How Apple Uses its Supply Chain as a Strategic Weapon

[swingerofbirch]

Yeah, those poor, poor multi-billion dollar smartphone and electronics manufacturers. If only Apple would stop creating the device markets and then buying up all of the components that they need to actually build those devices.

Your analogy would make perfect sense if Apple were doing something illegal or unethical, or if the farmers in the 1800s were suffering because they failed to act until after the market leader showed them the right way. Neither is true, so the analogy fails.

I think you are confusing me with the person who wrote Apple is like an 1800s railroad company.

In response to that poster, you said the success of the railroads was sweet, and I simply said it wouldn't have been sweet for the farmers at the time.

I was not the originator of the analogy that Apple is like an 1800s railroad company, nor was I continuing the analogy.

I was referring to farmers who paid higher railroad rates to ship their product to urban centers than large trusts that could force the railroad companies to provide rebates on freight, which pushed farmers into great debt and poverty.

I was responding very specifically to the idea of someone vicariously in present day enjoying the success of railroad companies when those railroad companies would not have been enjoyed by the majority of the people they served in their time but rather were enjoyed by the wealthiest clients who demanded rebates--the railroads were often the "witch with a capital B" of other larger trusts.

In that way, I would actually disagree with the analogy because even though the railroad industry became conglomerated, it was other trusts, such as oil trusts, that dictated pricing of freight. Not only that, but rail lends itself to a public utility or regulated monopoly better anyway. The problem was the lack of government enforcement of anti-trust laws. Eventually, the government instead passed interstate commerce laws, which forced the railroads to charge the same standard amount to all customers. I personally don't see the railroads as particularly villainous. Investment in railroad by our government was extremely important in bringing us to where we are today, and I suppose the fact that the land was freely given by the public (government) to the railroads, well, that certainly gave more leverage to the idea that the thoroughfare should not have charge what essentially amounted to paid tolls (on top of normal freight charges) to some of the poorest, hardest working Americans who were trying to sell their crops to stay afloat.

 

[batchtaster]

Wow Apple way to stifle innovation for everyone else.

Why is it un-innovative of Apple for everyone else to need copies of Apple's parts, for the product they have ready to go before all the everyone elses?

You snooze, you lose. The essence of competition.

 

[bossxii]

if they are so good why am i waiting 2 weeks for a damn iphone 4s, 1 month for the iphone 4 and even longer for the 3gs?

Maybe because unlike Apple, you didn't plan ahead and preorder the 4 or 4S?

Mine (4S) showed up around 10am on the 14th. Anyone that has followed the iPhone or iPad knew they sell out and break volume records. It's happened every time, I'm not sure why people get upset due to their own poor planning.

Preorder.

 

[shompa]

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?

Its better to build a few to few then too much.
Inventory is very bad and expensive. Especially since its worthless as soon as a new product comes.

Apple can never completely short-change their competition since the parts manufactures will only increase manufacturing of parts. This leads to more parts for competition = bad for Apple.

Since most of Apple parts is from direct competition like Samsung, both Samsung and Apple are in a strange situation. 18 month before an Apple product launch Apple goes to Samsung with specification of a part. Samsung manufactures a trail run for Apple prototypes.

Now Apple direct competition knows what parts Apple will use. They start to clone it. This is why outsourcing to competitors does not work. Its ok as long as they just produce parts. But sometimes they get greedy and start use the same parts to launch competing products.

 

[brewcitywi]

Maybe

Wow Apple way to stifle innovation for everyone else.

Stifle innovation? If Apple wants voice control, they buy Siri, patents, other related items. When Company B wants to copy it and steal it, go ahead and try, except that they can't, not for a while.

I think it protects from innovation theft.

Go ahead, copy our tablet, except you can't get screens that large, or memory, or processors. Well, maybe you shouldn't be trying to copy our tablet. Why weren't you making a tablet 5 years ago? Because you didnt have the idea. Where did you get the idea to make a tablet? Apple? Go make something else. Go make something original, don't come taking our ideas.

I think it's clever. You can copy us, but you can't have displays.

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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?

Creating the entire product and stocking it for a long time is a liability..you still want as little product in your supply chain as possible.

Why stock the entire product if you can own the industry by just over-purchasing one key component? Even if it's a commodity like air shipping, or flash memory.

The supply chain command is to protect their innovation, not stock final products for the customer. That's a totally separate style of purchasing.

 

[unlinked]

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You don't seem to beer stand what anti-competitive behavior is.

Plenty of practices are bad for competition without being illegal or unprofitable.I'm sure we all beer that.

 

[aziatiklover]

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

sure especially when HTC have a zillion phones over the year compare to 1 release a year from apple. Make sense they are first!

 

[iSee]

Wow Apple way to stifle innovation for everyone else.

How so?
It sounds like Apple is buying the capacity it needs to manufacture and deliver its products and nothing more.

If sometimes that doesn't leave enough capacity for others, that's really on the other companies and their suppliers to plan and purchase the capacity they need.

 

[divinox]

Correct me if i am wrong.

ip4 uses an LG (ips LCD) screen.
htc were short on AMOLEDs (falling back on LCDs).
Said AMOLEDs were sourced from Samsung, not LG.

How does what is stated add up?

(Im not saying that the article in itself is wrong, but this particular example seems to be).

 

[Kaibelf]

Wow Apple way to stifle innovation for everyone else.

How is making sure you have products available for your customers "stifling innovation?" It's not like they don't sell pretty much every unit they manufacture. What's next - are you doing to yell at someone at the grocery store who buys the last box of your favorite cereal because they are "stifling your diet"?

 

[whooleytoo]

Apple fan 2010: "Go Steve Jobs! A true visionary in innovation!"
Apple fan 2011: "Go Tim Cook! Look at that supply chain go!"

