Apple Inc Supply Chain and Competitive Advantages - Case Study Example

Apple Inc. supply chain and competitive advantages Name: Tutor: Course: Date: Table of Contents Table of Contents 2 List of figures 3 1.0 Introduction 4 1.1 Supply chain management as source of competitive advantage 4 Figure 1: Alignment model on supply chain by Fisher 5 1.2 Perceived level of product differentiation 6 1.3 Apple’s competitive advantage 8 Figure 2: Apple ecosystem and competitive advantage 9 1.4 Failures of Apple supply chain 9 1.5 Success of the supply chain 11 Figure 3: Apple’s supply chain 12 1.6 Conclusion 13 References 14 List of figures Table of Contents 2 List of figures 3 1.0 Introduction 4 1.1 Supply chain management as source of competitive advantage 4 Figure 1: Alignment model on supply chain by Fisher 5 1.2 Perceived level of product differentiation 6 1.3 Apple’s competitive advantage 8 Figure 2: Apple ecosystem and competitive advantage 9 1.4 Failures of Apple supply chain 9 1.5 Success of the supply chain 11 Figure 3: Apple’s supply chain 12 1.6 Conclusion 13 References 14 1.0 Introduction Apple Inc. has created a sustained competitive advantage owing to its capability to create highly differentiated products. The company is a good example of how to wins customers by differentiating products (Nielson, 2014). Although it prides on making easy-to-use and iconic products, Apple does not sell products that only select customers or attempt to make the lowest-priced products. The first MP3 player on the market was not the iPod as is popularly perceived. Nevertheless, customers choose Apple’s products because the company has invested in maintaining high quality of product (Gustin, 2012). It has been able to expand its supply chain while maintaining product quality and taking greater control on delivery time and quality management. Apple adopted a formalized list of expectations and created exclusivity agreements in exchange for volume guarantees from their suppliers. 1.1 Supply chain management as source of competitive advantage In the volatile global market, a major source of competitive advantage to a firm is its supply chain management. The aggressive competition global market today emanates from availability of huge capital, information and technology, business creativity and globalization. Pearson (2015) argues that having high market share in the global competitive market is not adequate to earn maximum profit, thus, forcing organizations to focus on their competitive capabilities. By developing relationships with suppliers, over time, the company rapidly scaled operations to customer demand for new and existing and products (Barney, 1991). With some product and processes patented by the company, it has been working with its supply chain partners in developing the new manufacturing processes (Hau, 2004). Moreover, placing high volume pre-orders with suppliers shows that firm has good financing to ensure adequate production capacity. This strategy has prevented competitors from copying their manufacturing resources. However, outsourcing has benefited Apple but on the other hand left it vulnerable to disruptions in supply chain key links (Teece, 1997). The supply chain has been severely affected by changes in international trade agreements to natural disasters. Apple cannot ignore the criticism leveled against factories and warehouses of its suppliers over working conditions. Satisfaction of end users or customers becomes the organization’s ultimate goal. Satisfying customers require inter-organizational linkage because they dominate the market (Barney, 1991). With available mass customization and lower price, customers want high quality of service. Customer needs should be matched with the type of supply chain as shown in the figure below. (Source: Pearson, 2015, p. 22) Figure 1: Alignment model on supply chain by Fisher This is possible when the chain of distributors and retailers wholesalers, suppliers are committed in the marketing system. Specifically, globalization and technology information system has prevailed on firms to compete not just a country or region level but also at global level (Pearson, 2015). Supply chain system does not tolerate blind interest of profit making among supplier. Kotler argues that despite their robustness, firms lack requisites for success and total resources as they globalize (Fornalczyk, 2010). Firms have recognized the necessity to partner with other organizations in a bid to have a complete supply chain that provides value. The most influential and intense changes are Information and communication technology (ICT) because they directly affect companies. Giant highly bureaucratic firms at the onset of modern computers and communications began to erode as their manual systems could not keep pace with new customer demands (Barney, 1991). According to Blanchard (2010), effective supply chain system, in global market, has enabled the integration and cooperation of firms in production to distribution channels. Given that fast modern communication and information system connects all the parties, they enjoy competitive advantages based on market roles and customer satisfaction. Time delays in the network have