dell products are much cheaper. The subsequent higher margins are reflected in profit performance of the three companies – Apple’s gross margin (% sales) is 1.5 times that of HP and 1.8 times that of Dell (see TN/3) Quality conformance – quality conformance concerns meeting the design specification described earlier. Customers expect Apple to manufacture and assembly Macs to...
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