 

[Kaibelf]

$499 is a lot of money to just browse the internet. Paying to consume content is a big joke to me when I can get the majority of it for free.

It is somewhat perplexing how much use a tablet gets while watching television. Otherwise amuse me as I have no imagination.

Only a total fool would assume that people who use an iPad "just browse the internet" with it.

 

[samcraig]

I think as a business strategy - it's great.

However - there's a part of me that wonders if they are stifling some innovation from other companies.

Look at the story of Tucker - a guy who was pretty innovative - but he was put out of business because the big 3 car manufacturers didn't want them playing in their yard.

Apple, though is obviously not doing anything illegal or at least hasn't been taken to task for interfering with a company's ability to do business. So again - ultimately what they are doing is great strategy.

 

[Bubba Satori]

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

An apt crime metaphor. Magic.

 

[stockscalper]

Well isn't that special. Apple has now become IBM. They should take note of Orwell's other book and read Animal Farm.

 

[Starflyer]

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

By profit?

 

[divinox]

Only a total fool would assume that people who use an iPad "just browse the internet" with it.

And yet that is the case for the vast majority of users. Ok, not entirely true. They also use it to consume "off-web" online and offline media. But yeah. Web. Media. Mail. Thats like 95% of the use-case for 95% of the users. Oh, add in your casual gaming too.

Not exactly "just browse the internet", but not far from it either - given that the web could in fact be the platform for all.

 

[Starflyer]

Sounds a little like intentional abuse of capitol and market position in order to participate in anti-competitive behavior. I'm not surprised Apple would try to do this per se; I'm just surprised so many Americans would cheer them on with this much gusto.

Like someone posted earlier, it's not like they are hoarding supplies. They are selling pretty much everyone that they build.

 

[jlc1978]

What is most interesting for me:

When I bought my iPhone it was directly send from the factory in ShenZhen, China to my address via FeDEX - and not from a local warehouse.

Since they can ship to anywhere in the world form there it makes it easier to keep tighter controls over stock levels since random variations between various locations would even out; so they avoid too much at location A and not enough at B.

The FeDEX cost (I guess around US$10 per item) is probably high compare to bulk airfreight ($1-2), but Apple can save on repacking and does not need a distribution center. FeDEX also handles all customs issues.

I have no idea what Apple pays but they no doubt made a good deal. Apple is almost an ideal customer - small, dense, heavy boxes so you can weight out before you cube out; relatively predictable shipment volume; the ability to route shipments to use excess capacity (a box could go China - Europe - UK or China - US - UK depending on space availability and still be on time) - the only thing that would make them better is if they could fill up the FedEx planes heading to China.

Smart move!

Very much so. They learned something from Walmart, no doubt; and they still seem to dictate prices to Walmart rather than vice versa.

 

[Herdfan]

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

Not hard when the providers are giving your phones away.

 

[samcraig]

Not hard when the providers are giving your phones away.

Providers still pay for those phones. Just in case you thought that HTC is just giving them away for free.

 

[jlc1978]

Sounds a little like intentional abuse of capitol and market position in order to participate in anti-competitive behavior. I'm not surprised Apple would try to do this per se; I'm just surprised so many Americans would cheer them on with this much gusto.

Not really - they, as others pointed out, actually build products from what they buy. Having an assured supply is pretty key for them; plus it enables them to negotiate lower unit prices as well.

it also fits in with their product update cycle - by not having constant revisions and new models, along with a limited set of options for each product, they are able to look in production because they know how many units they want to build and that they won't be obsoleting components half way through the production cycle.

If they were buying and simply hoarding components you might be able to argue it was anti-competitive; but if I were a competitor I'd be happy to see a major player incur billions in costs and forgo further billions in profit while I sought out alternate suppliers and encouraged component suppliers to ramp up production of components I need.

 

[samcraig]

Not really - they, as others pointed out, actually build products from what they buy. Having an assured supply is pretty key for them; plus it enables them to negotiate lower unit prices as well.

it also fits in with their product update cycle - by not having constant revisions and new models, along with a limited set of options for each product, they are able to look in production because they know how many units they want to build and that they won't be obsoleting components half way through the production cycle.

If they were buying and simply hoarding components you might be able to argue it was anti-competitive; but if I were a competitor I'd be happy to see a major player incur billions in costs and forgo further billions in profit while I sought out alternate suppliers and encouraged component suppliers to ramp up production of components I need.

I am JUST asking - do we know they aren't hoarding? Or is that just an assumption. Again - just asking.

 

[Chupa Chupa]

Wait, so Apple keeping it's eye on the ball and reserving adequate air cargo space = squeezing out competition? If competition was competitive they'd have beaten Apple to the punch to make sure they were not caught looking. Seems they were just dozing.

Also it's pathetic to hear HTC crying it couldn't buy enough screens b/c manufacturers were shipping them all to Apple. Hey HTC it's called logistics & supply management. Maybe your management guys were dozing off when they were going over that in B-School.

 

[samcraig]

Wait, so Apple keeping it's eye on the ball and reserving adequate air cargo space = squeezing out competition? If competition was competitive they'd have beaten Apple to the punch to make sure they were not caught looking. Seems they were just dozing.

Also it's pathetic to hear HTC crying it couldn't buy enough screens b/c manufacturers were shipping them all to Apple. Hey HTC it's called logistics. Maybe your management guys were dozing off when they were going over that in B-School.

Hey - to be fair - it's quite possible that Apple just beat them to the punch and/or had a better deal or whatever. It's not necc. HTC's managers "dozing off"

No one here was in on negotiations - so I think it's ok to comment on the overall picture - but it's silly to start pretending you have inside information on what did or did not happen.