How Apple Uses its Supply Chain as a Strategic Weapon

[MacRumors]

Businessweek provides a very interesting look behind Apple's supply chain and how they have managed to fine tune their operations into a competitive advantage.

According to more than a dozen interviews with former employees, executives at suppliers, and management experts familiar with the company's operations, Apple has built a closed ecosystem where it exerts control over nearly every piece of the supply chain, from design to retail store.

Apple's well known to be a master at operations with much of that credit going to now CEO Tim Cook. Businessweek's profile gives many examples of how Apple has managed to stay ahead of the competition, with much of it being the ability to predict needs and also secure the necessary pieces by exercising their enormous $81 billion cash hoard.

Even as far back as the launch of the Bondi blue iMac in the late 90s, Apple's Steve Jobs paid $50 million to buy up all available holiday air freight space at a time when most of its competitors were shipping by sea. This reportedly handicapped rivals such as Compaq who later wanted to book air transport.

Similarly for both the iPhone 4 and iPad 2 launch, Apple bought up so many suppliers and machines needed for assembly, they squeezed out the competition who needed the same resources.

The tactic ensures availability and low prices for Apple--and sometimes limits the options for everyone else. Before the release of the iPhone 4 in June 2010, rivals such as HTC couldn't buy as many screens as they needed because manufacturers were busy filling Apple orders, according to a former manager at HTC.

Apple's level of efficiency and control extends into launch day where factories work for weeks building hundreds of thousands of devices. Electronic monitors are placed in part boxes to discourage leaks and completed products shipped in non-descript boxes to avoid detection. Even in their retail stores, they can monitor demand by the hour and make supply chain adjustments as necessary.

Article Link: How Apple Uses its Supply Chain as a Strategic Weapon

 

[MetalMoon]

So Apple is buying all the stuff needed for their new ipads before their rivals even know what they need. I guess its a first come first serve kinda thing. gotta make the first move or be left in the dust.

 

[koobcamuk]

There is no denying that Apple run a very tight ship. From manufacturing to sales, I don't know of a more complete company.

 

[Icaras]

Regardless on havine a stranglehold on supply chains, other device manufacturers still can't match up to Apple's first rate design and build quality (among other strengths, such as best retail and customer service satisfaction rate).

Keeping leverage on market prices on their products by having the first and lowest dibs on supply definitely helps. Great strategy and its no wonder why Apple succeeds so well.

 

[sammich]

Even as far back as the launch of the bondai blue iMac in the late 90s

That should be 'Bondi blue' with the capital 'B'.

EDIT: thanks.

 

[cameronjpu]

Thank god they have $80 billion in the bank or the $1 billion purchases would never work!

 

[iRCL]

With all their cash reserves, I honestly wish they would do more of this. From what I observe I feel like they haven't fully tapped out the available resources. If this article is really correct, wouldn't it be an incredible advantage for them to overproduce their devices by 5-10% and completely short-change their competition; instead of now where every quarter the story seems to be they couldn't build enough devices to meet demand?

 

[The 801]

Now you know why Tim Cook is in charge

 

[androidfan]

Wow Apple way to stifle innovation for everyone else.

 

[nagromme]

Being first has its advantages! Companies that follow along later could theoretically match Apple’s manufacturing capacity, if they had the cash; new plants could be built, after all. It’s not just not cost-effective to be that late to the game.

Being a follower has other advantages though: the game-changing concepts have already been done for you—and they’re the hard part. Just copy the big stuff, and innovate (or at least differ) in smaller ways

Wow Apple way to stifle innovation for everyone else.

Imagine what Android would look like without Apple moving first and fast As an Android fan, you should thank Apple for 90% of your (positive) Android experience, and be glad you don’t have to find out what might have been!

(But I do hate when companies succeed on their own merits. Unfair! Apple should give money and opportunities away to companies that are less well-run.)

 

[starvingartist8]

Wow Apple way to stifle innovation for everyone else.

rofl android fan of course

 

[swingerofbirch]

I have said for a while now that Apple's best product is business strategy, while it used to be product intuitiveness. The scrappy underdog that won hearts and minds has won pocketbooks instead. I know I'll get a lot of anonymous negatives, but think about a product like Lion compared to the original iMovie. Or even compare the original iMovie to the current iMovie. Apple has given up on what I used to find enchanting about it. To me, their last insanely great product was the original iPhone and before that it was Mac OS X. The iPhone has at least made good evolutionary progress, but Lion's a hot mess.

 

[guch20]

Wow Apple way to stifle innovation for everyone else.

Yes, because the innovators are those who need the parts first and the copycats are those who need it second, right?

Don't hate Apple for knowing what they need to build their machines and buying it before the others know what they need to build their similar-to-Apple-machines-that-totally-aren't-ripoffs-no-matter-what-several-judges-from-several-different-countries-and-continents-say machines.

 

[ownamac]

Now you know why Tim Cook is in charge

Tim is the man when it comes to supply chain mastery.

 

[couto27]

this is huge...

samsung lost the best client ever...

 

[guch20]

I have said for a while now that Apple's best product is business strategy, while it used to be product intuitiveness. The scrappy underdog that won hearts and minds has won pocketbooks instead. I know I'll get a lot of anonymous negatives, but think about a product like Lion compared to the original iMovie. Or even compare the original iMovie to the current iMovie. Apple has given up on what I used to find enchanting about it. To me, their last insanely great product was the original iPhone and before that it was Mac OS X. The iPhone has at least made good evolutionary progress, but Lion's a hot mess.

That's all opinion, of course. I love Lion much more than Snow Leopard.

With some things, it's hard to innovate or completely redesign when you're A) very close to your idea of perfection, or B) selling like hotcakes. Why drastically alter what works?

