Managing a Global Supply Chain - Case Study Example

Apple Inc.: Managing a Global Supply Chain Name Institution Course Date Apple Inc.: Managing a Global Supply Chain Executive Summary Apple supply chain is considered one of the best in the world. The company has an integrated supply chain and accelerates its product development in order to meet with demands. Its supply chain is simpler compared to those of competitors and has made some pre-payment agreement with the suppliers in order to secure constant supply of key complements. Apple supply chain has enjoyed the benefit of minimal inventory time, the reverse logistic system, effective control of the suppliers and focussed supply chain with only five main products. Although the company has a reputable supply chain, there are a number of changes that need to be done in order to ensure future competitiveness. Future challenges that may face Apple include competition from players offering low price products, and supply issues due to limited number of suppliers among others. Introduction Apple Computer was instituted in 1976 by three individuals; Steve Jobs, Mike Markkula as well as Steve Wozniak (Mark, 2014). The main of its establishment was to manufacture and distribute desktop computers. The founders struck a deal to sell 50 computer units to local computer outlets. After a successful sale of its first phase of Apple computers, the founders decided to improve the design and establish Apple II (Wilson, 2012). The company became one of the biggest computer manufacturing companies in the United States in 198 after creating about 300 millionaires. Although Apple’s operation was going on well, the entry of IBM into the market in 1981 created a competition in the industry (Mark, 2014). Almost immediately, IBM’s personal computers took over the market which affected the profitability of Apple Computer. In order to rise from its fall, Apple decided to license its Mac operating system to third party manufacturer (Mark, 2014). However, this did not change the situation and Steve Job decided to stop the strategy in order to reassert control over its products. In 2004, the situation of Apple began to get better due to changes made in its supply chain. This case study will review Apple’s supply chain for iPhone product and evaluate the key advantages of its supply chain operations. It will also offer some challenges faced by Apple and recommendation for improvement of its supply chain. Apple’s Supply Chain for its iPhone Product Apple’s iPhone supply chain is considered global. It has its research and development division in the United States with about 156 suppliers, retail outlets across different countries and assembly operations in China. The Apple’s iPhone supply chain from inception to delivery undergoes the outlined stages; New Product Development Apple’s supply chain for the iPhone has a short product development cycle. This is different from many competitors who have a new product development cycle that cover longer time of about four to five years (Mark, 2014). For Apple, new product development cycle spin for about one year. The new product development also incorporates a wide range of stakeholders such as hardware, software and production. The company ensures that it has control of its entire new product and the entire supply chain by minimizing outsourcing (Maziliaskaite, 2014). Unlike the company, a competitor such as Samsung outsources its manufacturing to third-party providers. Some competitors such as Solectron and Flextronics prefer to outsource the entire production and management of the supply chain (Mark, 2014). Apple’s creative design and engineering is controlled from California. From 2013, the company has been investing more on research and development in order to ensure that it produces innovative products (Mark, 2014). Unlike Dell, Apples products such as the iPhone were available in controlled number of configurations. This is a strategy that ensures the supply chain is streamlined. Most competitors of Apple have separate research and development division and distinct accountability for different product segment (Dedrisk and Kraemer, 2007). Apple is highly integrated and streamlined with centralized research and development as well as cohesive accounting (Maziliaskaite, 2014). Procurement In order to ensure cost saving and uniformity, Apple sources all its key components from a single manufacturer (Mark, 2014). However, this was challenging since the components were regularly out of stock due to demand from different mobile phone companies. In order to counteract this challenge, Apple came up with a strategy that involved the purchase of suppliers’ production capacity early in advance for assurance of steady supplies (Mark, 2014). Also, the company bought equipment for its suppliers in exchange of constant supply assurance as well as cost effective components. This strategy was different from most of its competitors who purchase their key components from different suppliers (Mark, 2014). To show that Apple procurement strategy works, the company attracted about 60 per cent of gross margin which was higher compared to competitors such as LG and Samsung who captured about 5-7 per cent gross margin (Mark, 2014). Apple ordered for key components for its iPhone from about 156 suppliers who signed an exclusivity agreement and ensured the company maintained control over the suppliers and could negotiate discounts with them (Green, Whitten and Inman, 2008). Unlike the competitors, due to exclusivity agreement, Apple was ensured constant supply from suppliers while companies like Samsung and Huawei had to wait for key components like screens due to depletion (Mark, 2014). Product Assembly The assembly of the key components of iPhone took place in China at Faxconn, a subcontractor of Apple. Faxconn is considered the world’s largest electronic manufacturer with clients including Apple, Blackberry and Sony (Mark, 2014). In contrast, the competitors of Apple preferred to outsource its production from other providers. For instance, in 2011, Nokia outsources its Windows Phone to a manufacturer called Compal Electronics while Samsung outsourced its low-end smartphones to different manufacturers (Mark, 2014). Assembly of iPhone components was considered labour intensive with a need for constant quality control. Logistics In order to speed up its supply chain, Apple used air-freight while most of the competitors were relying on shipment by sea. The use of air-freight had some added advantage over the competitors such as Samsung and Compaq (Mark, 2014). The company also preferred to ship its iPhone directly from assembly plants in China to the consumers which was a lot cheaper. In addition, the company has a reverse logistic system where involved warranty claims, recycle program and trade-ins. This system benefitted the company on a cost level and consumer experience level (Mark, 2014). With regard to the issues of warranty and reported product defection, Apple allowed customers to use their websites to report of any defect and within a day, the company replies to the consumers about the details of warranty and the a replaced product will be sent to the consumer within 48 hours (Mark, 2014). In contrast, most competitors of Apple used the traditional warranty and return system where a customer returns a product to the store and the store would be required to take the product back to the company for refund. This is a long process that can be frustrating to the consumers. (Ford, 2011) Retail Experience By 2012, Apple had about 424 retail outlets across 16 countries (Mark, 2014). In addition, to this, the company has an online Apple Store which is accessible to about 40 countries. All of its retail stores are located in high-traffic locations in order to ensure high-quality buying experience to consumers. The stores are designed in such a way that enhances presentation and marketing and had experienced personnel with effective customer service knowledge (Mark, 2014). Advantages of Apple Supply Chain The decision of hiring the top component manufacturer was of great benefit since it was easy to call out workers to assemble the components together which would have been a challenge for the company. In addition, the global suppliers were able to offer engineers of great scale that those in the United States (Mark, 2014). It was estimated that the company required about 8,700 engineers to oversee the assembly which could have taken nine months to find them in the United States. Having an assembly site in China was beneficial for the company since it only took 15 days to find all the required qualified engineers which fastened the assembly work (Mark, 2014). In addition, the reverse logistic system was advantageous for the company. The company was able to enhance customer satisfaction minimize the call for technical support service and improved integration (Mark, 2014). Moreover, compared to the competitors, Apple has a close control of its suppliers and factories. The company conducts audits of all its factories and suppliers to ensure they adhere to the set standards. The company has a supplier Code of Conduct which ensures that the suppliers follow its values and principles (Lu, 2014). In addition, the company monitors all its stores in different countries and adjust its supply chain when the need arises. Moreover, Apple has great inventory management. Its inventory arrive after only 5 days which is better that the competitors such as Dell and Samsung with inventory arriving after every 10 days and 21 days respectively (Lu, 2014). Minimizing the inventory at hand has given cost benefit to the company. Apple is so successful in terms of its supply chain strategy for it has used its expertise in software and hardware to give them a competitive advantage (Lu, 2014). It has come up with an integration known as the Vertical integration. This innovation has helped them surpass normal strategies therefore giving them a competitive advantage. The so-called Vertical integration has given it leverage over its competitors by coming up with their own chip and at the same time taking control over their manufacturing (Esper, Fugate and Davis, 2007). This has enabled the company to take control over their value chains and also the costs of its components. In terms of core competencies, Apple has made it very hard to imitate its supply chain model which gives an edge to its competitors (Lu, 2014). The company has ensured that it is very consistent in its supply chain portfolio and also it has strictly ensured that there are no evasions in their designs and skill put in to their devices therefore securing their core competency. The company has a focussed supply chain which differentiates it from the competitors. After the return of Steve Job as the Chairman, the company cut down the number of devices it makes. Today, the company only makes 5 types of devices with about 15 variations of each. This has allowed for greater accuracy and optimization of the supply chain (Lu, 2014). Challenges of Apple and Implications for its Supply Chain Apple is working on bringing new products in the market such as manufacturing of the Apple Watch (Angelich, 2012). In future, the company may be faced with initial low volume production. Kinks and issues are bound to occur in future due to new product development (Mark, 2014). Suppliers may be faced with issues of production quantities due to lack of employee training. Sourcing of new key components from suppliers need well-trained personnel in order to prevent severe production delays. Apple should there work closely with suppliers to ensure they training their employees to enhance the quality of its products and minimize delays (Angelich, 2012). In addition, Apple’s decision to invest in equipment for its suppliers in exchange of constant supply can be a problem in the future (Mark, 2014). Although suppliers enjoy huge amount of profits due to high volume orders, some suppliers may choose to be independent and decline Apple’s orders as it only guaranteed slim profits. Therefore, this strategy does not guarantee that the company will continue to get sufficient qualities and quantities from its suppliers (Maziliaskaite, 2014). Apple is a major player in the personal computer industry and has been in the market for many years which has led to huge demands and pressure from consumers. Timescales and deadlines may bring about production