Case Study: Apple Inc.
Company Background
In 1976 the first Apple computer was created and Steven Wozniak and Steve Jobs founded Apple the same year. In 1980 the company was listed and capitalized over 300 million US$. In the following years a huge setback occurred because of poor supply chain management in the company. Following arguments with the chairman of the board in 1985, Steve Jobs resigned the same year. After years of bad performance, Steve Jobs returned to Apple in 1997 and drove the company to release the iPod in 2001. This device was one of the big revolutions in the industry. In 2003 the company expanded to its first retail store in Japan. Following further growth, Apple introduced the revolution of smartphones, the iPhone, in 2007 along with the iPod video and the iPod touch. 2011 was the year of the introduction of the iPad. Capitalizing on enormous growth and the brand image of the company, its supply chain was ranked number one in 2014, Apple’s stock price was at 524.47 US$ and the company had 160 billion in cash.
Strategy
Apple’s strategy is such a success because of many different factors. One is the high investment in research and development. This helps the company to be on top on the latest innovations and continuously revolutionize technology. The creative and simple design also is a big factor appealing to the customers and often a main reason why customers choose to buy Apple’s products. Designers also work very closely with suppliers, which also helps with the functionality of the product. Marketing plays also a key role in placing Apple’s products and making customers aware of its key image: ‘Think different’.
Suppliers
Apple’s supplier strategy focuses around its 156 suppliers worldwide, while keeping the research and development in California. With Foxconn being the main supplier for assembling Apple’s products, China is the main area of Apple’s outsourcing strategy. Apple also has a specific procurement strategy. They purchase production capacity in advance, buy capital equipment for suppliers in exchange for supply assurance and cost targeting, and maintain close control over suppliers with exclusivity agreements. Also, the company takes up so much capacity that competitors experience delays. Apple requires its suppliers to keep a minimum of two weeks inventory and makes huge upfront payments to the suppliers. This all leads to a very flexible management of its supply chain.
Distribution
Apple’s distribution channel evolves around their own Apple stores, normal retail stores, its online store and wholesalers. With this distribution they hope to reach the most amount of customers, while also trying to offer best customer support in their own Apple stores in other to improve the customer satisfaction.
Apple Store
Wholesalers
Retail Stores
Online Store
What differences at Apple apart from its competitors?
Closed ecosystem
Apple has developed this iOS system that only can run in their own product, such as Macbook, iPhone, iPad and so on. Comparing to their competitors, most of their devices are using Google Android so that the Android users can easily switch the devices. This can maintain their sales if the customers still want to stay in the ecosystem. Due to the establishment of close ecosystem, a large discount on components can be negotiated by Apple. They allow Apple to have a flexible manufacturing demand in the future and the supply chain cost can be reduced.
Production capacity and capital equipment
The key components contained in Apple’s products were often sourced from single manufacturer. To decrease the opportunity of stock out, Apple purchases the production capacity from the suppliers in order to obtain a steady supply. Moreover, Apple has invested in the capital equipment used in the manufacturing stage. For suppliers, they require to have supply assurance and achieve the cost target.
Just-in-time manufacturing
Apple heavily relies on the manpower of Chinese factory to revamp iPhone manufacturing. To save supply chain cost effectively, the manufacturing process started just a week before the devices hit on shelves. The productivity in Chinese factory is significantly impressive that 8,000 workers had produced over 10,000 units a day. The components stored in the assembly plants are expected to be used up in two weeks which indicates the efficiency of Apple’s Just-in-time manufacturing process.
Reverse Logistics
The common logistics practice is from upstream parties to downstream parties. But there will be a reverse logistics in some situations, for example, return process, refund process and so on. In these particular situation, the products will go from downstream to upstream.
In the return process, most of the companies would ask their customers to bring along with their defective with receipt to the storefront. The defective will be collected and shipped to the manufacturer.
Common Practice:
In Apple, the whole processing time has reduced a lot. Apple offers their customers to enter data online and the detail procedure will be sent to their email address. Then, there will be a box arrive in their doorstep. Once the customer is ready, the assigned courier will come and pick them up when they call the central dispatch number.
Reverse Logistics of Apple:
This online report procedure can effectively increase the customer satisfaction because the entire process can be finished at their home. Also, it can successfully reduce the workload of Apple’s technical support service and the likelihood to appear error while processing the return request.
What are the challenges that Apple faces in the future?
We are going to separate Apple’s challenge in stages of their supply chain.