----------

Now you know why Tim Cook is in charge

I know you probably meant that as "That's why Steve picked him as a successor" but you'll probably going to get quite a few down votes from people thinking you mean "Tim is better at being in charge than Steve."

 

[*LTD*]

Wow Apple way to stifle innovation for everyone else.

That's "everyone else's" problem, now isn't it.

----------

I have said for a while now that Apple's best product is business strategy, while it used to be product intuitiveness. The scrappy underdog that won hearts and minds has won pocketbooks instead.

Why should there be a difference? There isn't.

----------

rofl android fan of course

One wonders what someone like that is doing around here.

----------

So Apple is buying all the stuff needed for their new ipads before their rivals even know what they need. I guess its a first come first serve kinda thing. gotta make the first move or be left in the dust.

Glad to see someone gets it.

 

[Trauma1]

If this article is really correct, wouldn't it be an incredible advantage for them to overproduce their devices by 5-10%

Because that goes against every modern supply-chain management strategy.

Cook is notorious for keeping inventory levels low, and has gone as far to say that it is "fundamentally evil".

http://www.wired.com/epicenter/2011/08/why-tim-cook/

 

[cvaldes]

Wow Apple way to stifle innovation for everyone else.

Innovation doesn't count if no one buys it.

They weren't the first to market an MP3 player. They weren't the first to market a smartphone. They definitely weren't first to market a tablet.

Fandroids and PC pundits continuously quote the superior specs of their devices versus similar Apple products. Well, if your hardware and software are so awesome, why don't the customer satisfaction surveys reflect how great they are?

If this article is really correct, wouldn't it be an incredible advantage for them to overproduce their devices by 5-10% and completely short-change their competition; instead of now where every quarter the story seems to be they couldn't build enough devices to meet demand?

Nah, goes again modern business strategy. Apple doesn't maintain a lot of inventory. This way, you sell your products at full price and when new ones come along, you aren't discounting excess inventory. Apple is probably running at 45-day inventory with partners, probably 15-30 days in their own retail channel, at least for their hot items.

Remember that channel availability often dries up before new products are announced. Making just enough of them and selling them at full price keeps Apple's gross margins healthy.

What you don't want to do is overbuild (e.g., HP TouchPad), then slash prices to clear channel inventory.

Same thing with Logitech. They built a bunch of Google TV units, stuffed them into the channel, then had to write them off when they didn't move. The write down wiped out an entire quarter of Logitech's profits, triggering the departure of the CEO.

In any case, Apple cannot build enough iPhones nor iPads to satisfy demand. There are still big markets that aren't getting the iPhone (most of China, India, Brazil). There are way fewer iPad markets than iPhone or iPod markets; Apple will increase worldwide distribution in time, but there are certainly places with people who want iPhones and iPads and have difficulty sourcing those devices locally.

 

[PeterQVenkman]

Now you know why Tim Cook is in charge

Steve Jobs was the mob boss. Tim Cook is the hitman the other mob families never see coming!

 

[guch20]

Because that goes against every modern supply-chain management strategy.

Cook is notorious for keeping inventory levels low, and has gone as far to say that it is "fundamentally evil".

http://www.wired.com/epicenter/2011/08/why-tim-cook/

Totally and completely off-topic, but looking at the picture in that link you posted, I really miss the fire of Steve Jobs.

That's not a knock at Tim Cook at all, by the way.

I just really miss Steve Jobs. Don't know why that picture made me think that.

 

[kenypowa]

Good strategy by Apple, but kudos to HTC for being #1 smartphone vendor in US last quarter.

 

[guch20]

Innovation doesn't count if no one buys it.

They weren't the first to market an MP3 player. They weren't the first to market a smartphone. They definitely weren't first to market a tablet.

Fandroids and PC pundits continuously quote the superior specs of their devices versus similar Apple products. Well, if your hardware and software are so awesome, why don't the customer satisfaction surveys reflect how great they are?

As you said, they weren't the first and they didn't need to be. Apple's innovations never came from being first. It has always been (well not always, since they sucked when Jobs was gone) taking a product that exists, polishing it until it screams, marketing the hell out of it, and worrying about the end user experience above all else.

And it works. Which is why all the products in any given category suddenly and mysteriously start to look exactly like Apple's products immediately after Apple introduces them. Crazy coincidence, ain't it?

 

[Yumunum]

They can do this because they actually have clear strategies and pretty steady release schedules per device. (and not to mention, only one version of their iOS devices at a time)

Imagine if they were like Samsung. Releasing a billion random products throughout the year, randomly, no obvious direction, with varying parts each time.

 

[cvaldes]

As you said, they weren't the first and they didn't need to be. Apple's innovations never came from being first. It has always been (well not always, since they sucked when Jobs was gone) taking a product that exists, polishing it until it screams, marketing the hell out of it, and worrying about the end user experience above all else.

And it works. Which is why all the products in any given category suddenly and mysteriously start to look exactly like Apple's products immediately after Apple introduces them. Crazy coincidence, ain't it?

The funny thing is that cost competition isn't always an advantage.

Take a look at MP3 players. You can get an non-iPod player at half the price with twice the capacity. That's right: a 4GB iRiver player goes for $24-25 whereas the 2GB iPod shuffle goes for $49.

Looking at the specs and pricing, sounds great, right? Well, that's not how Joe Consumer sees it. Joe Consumer has voted with his wallet and Apple dominates MP3 player sales.

Heck, look at PCs, smartphones, tablets, whatever. Apple always tops the customer satisfaction surveys, even though they are basically always the most expensive. If saving money was all that great, why aren't the purchasers of those products happier?