of low quality products in the future (Angelich, 2012). Since Apple only assembles components, its innovations come from the component manufacturers such as Foxconn and other manufacturers in China (Mark, 2014). This may affect the constant supply of products due to unpredictable market. Also, vital suppliers and third party companies may get bankrupt or fail and this may affect the whole partnership. Apple only assembles components and the manufacturing is done by specific constant suppliers. When these suppliers go out of business, the company will suffer immensely (Angelich, 2012). In addition, Apple is also faced with competition from companies such as HP, Toshiba, Compaq and IBM and Dell among others. These companies have established supply chain systems that enable them to offer products to customers at lower prices compared to Apple (Angelich, 2012). This has affected the sales of Apple devices and will continue to do so in future. Recommendation for Improvement One way Apple Inc. can improve its supply chain is through training and capacity building programs (Riddalls and Bennett, 2002). The company can ensure that the employees involved in the supply chain process undergo training and development in order for them to gain knowledge of the whole process (Aiten, Christopher and Towill, 2002). In addition, the company can train its suppliers and partners and communicate to them about their preferences. Also, the success of Apple supply chain practices depends on its ability to manage supplier relationship (Christopher, 2011). One way to do this is through early supplier involvement. Early supplier’s involvement leads to improvements in the end product. The qualities of products are improved and the speed of products to the market is improved. Also, involvement of suppliers in the development stage lead to reduced development cost as well as decreased cycle time (Mikkola and Larsen, 2003). Early supplier involvement is important since it ensures risk reduction through spreading of risk of product development (Qi, Boyer and Zhao, 2009). Apple is faced with risks such as low inventory levels, price escalation, competitions, security issues and low quality issues among others. Therefore, in order to close the gap in its supply chain system, the company should implement risk management and mitigation strategy. Managing risks will enable the company maintain high quality for its products, minimize inventory turnover and reduce delivery time (Spekman, Spear and Kamauff, 2002). In addition, the company should have emergency suppliers and third party players to avoid supply issues. Conclusions In conclusion, Apple has been in operation since 1976 and has been faced with a lot of challenges in its supply chain. In recent years, the company decided to make some changes in its supply chain which led to its success. Apple supply chain is considered global. The company has a research and development department in the United States, assembly location in China and retail outlets across different countries. Its new product development cycle is shorter compared to the competitors and the company sources some of its key components from constant suppliers. Its final product assembly takes place in China. Unlike its competitors, Apple has used air-freight in order to speed up its supply chain. Although the company is considered to have the best supply chain in the world, there are some hitches that affect it. Therefore, Apple needs to employ early supplier involvement, training and development of employees and implement risk management and mitigation strategy in order to remain competitive in the future. References Aitken, J., Christopher, M & Towill, D 2002, Understanding and exploiting agility and leanness. International Journal of Logistics: Research and Applications, 5(1), pp. 59−74. Angalich, L 2012, Problems in Apple Supply Chain. Retrieved 19th Dec 2016 from http://info.lightwellinc.com/blog/bid/139115/Problems-in-Apple-supply-chain Christopher, M 2011, Logistics & Supply Chain Management, 4th edition, Prentice Hall, Edinburgh Gate, Harlow UK. Dedrick, J and Kraemer, K. L 2007, "Market Making in the PC Industry", Chapter 10, in Hamilton, Senauer and Petrovic (eds) The Market Makers: How Retailers are Reshaping the Global Economy, Oxford University Press Esper, TL., Fugate, BS & Davis, B 2007, ‘Logistics learning capability: sustaining the competitive advantage gained through logistics leverage’, Journal of Business Logistics, Vol. 28, No. 2, pp. 57-81. Ford, D. (Ed.), 2011, Managing business relationships, 3rd ed. Wiley, Chichester, West Sussex, U.K. Green Jr., K.W., Whitten, D & Inman, R.A 2008, ‘The impact of logistics performance on organizational performance in a supply chain context’, Supply Chain Management: An International Journal, Vol.13, No.4, pp.317-327. Lu, C 2014, Apple Supply Chain- The Best Supply Chain in the World, Insights and Analysis. Retrieved 19th Dec 2016 from https://www.tradegecko.com/blog/apple-had-the-best-supply-chain-in-the-world-for-the-last-four-years-here-is-what-you-can-learn-from-it Mark, K 2014, Apple Inc.: Managing A Global Supply Chain, Ivey Publishing, Ivey School of Business Foundation. Maziliaskaite, K 2014, What can we Learn From Apple’s Supply Chain? Inventory & Supply Chain Optimization, Supply Chain Trends and Best Practices. Mikkola, J.H & Skjoett-Larsen, T 2003, Early supplier involvement: implications for new product development outsourcing and supplier-buyer interdependence. Global Journal of Flexible Systems Management, 4, pp. 31–41. Qi, Y., Boyer, K & Zhao, X 2009, Supply chain strategy, product characteristics, and performance impact: Evidence from Chinese manufacturers. Decision Sciences, 40(4), pp. 667-695. Riddalls, C.E & Bennett, S 2002, Production inventory system controller design and supply chain dynamics. International Journal of Systems Science, 33, pp. 181–195, Spekman, R., Spear, J & Kamauff, J 2002, Supply chain competency: Learning as a key component. Supply Chain Management, 7(1), pp. 41−55. Wilson, J 2012, Apple-The Global Supply Chain, Emerging Technologies and Innovation. Retrieved 19th Dec 2016 from http://jackmwilson.net/Entrepreneurship/Cases/Case-Apple-Supplychain.pdf Read More