1. Product development stage
As electronic goods are facing fierce competition with many competitors, Apple need to differentiate themselves from competitors in the product development stage. For example, in mobile phone market, Apple is facing competition with Samsung, LG and Sony. While Apple is also facing strong competitor like Microsoft, Acer, Lenovo in notebook market. Apple needs to put more effort in the R&D stage so that new technology could be used in Apple’s devices.
Less innovative (Leadership challenge)
People now blamed Apple do not have much innovation over their products after Steve Job died. Tim Cook, as a CEO, needs to maintain customer loyalty while getting back customer confidence by devising suitable growth strategy for Apple.
Operation systems challenge
A lot of Windows users blame OSX in Mac is not user friendly since they used to the OS in Windows. To capture the market share, it is crucial to develop a much more user-friendly operating system in OSX or IOS so that customer would have no excuse in embracing Apple’s product.
Intellectual Property challenge
Apple is now facing severe copycat issue from their competitor, especially in mobile phone market. In China, Like XiaoMi not only copy the design from Apple’s IPhone, but also copy the operating systems in in apple’s IOS system. There’s also lawsuits issue regarding intellectual property with Apple’s competitor, like Samsung. Apple has to suit with their competitors to secure their intellectual property.
2. Procurement
Production capacity issues
As Apple desire high level control over their supplier, which makes producer do not willing to share their production capacity with Apple. Apple need to know their suppliers’ profitability over its products, in which Apple would lower the profits share for their suppliers.
Supply chain risk
Apple often sourced parts from a single manufacturer. If one supplier has material shortage for manufacturing parts, it would easily lead to production delay and product shortage in Apple’s product.
3. Product assembly
It is not unusual to see the news about sweat factory in China, Foxconn is the most disreputable one. As Apple’s products are assembled in China, people put the blame of unethical labor practice to Apple. It negatively affects Apple’s corporate image. Also, as the labor cost in china is increasing gradually, it pushes product assembly cost upward as well.
4. Logistics
As nowadays supply chain management is emphasized in most of the industry, people expect timely and accurate delivery from retailers. It implies that Apple has to take much more effort in managing their logistics so that products are delivered on time. Also, as sales are increasing for Apple’s product, the reverse logistic have to be sophisticated to satisfy the need of returning products with defects. Also, Apple need to maintain good relationship with their logistics providers like UPS in order to manage numerous product from factory to customers.
5. Retail
Nowadays, retail stores not only help displaying products, but it also take a role of helping demand forecasting. Apple used to have sales data to manage the product volume, which lower the chance of stock-out or storing too much inventory. As mobile phone’s market is getting saturated, it provide so much uncertainty to the demand forecasting. Apple needs to come up with a better forecasting model to deal with the demand volatility over its products.
What are the implications for its supply chain?
The implication is analyzed by the stages of Apple's supply chain.
1. New product development
Since protecting their intellectual property, like the design of iPhone, is crucial to show not only their originality over their products, but also protect Apple’s corporate image and maintain the right to produce the product. It implies that Apple have to devote more and more attention to product all its Intellectual property. Apple also need to maintain the security control in its company so that no leak message before their products announced.
In addition to the intellectual property, Apple has to analyze the customer experience regarding operating systems of Apple’s product. For example, OSX, many windows users hates OSX product as they cannot easily handle OSX product easily if they do not spend time using it. That is why Apple needs to devise a much more user-friendly operating systems to attract customers from using other operating systems. Also, more tutorial or instant guidance in user interface could alleviate the problems. On the other hand, although it is essential to create a better operating system, it is also important to maintain Apple’s simplicity and company culture.
Besides, to deal with the declining innovation in Apple company, Apple has to put more resources on investing latest technology. Apple should also keep an eye on the technological development so that they might have some combination or innovation towards current technology. For product appearance design, Apple should employ more staff to have extensive market research so that new ideas could be generated.
2. Procurement
The single sourcing implies that Apple need to take extra attention to the material availability for their supplier so that it would not have any negative impact on Apple’s original product schedules. Cost might be higher as Apple needs to monitor the supply of their materials
Besides, it is also crucial for Apple to build up a committed and long term relationship with their suppliers. Moreover, it is better for Apple to sources from more suppliers. Apple might have to provide more incentives for their suppliers so that they are more willing to share their capacity with Apple. Apple might have to create an incentive plan that rewards suppliers with high quality goods and punish suppliers if they delays in schedules. The cost might be higher for Apple to have a comprehensive plan for supplier management.