been reduced as information resources availability guarantees easy linkages to minimize cost (Chen & Paulraj, 2004). The relationship among suppliers and customers, in today’s market situation, is under immense pressure. Kotler shows that with scarce customers it becomes difficult for the company to continue operating (Fornalczyk, 2010). This means that there is need to put plans in place to acquire and keep customers. As the level of competition increases, firms in the domestic and international markets seek to attract customers by raising their level of responsiveness, flexibility and swiftness. Without organizational cooperation in the supply chain system, this requirement cannot be acquired (Chopra & Meindle, 2004). The supply chain performs a function of procuring the materials and is a network providing facilities or distribution options. 1.2 Perceived level of product differentiation Firms drive consumers to discern and appreciate the differences between competitor’s products and their products (Gebremichael & Rao, 2014). Competition becomes much more intense especially when consumers find it difficult to perceive the difference between products (Fawcett et al., 2009). For example, when Microsoft in 2006 introduced a portable media player, the Zune, it immediately faced challenges of being compared to iPod from Apple. As a result, the initial sales of the Zune dropped considerably as customers failed to realize that Zune was an improvement of iPod. Five years later, Microsoft abandoned manufacturing of Zune reported as sales had decreased by $100 million (Gustin, 2012). Competition is more difficult when consumers do not appreciable difference from existing products even for newly introduced product by rival firms that force supply chain strategies to be based solely on price (Banker, 2012). This means that supply chain and organizational managers should ensure that significant differentiation exists in services and products by working closely with marketing managers. Apple Inc. exploits differentiation strategies in providing distinctive services or products not easy for rivals to compete. The company not only adopted unique ways to gain advantage over competitors but also developed plans to attain life-long commitment from customers (Nielson, 2014). Competitive advantages of a company, according to Michael Porter, are two pronged; differentiation or low cost (Fawcett, 2010). By combining with the scope of activities, Porter noted that a firm can achieve excellence and market success by deriving and pursuing three generic strategies (Gebremichael & Rao, 2014). These are focus, differentiation and cost leadership. While focus has two variants of differentiation focus and cost focus, cost leadership attempts to have the lowest cost producer in the manufacturing industry. Different industries have different sources of cost advantage such as preferential access to raw materials, proprietary technology and economies of scale (Chen & Paulraj, 2004). With a differentiation strategy, a company seeks to develop products and services that are perceived as unique in its industry, and which create a value advantage for its customers. Focusing on one or more attributes perceived by customers as important leads to higher cost levels. Strongly differentiated companies have loyal customers to its services and products because they reward the effort made and are less price-sensitive by paying premium prices. In the aforementioned three decisive factors, a firm’s supply chain has an important role that represents essential strategic resource and attains the strategic goals (Blanchard, 2010). For example, customers no longer select products and services only on price alone because they now recognize the value of supply chain quality and service. Apple just like Procter & Gamble and Dell is increasingly outperforming competitors in supply chain excellence. However, not only are companies involved in competition but also the whole supply chains. In practice and theory, Gebremichael and Rao (2014) argue that there are two fundamental supply chain types with potential to provide competitive strategies such as differentiation and cost leadership. Some supply chains are agile, fast and service driven while others are lean, cost and efficiency-driven. With a cost leadership strategy, a lean supply chain fits well, and is specifically successful. For example, a high proportion of the cost of goods sold is represented by total logistics costs only if the supply chain provides greater possibilities to control and reduce costs. On the other hand, a differentiation strategy fits well with an agile supply chain strategy. Johnson (2012) suggest that supply chain solutions need diversification and segmentation which means that customer-oriented differentiation is essential. Companies with best practice do not have a fixed supply chain strategy which shows that for competitive advantage, they need to customize supply chains individually. In the global context, there are different products, customers, and countries that have implemented multiple supply chain solutions and strategies (Copeland, 2010). This happens in situations having heterogeneous customer-product mixes supported within similar international supply chains. Having a strong alignment with the corporate and competitive strategy requires that the supply chain be configured and developed holistically in all the multi-layered fields. 