Fundamentals of Supply Chain Management: Case Analysis of Apple Inc.

SCM Case Analysis: Apple, Inc.
Fundamentals of Supply Chain Management
Capella University
April 23, 2014

Apple is one of the most widely known companies in the world. They started as a computer company in 1976. Apple is now a Fortune 500 company and have been voted as having the best supply chain for the past several years by the IT research team Gartner. Many factors make them number one. Apple was not always the supply chain kings. A smart firm recognizes their weaknesses, fixes them and gets better. That is exactly what Steve Jobs, Tim Cook and Apple did. Although Steve Jobs founded Apple and they enjoyed success in the 80’s with a line of home computers, Jobs left the company in 1985 to pursue other ventures. Apple floundered along without Jobs for the next 12 years to dismal sales and lost profits. Upon Job’s return, the company immediate begins work on a turnaround. It paid off. The initial focus was on hardware engineering, as it had been for some time, but the company also began to focus on software engineering, and eventually, retail sales structure (Consilvio, 2003). The business model has proven to work for them largely because of the huge overhaul Tim Cook made on the supply chain. The supply chain at Apple in 1998 was overcomplicated and tied up a lot of money in shipping, and overabundance of suppliers. Cook reduced the number of primary suppliers from 100 down to 24. He also asked the suppliers to consider relocation closer the Apple factory to allow for a more streamline chain. Cook also reduced the number of warehouses from 19 to nine, and by September of 1998, the manufacturing cycle time was down to 2 months from 4 months (Supply Chain Opz, n.d.). Obviously, the advent of iPod, iPhone and iPad have changed things considerably, but Apple’s philosophy remains the same. Less is more. Fewer moving parts equals greater customer satisfaction, and the proof is in the profits. The current Apple Supply Chain model is extremely simplified. They use as few steps as possible to keep the inventory turning. More so than Amazon, who has a highly regarded system experiences about 10 turns per year due to their large SKU quantity. Apple on the other hand, experiences around 59 turns per year (Supply Chain Opz, n.d.). Though they are in a constant state of manufacturing, they are able to keep inventory low enough to meet demand and fill orders to customer satisfaction. This is a win because two areas are have been planned correctly, demand forecast and aggregation. Apple’s ability to demand forecast accurately stems from their products launching annually and their extremely loyal following who will purchase new devices. Apple can use prior sales data from launch sales and backorder to determine product flow. Amazon, on the other hand, has a lot of seasonal merchandise, which is much harder to forecast accurately. Another reason demand forecast is easier for Apple is their SKU quantity. Apple has roughly about 26,000, whereas, Amazon has to determine demand for about 135 million physical products (Supply Chain Opz, n.d.). Apple can meet demand over the course of a year and beyond and can increase and decrease production as needed because they control the manufacturing cycle. This is why Apple has very few warehouse facilities and Amazon needs so many. Which leads to aggregation. Apple begins the supply chain by using around 24 major suppliers from the U.S., Europe, China and other Asian countries. All parts are sent directly to the manufacturing facility in China. Once assembled, finished products are sent to either an intermediate facility via UPS or FedEx where online orders are fulfilled. The rest are sent to the warehouse in California where they are distributed to Apple’s own retail stores, direct sales and wholesalers, retailers such as Best Buy, Wal-Mart and Radio Shack, and all of the network carriers (Supply Chain Opz, n.d.). The merchandise flows into and out of the Apple facilities very quickly and allows for the many turns over the course of the year. To round out the supply chain Apple offers warranty returns, a trade in program and a recycling program. Although Apple receives accolades for its efficiency in the supply chain, business acumen and the iUniverse they have created, their global strategy is not without risk. Some factors can delay production and bring sales down. Global economy and political unrest in either China or their supplier’s countries can cause delays. Natural disasters have given Apple delays. When the Tsunami hit Japan, it caused the delay of the launch of the iPhone 5. Quite possibly opening the door for Samsung to increase their market share at a time when iPhone was in short supply. Apple stays the course though, and never offers price promotions. At least not in the traditional way. The Apple store never has sales. This component keeps demand steady. Apple is therefore always able to keep demand steady. Instead of sales, Apple offers many lower cost add-ons to enhance the user experience. For example, Apple just announced that their OS X operating system and all updates would now be free. For life. The traditional business model of other electronics manufacturers to offer low-cost hardware and make back-end money on the software. Apple does the opposite and makes it work. Consider iTunes, where a customer can buy songs for 99 cents. Hardly profitable as 65% goes to the music companies. It keeps people buying iPods and iPhones. Apple’s iCloud service and the ability for a family to share all of their content via Apple TV keeps entire families inside of the Apple universe. No need for sales on hardware and the demand is steady and predictable.

(Supply Chain Opz, n.d.)

References
Consilvio, S. (2003). Monograph on the Apple Business Model. Retrieved from The Apple Loop: http://www.theappleloop.com/Home/monograph.html
Supply Chain Opz. (n.d.). 7 Traits of Great Supply Chain Leader: A Case Study of Tim Cook. Retrieved from Supply Chain Opz: http://www.supplychainopz.com/2013/10/7-traits-great-supply-chain-leader.html
Supply Chain Opz. (n.d.). Is Apple Supply Chain Really the No. 1? Retrieved from Supply Chain Opz: http://www.supplychainopz.com/2013/01/is-apple-supply-chain-really-no-1-case.html

References: Consilvio, S. (2003). Monograph on the Apple Business Model. Retrieved from The Apple Loop: http://www.theappleloop.com/Home/monograph.html Supply Chain Opz. (n.d.). 7 Traits of Great Supply Chain Leader: A Case Study of Tim Cook. Retrieved from Supply Chain Opz: http://www.supplychainopz.com/2013/10/7-traits-great-supply-chain-leader.html Supply Chain Opz. (n.d.). Is Apple Supply Chain Really the No. 1? Retrieved from Supply Chain Opz: http://www.supplychainopz.com/2013/01/is-apple-supply-chain-really-no-1-case.html