3. Product Assembly
The challenge in product assembling implies that it is difficult to manage those subcontractors in the assembling process. In order to maintain Apple’s green corporate images among customers, Apple has to find a way to deal with the unethical working conditions in product assembling process. Besides, Apple has to consider pay fairly to the front line assembly workers. It helps Apple to create a better corporate image
4. Logistics
As logistics is fundamental process for Apple’s success, Apple have to maintain their world-class supply chain management to better manage the flow of its product. Apple has to utilize the 3PL and express company to ensure all the process satisfied their Just-In-Time needs. Constant review and improvement are needed to improve logistic efficiency.
5. Retail
Since retail store act as a role of demand forecasting, Apple needs to create a better demand forecasting model for the new volatility of demand, especially in mobile phone market. Moreover, for the retail store in big city, like Hong Kong, the rent is rising quickly because of the inflation. It also increases the cost pressure for renting the retail store. Moreover, the increased rent cost makes Apple have much more fixed expenses in operating expenses, in which it lowers Apple’s leverage in doing business. Therefore, Apple should constantly monitor the retail rent and sign a long rent contract to ensure the lower rent expenses.
As Jessica Grant, what recommendations would you make to the company’s VP?
If I were Jessica Grant, I will invest Apple to the company investment portfolio. Apple do excellent in some aspect.
Apple performs well in product selling. Their sales amount increase steadily every years, for example their net sales in 2012 is 156,508,000 and increased to 170,910,000 in 2013 because of their loyalty customer. The customer will buy the new product when Apple launch whether is good or not.
Also, Apple hasn’t expand their market in China. China is the largest developing country. The potential purchasing power is much higher than other countries, because they own the largest human proportion in the world. Therefore, if Apple can expand to China market, their sales amount can be increased dramatically like double or even triple increase.
Comparing with other operation system in mobile phone, Apple innovate their own operation system-IOS, while other competitors use licensing system like Window or Android. Apple’s operation system is comprehensive, and user-friendly. The reasons why people love IPhone are contributed by their interface and system. Apple system experts devote to maintain their system and keep it update with the generations, as well as they will eliminate the bugs when they occur immediately. Thus, the IOS system is the competitive advantage that other company can’t surpass in a short period.
With the brilliant R&D performance, Apple located the top of the consumer electronic product producer. In the very beginning, Apple will only focus on launching computer, IPod and IPhone, but now, they developed different product to meet the customer’s satisfaction. They launch IPad collection, Apple watch and Apple TV, etc. Therefore, Apple can keeps their customer’ loyalty because they can keep launching update and cutting-edge production while other competitors can’t
The quality control inside Apple is done well. The ration of new produce breakdown is low and the useful life of the products are high compare with others competitors. Apple insists on high-quality control with accurate and strict monitoring system. They will test the product by employing people form different place to test whether the product is operated smoothly at the last stage of production.
However, the product positioning is a challenging problem for Apple. In the past, Apple just focuses on high-end market, like, IPhone5S, 6, 6s. These types of IPhone priced around 5 thousand to 6 thousand or even 7 thousand base on the memory. Now, Apple sells some mid-tier IPhone such as 5c and now we can see SE. It is a bit confused for the investor or customer, because Apple is located in high-end market in the past. The product they sell will directly affect the sales volume and image of the company.
In conclude, in different aspect, Apple are distinguish themselves from other aspect. It is valuable to invest in Apple. If Apple can overcome the people, the returns on investment are huge.
Reflection
Excellent supply chain management and customer services level are the competitive advantages of Apple. Studied the case in Apply lead us understand the real world practices of Apple’ Just-In-Time supply chain, ranging from product development to retail operations. Since the company is selling the electronic products, the product life cycle is relatively short. Apple can gain shorten lead time thanks to the JIT operations.
We also got a chance to analysis the supply chain relationships and practices in this case. The product development will affect the production specification and complexity. For instance, since some of the components design of iPhone are complex and easy to stock out, Apple need to purchase the production capacity in advance. Besides, using subcontractor is one of characteristics of Apple souring and production practices, and managing their quality of supply is the important task. Those of practices bought us a new insight about the linkage of Apple supply chain.
Before the case, we thought that the retail operations is the simple task of Apple. However, the company spent a lot of efforts to maintain high quality standard of the services. For example, the stores is well designed for selling activities and the employees of the stores are well equipped with the product knowledge. After the case study, we believed that tight management of every details is one of the successful reason of Apple supply chain.
In conclude, we got a lot of insights of JIT supply chain in electronic products, and we understood the successful reason of Apple supply chain operations in this case.