1.3 Apple’s competitive advantage The supply chain strategy is one of the competitive strategies to thriving firms (Copeland, 2010). It determines the configuration and the goals of the supply chain with regard to supply chain systems, processes, structures and partners as shown in the figure below. Issues that pertain to supply chain partners include cost sharing models, configuration of outsourcing models and gain and the selection of partners (Apple Inc. 2014). Supply chain structures are determined by production network structures and configuration of distribution. Supply chain processes involve speed and flexibility, distribution processes, production and configuration of procurement. On the other hand, the supply chain systems include incentive systems, reporting and control, and information and configuration of leadership. (Source: Nielson, 2014) Figure 2: Apple ecosystem and competitive advantage Apple intends to solve vendor issues that could stop or slow production and reduce the risks of shortages by moving toward more manufacturing partners for the Apple watch and iPhone 6 (Bajarin, 2011). For example, in 2015, Apple’s Sapphire display was stalled by GT Advanced Technologies, the provider for Sapphire displays. Apple uses overseas suppliers as low-cost manufacturing options. The company has made a strategic decision to partner with manufacturing firms that can work with very little lead time using required approaches and techniques. Apple reduces the dependency on one company by increasing the number of partner companies (Apple Inc. 2014). However, it exposes itself to production stalls and business failures. Despite that decision, the company is keeping its options open and broadens the number of firms it contracts with when it comes to selecting manufacturing partners for the Apple watch and the iPhone 6. As multiple firms compete for additional business with Apple, they potentially lower costs to the company which is advantageous. Apple has added two firms based in Taiwan in its diversification pursuits; Compal Electronics, China BYD and Winstron Corp. The former build iPads while the latter two were selected as the iPhone assemblers. 1.4 Failures of Apple supply chain Firms with few substitutes realize that suppliers of their services, labor, components and raw materials to the firm can be powerful over them (Bajarin, 2011). Suppliers having great power may charge very high prices for unique resources or refuse to work with the firm. For example, Intel has greater power over the firms with which it is supplying technology components and parts. Before releasing their next generation of laptop computers, most computer manufacturers around the world wait for Intel to release its most recent chip (Apple Inc. 2014). As consumers look forward to the latest technology, companies such as Apple, HP and Dell are giving Intel tremendous industry power because they wait for firm to releases its next generation of microchip for them to build their next computers (Apple Inc. 2014). In this arrangement, a computer manufacturer will be forced to release their newest models of computer at the same time as its rivals. Other than the best processing power, these rival firms will have to come up with a strategy that helps them to differentiate based on other capabilities and resources (Copeland, 2010). This is because the industry competition increases when suppliers have great power. Despite Apple Inc. receiving praises over its supply chain, the high-tech system of the company has issues. First, the company’s supply chain is dotted with complains over working conditions on its manufacturing locations. Foxconn which has been reported as providing poor working conditions for its workers largest assembling partner of Apple. The source of workers to Foxconn factories,in the recent past has been a subject of heated debate. There were over 900,000 employees, according to a 2010 report, majority students who were forced to work on the line for up to 2 years in these factories aged between 16 to 18 years (Bajarin, 2011). Pressured work overtime on a regular basis, there are also some Chinese factories providing Apple with component parts with such workers. Another survey shows that employees working 10 hours or more a day account for 73.3 percent of the work force. As this average overtime clocks 83.2 hours a month compared to the limit monthly overtime to 36 hours a month, it signals a total breach of the official labor laws (Apple Inc. 2014). Consequently, fourteen workers committed suicide with twenty of the workers attempting to take their lives. Foxlink is another Apple component supplier in which one of its employees, a Chinese worker, jumped out of the sixth floor and died. Suicide rates are significant indicators of the stressful and poor working conditions at factories supplying Apple Inc. with components and parts (Nielson, 2014). Second, the relationship between the company and its suppliers is questionable. In