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Apple: The Best Supply Chains in the World?

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For six straight years, Apple has been recognized as having the best worldwide supply chains in the “Gartner Global Supply Chain Top 25” ranking. Numerous accolades have also been made about Apple’s supply chain strategy, operations, and results. For example, Apple’s supply chains “best demonstrate leadership in applying demand-driven principles to drive business results.” “Apple dominates because it consistently brings both operational and innovation excellence to bear in some of the most competitive markets in the world.” Basically, Apple gets a lot of credit in the supply chain profession for being able to ramp up volumes both in hardware and software while also innovatively helping to redefine the consumer electronics market (e.g., iPhone, iPod, iPad, Mac).

Apple is the world’s second largest information technology company by revenue after Samsung and the third largest mobile phone producer after Samsung and Nokia. In Interbrand’s “Best Global Brands” report, Apple is now also the most valuable brand in the world. It overtook Coca-Cola for the number one position after Coca-Cola’s 13-year run at the top. Apple has an estimated brand value of more than $98 billion. “Few brands have enabled so many people to do so much so easily, which is why Apple has legions of adoring fans.” These “fans” or customers have downloaded apps for Apple’s electronic gadgets more than 50 billion times.

The company’s general supply chain model follows the path of most large multinational corporation’s supply chains. They do research and development to cultivate new technologies and/or to acquire intellectual property needed for future products. They test the product concepts via marketing research, product testing, and total cost analysis. After that, Apple typically does a pre-launch of new products, where global production, sourcing commitments, inventory management, and so on are evaluated. The product launch involves doing demand forecasts, resolving potential backlogs, and ensuring that the products are in the hands of its customers in as fast cycle time as possible. After the launch, monitoring starts with periodic reviews of inventory, demand, life cycle status, and component cost forecasts.

A number of factors make Apple’s global supply chains world leading. First, early on, Apple took steps to manage the total value created in its global supply chains by managing its suppliers and all other providers within the chains. Predetermined expectations of suppliers, exclusivity in supplier arrangements,

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420 Part Six International Business Functions

and volume guarantees ensured a supply chain infrastructure that could support Apple’s aggressive market leadership. Apple’s relationship building with its network partners is also a strength that has helped with increased scaling of production and resulted in improved quality in the manufacturing processes. Plus, and not to be underestimated, Apple has amassed lots of cash! The available cash funds have partially been used to place high volume orders, which strengthen supplier relationships, and in other ways maintain global supply chain leadership.

Using its supply chain infrastructure, Apple has managed to solve most of the challenges it has faced. For example, while the global economic downturn in 2008 presented problems for virtually all companies, Apple came through it in great shape. At the time, Steve Jobs said, “We’re armed with the strongest product line in our history, the most talented employees and the best customers in our industry . . . Apple just reported one of the best quarters in its history.” Other challenges that Apple is facing include obtaining enough quality components for its consumer electronics, potential for supply chain disruptions (natural and people created), dependence on third-party logistics providers, and inventory management issues. In each case, so far, Apple has strategically solved major issues to the satisfaction of the marketplace (the company consistently ranks at the top in “customer satisfaction” in the American Customer Satisfaction Index).

However, everything is not all rosy or positive about Apple. The company’s reputation has taken a few hits recently. For example, Apple was found guilty by a U.S. court of conspiring with publishers to set the price of e-books that were bought using iTunes. The ongoing feud with Samsung regarding various patents keeps lingering year-by- year, and worldwide customers are almost fanatically taking sides for or against Apple. There have also been allegations about the treatment of employees at Foxconn in China (one of the Apple suppliers). Plus, there was a U.S. Senate hearing that investigated Apple’s “highly questionable” tax minimization strategies. Now, on the more positive side, Apple has a portfolio of potential blockbuster products, welcomed upgrades, and innovative services in the making that are sure to remind its fans why they favor Apple products.

The challenges attached to these new offerings are sure to test Apple’s leadership in both brand value and best global supply chains. To some degree, the future challenges are clear. To stay at the top of its industry, Apple has to succeed in slowing Samsung’s momentum and capturing the booming Chinese mobile phone market. As always with Apple, as set in our expectations over the years by Steve Jobs’ “one more thing” announcements, Tim Cook and the new Apple leadership team must keep communicating to the market that their vision, innovations, and leadership can drive the idea that Apple’s best days are ahead. As one way to do this, Apple is on a hiring binge in Asia, adding hundreds of engineers and supply chain managers to its staff in Shangai and Taipei as it seeks to increase the speed at which it introduces new products. Plus, with Tim Cook as the CEO, Apple has a global production and supply chain management expert at the helm who constantly scrutinizes Apple’s supply chains, production operations, and fair labor practices. • Sources: D. Hofman, “The Gartner Supply Chain Top 25,” 2013, www.gartner.com/technology/supply-chain/top25.jsp, accessed April 13, 2014; “Interbrand’s Best Global Brands 2013,” www.interbrand.com/en/best-global-brands/2013/ Best-Global-Brands-2013.aspx, accessed April 13, 2014; “Apple Is the World’s Most Valuable Brand at $98 Billion,” The Huffington Post, September 30, 2013; “Apple Reports Fourth Quarter Results,” Apple Press Info, October 21, 2008; E. Doe, “Apple Goes on Hiring Binge in Asia to Speed Product Releases,” The Wall Street Journal, March 3, 2014; American Customer Satisfaction Index, http://theacsi.org; and “Fixing Apple’s Supply Chains,” The New York Times, April 2, 2012.

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Chapter Fifteen Global Production and Supply Chain Management 421

Introduction As trade barriers fall and global markets develop, many firms increasingly confront a set of interrelated issues. First, where in the world should production activities be located? Should they be concentrated in a single country, or should they be dispersed around the globe, matching the type of activity with country differences in factor costs, tariff barri- ers, political risks, and the like to minimize costs and maxi- mize value added? Second, what should be the long-term strategic role of foreign production sites? Should the firm abandon a foreign site if factor costs change, moving pro- duction to another more favorable location, or is there value to maintaining an operation at a given location even if underlying economic conditions change? Third, should the firm own foreign production activities, or is it better to out- source those activities to independent vendors? Fourth, how should a globally dispersed supply chain be managed, and what is the role of Internet-based information technol- ogy in the management of global logistics and sourcing? Fifth, should the firm manage global supply chains itself, or should it outsource the management to enterprises that specialize in this activity?