"Apple Watch: An Overnight Multi-Billion Dollar Business"

[DC Wallaby]

I did a quick search and didn't come up with anything on this, so I figured it was worth posting. (If I somehow missed a previous thread, I apologize.)

Carl Howe has a fascinating blog with his projections for the Apple Watch, along with an explanation of how he got there. Oh, and to top it off, he goes into his beliefs as to Apple's supply chain management for this product.

Here's the specific thought experiment that explains his thoughts on the enormity of Apple's task regarding the production of the Apple Watch:

Imagine that someone came to you and asked you to deliver a million Origami (that’s the art of Japanese paper folding) lobsters within the next month. Here’s a link to what one looks like courtesy of Jason Ku via MIT. How would you go about delivering on this order?

The task is clearly possible, but you face two problems: You can’t do it all yourself, and it’s a complex process.

The most straight-forward approach would be to hire about 10,000 of your closest friends to help you. Get some paper to each one of them and have each of them fold 100 lobsters. You gather up the results and you’re done.

There are a few problems with this approach. I don’t know how to fold an Origami lobster, I certainly don’t have 10,000 friends, and I don’t have a million pieces of paper (more like a million and several thousand; I don’t think they will all come out perfectly the first time). Even gathering up the million lobsters at the end is going to be a huge task.

All that said, this still is an achievable task given time and money. You could hire someone to document how to fold Origami lobsters. You could hire 10,000 people to do the folding. You could rent a big building where the people could do the work. You could buy the paper. You could hire people to gather up all the resulting lobsters.

Now let’s make this a little more realistic. As it turns out, we really want a million lobsters of two different sizes. Further, ordinary paper tears too easily and is the wrong color for Origami lobsters, so we’ve decided to make our own paper; that will require its own process. We also need to be able to deliver some of the lobsters with glitter and others with hand-painted decorations; we’ll need to plan to supply and apply those materials too. Oh, and we want to make a few thousand out of two colors of pure gold leaf instead of paper. You’ll have to manufacture the paper for that too.

What’s your plan look like now?

There’s no rush; you can deliver your million lobsters any time during the month, provided that you don’t mind people complaining that you are way too slow at getting this done. Oh, and you’ll be criticized in the international press for every failure to produce perfect lobsters.

And now, imagine this same plan, except with this twist: no one has successfully folded this particular type of Origami lobster before, so you really don’t know how it’s all going to turn out. And your reward if you are successful will not be praise, but demands that you build even more next month.

Congratulations. You’ve just imagined the scenario that Apple executives had to create for the launch of Apple Watch, except that Apple products are orders of magnitude more complex than paper lobsters. Also billions of dollars of revenue hang on you getting this process right the first time; if you don’t, your company and possibly the entire category of smartwatches will be deemed a failure. No pressure at all, really.

It's a really interesting article. Has anyone else given it a read? I think I have a whole new appreciation for just what Apple's trying to accomplish here. It's insane, really. While I wish Apple was able to meet the initial demand for the Watch, we really can't expect that of them. Not with any degree of accuracy.

It sucks for us, but ... I'm pretty confident it'll be worth the wait.

EDIT: I forgot the link: Apple Watch: An Overnight Multi-Billion Dollar Business

 

[kdarling]

It's not rocket science. Other companies like Samsung, LG, HTC do it all the time... and often with more model versions.

Heck, the iPhone 6 factory has 100 production lines and turns out 540,000 iPhones a DAY. And it's a lot more complicated to make.

--

So the watch should be comparatively easy. Let's see:

Roughly 3 million Watches pre-sold in the first few days, resulting in a six week wait, which means they were figuring:

About 3 million / 6 weeks / 7 days a week = ~71,000 a day. That's 3,000 per hour. That's only 60 watches an hour (one a minute) on each of 50 production lines. Not that hard for a China factory with Apple likely paying for any major assembly equipment.

--

Perhaps the harder thing is getting enough case parts supplied to the assemblers. There are plenty of small China factories that can stamp out 10,000 polished watch cases a month, but Apple needs a couple of million for the first big month. I bet they've been making and stockpiling them for a while.

 

[whatos]

Apple with its years of experience, thousands of talented people, and endless resources are able to execute on a project like this nearly effortlessly. While there's bound to be plenty of articles, accolades and such, the bottom line is none of us with a comprehensive knowledge of Apple and its history should be surprised about their success no matter how large.

 

[ksuyen]

Apple Watch: An Overnight Billion Business

At least after reading this I feel more appreciative and less annoying by the way Apple handle their Watch launch and the long waiting delivery.

 

[ksuyen]

It's not rocket science. Other companies like Samsung, LG, HTC do it all the time... and often with more model versions.

Heck, the iPhone 6 factory has 100 production lines and turns out 540,000 iPhones a DAY. And it's a lot more complicated to make.

--

So the watch should be comparatively easy. Let's see:

Roughly 3 million Watches pre-sold in the first few days, resulting in a six week wait, which means they were figuring:

About 3 million / 6 weeks / 7 days a week = ~71,000 a day. That's 3,000 per hour. That's only 60 watches an hour (one a minute) on each of 50 production lines. Not that hard for a China factory with Apple likely paying for any major assembly equipment.

--

Perhaps the harder thing is getting enough case parts supplied to the assemblers. There are plenty of small China factories that can stamp out 10,000 polished watch cases a month, but Apple needs a couple of million for the first big month. I bet they've been making and stockpiling them for a while.

There is a big difference between iPhone 6 and Watch: First Timer. Combining that to the following challenges:

1. Myriad parts and processes. Each Apple Watch consists of hundreds of parts. Many of these parts such as the cases are unique to Apple Watches, are manufactured on their own production lines and have their own build timelines. Having a variety of parts and processes makes the supply chain logistics more complex and prone to stock-outs.

2. Multi-million unit volumes. Few electronic device manufacturers manufacture devices in the millions, and those that do typically spread out production over many months. Apple’s product launches create demands for millions of devices in just a few days to avoid disappointing buyers. Manufacturing on this scale is rare and this short time-frame is likely unique to Apple.

3. Launches in several countries. Apple Watch will begin deliveries in Australia, Canada, China, France, Germany, Hong Kong, Japan, the UK and the US on April 24. This means Apple must manage its model production and output to meet the demands of 9 different consumer profiles, not just one.

4. High margin demands. Apple requires that all of its product make money and not degrade its nearly 40 percent average gross margins. This means that even while launching a complex device using unique processes at multi-million unit volumes in 9 geographies, Apple intends to do so in a highly profitable manner.