the Wall Street Journal, Lessinand and Sherr observe that the supply chain Apple Inc. were unable to meet the expected number of sales due the due to insufficient supply chain towards the end of 2012 (Gustin, 2012). This shows that suppliers of Apple Inc. have not been able to provide the required capacity sufficient to meet the current product demand. Despite having many suppliers all around the world, Apple Inc. supply chain is assessed piece by piece shows that chips and LCD Panels are the most important components to the company. Moreover, The Korea Times intimated that the largest LCD screens supplier of Apple Inc., Samsung, is planning to discontinue supply of products to the company (Banker, 2012). This is because it does not find it beneficial to continue cooperating with Apple. As a result, Apple will have to content with two remaining suppliers of LCD screens; LGD and AUO who also have severe lack of experience (Nielson, 2014). With inadequate number of products supplied to satisfy the current demand, it is possible that during the holiday season, it will cause a big loss to Apple’s sales. Apple lacks control over its assembly manufacturers, who cause delivery delays as customer who have already placed their orders are kept on waiting mode (Bajarin, 2011). For example, due to problems with Foxconn’s worker riot, Apple customers have had to wait for a month for item delivery. For Apple to continue to maintaining its previous success levels, it must take action on its supply chain. 1.5 Success of the supply chain Complementary relationships are required by firms that understand their core competencies and that of their customers if they desire to maintain world-class service (Barney, 1991). A firm may have a competitive advantage in one area of specialty but lacks expertise in another. Apple Inc. has its core competencies in software development, and research and development (R&D). However, it does not excel in manufacturing which leaves the Foxconn, the Chinese company, to manufacture and supply global consumer technology products (Nielson, 2014). For many consumer technology brands, Foxconn is inexpensive, complies with quality expectations and has established intimate relationships with major suppliers. While this is the ideal supplier for Apple, the company ability to design the products in United States and put them on the manufacturing floor in China makes it to be competitive on price, innovative and of higher quality (Bajarin, 2011). (Source: Nielson, 2014) Figure 3: Apple’s supply chain When it comes to supply chain management, the superiority of Apple Inc. goes unnoticed. Apple Inc. was ranked by ARM research in 2014 among the top in a list of manufacturing and retail heavyweights. Effectiveness is the key factor in the supply chain of Apple Inc (Nielson, 2014). According to ARM research in 2007, the company had demand-shaping capability that was unparalleled when its supply chain recorded spectacular results without much struggle with costs (Gebremichael & Rao, 2014). The research asserts that Apple Inc. dominated because, in most competitive markets in the world, it consistently brings both innovation and operational excellence. The company's ability to ramp volumes from a supply chain perspective redefines how a mobile telephone should look like both in hardware and software (Copeland, 2010). In the recent past, Apple Inc. has increased a number of contracts with many different suppliers in the world such as Samsung Semiconductors and IBM to achieve an effective supply system. As seen in 2014 Apple Supplier Responsibility report, the company observed that that it has 235 audits, over half of which are in manufacturing, something that had not been done before (Nielson, 2014). For low cost purposes, majority of the low cost manufacturers are in China while their LCD panel suppliers are in Korea. By diversifiying sources, Apple Inc is able to curb on supply risks and ensure quality control, thus making its supply chain is very active, efficient and effective (Copeland, 2010. 1.6 Conclusion From the analysis above, supply chain of Apple Inc. may be considered one of the best supply models globally. However, it faces some problems in its supply system as the customers continue to increase their demand for its products. The technology company has been partnering with some of the Asian suppliers such as Foconn and Samsung semiconductors. However, issues with regard to supply volumes and meeting working conditions of workers have not been resolved. On the contrary, Apple Inc. has diversified its supply chain and ensured that it partners with leading suppliers and at the same time procure technology components and parts with the lowest cost. While poor working conditions of workers diminishes the reputation of Apple, expanding its number of partners in supplying parts will help to curb the runaway demand. Apple has to control and manage quality in the supply chain if it is to remain competitive in the technology products market. References Apple Inc., A. (2014). Apple Supplier Responsibility 2014 Progress Report. Apple Inc. Bajarin, T. (2011). Apple’s Strategic Advantage. 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