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Supply Chain management of APPLE

APPLES SUPPLY CHAIN MANAGEMENT

Introduction
Apple Inc. (NASDAQ: AAPL; previously Apple Computer, Inc.) is an American multinational corporation that designs and markets consumer electronics, computer software, and personal computers. The company's best-known hardware products include the Macintosh line of computers, the iPod, the iPhone and the iPad. Apple software includes the Mac OS X operating system; the iTunes media browser; the iLife suite of multimedia and creativity software; the iWork suite of productivity software; Aperture, a professional photography package; Final Cut Studio, a suite of professional audio and filmindustry software products; Logic Studio, a suite of music production tools; and iOS, a mobile operating system. As of August 2010, the company operates

301 retail stores in ten countries, and an online store where hardware and software products are sold. For reasons as various as its philosophy of comprehensive aesthetic design to its distinctive advertising campaigns, Apple has established a unique reputation in the consumer electronics industry. This includes a customer base that is devoted to the company and its brand, particularly in the United States. Fortune magazine named Apple the most admired company in the United States in 2008, and in the world in 2008, 2009, and 2010. The company has also received widespread criticism for its contractors' labor, environmental, and business practices, but still it is the leading company in the electronic market. The following supply chain of the new Apple iPhone and, at some point, the supply chain of the Apple TV, hoping that this might help to demonstrate the complexity involved in manufacturing the Apple iPhone. The Apple iPhone is assembled, staged, and fulfilled from Apples Shenzhen, China facility. Apple Supply Chain: High-Level Map From a high-level, we speculate that the following are the material suppliers of the Apple iPhone: 1. Samsung: The Singapore facility manufactures CPU and Video processing chips. 2. Infineon: The Singapore facility manufactures Baseband Communications hardware. 3. Primax Electronics: The Taiwan facility manufactures Digital Camera Modules. 4. Foxconn International: The Taiwan facility manufactures internal circuitry. 5. Entery Industrial: The Taiwan facility manufactures connectors. 6. Cambridge Silicon: The Taiwan facility manufactures bluetooth chipsets.

7. Umicron Technology: The Taiwan facility manufactures printed circuit boards. 8. Catcher Technology: The Taiwan facility manufactures stainless metal casings. 9. Broadcomm: The U.S. based facility builds touch screen controllers. 10. Marvell: The U.S. based facility builds 802.11 specific parts. 11. The Apple Shenzhen, China facility assembles the hardware, holds inventory, and handles the pick, pack, and ship steps of the fulfillment process. Its easy to see that if there is any disruption in material flow of any supplier into the Apple Shenzhen, China facility, then production either slows or halts altogether. Apple Supply Chain: Taiwan Wins BigAgain, Taiwan supplies 6 of the 10 parts that comprise the Apple iPhone. This can be viewed as a strategic approach by Apple, concentrating sourcing the majority of the parts from one country, or this could be seen as a bottleneck or constraint a potential risk: if there is any turmoil in political economy in Taiwan, then material and product flow might be disrupted. Above are the sourced materials from Taiwan in the alleged Apple iPhone Supply Chain. To make one Apple iPhone, material comes from 3 countries, traveling to China to be assembled, inventoried, and then fulfilled to retailers and to customers via purchases from the Apple Store. Is it any wonder they are asking for $500+ per unit? It is important to note, that the price has nothing to do with the costs structure Lean and Friedman both teach us that the price has everything to do with what the market will bear. The firm has a target cost structure, a break-even point, but the price they go-to-market with is about the market demand, not internal cost structure. Assuming that Im correct in my assertions in this article, I can only imagine that this complex supply chain is a challenging one to manage.

Supply chain excellencehistory


Apple, according to AMR, demonstrates an intoxicating mix of brilliant industrial design, transcendent software interfaces and consumable goods that are purely digital. The mechanical and financial benefits of this approach include extremely high inventory turns, minimal material or capacity limitations to growth, and excellent margins. But it wasnt always that way. Even AMR notes that historically, Apple had a poor reputation for supply chain performance but the arrival of the iPhone in 2007 changed all that. With the introduction of the iPhone, Apple could have stumbled at meeting demand or failed on quality. It did neither. Behind-the-scenes moves such as tying up essential components well in advance and upgrading basic information systems have enabled Apple to handle the demands of its rabid fan base without having to fall back on their forgiveness for mistakes. A number of analysts make the point that Apples supply chain is in key respects different from those of most companies, in that it comprises physical and digital components in a way unseen before, with the companys revenue and growth coming increasingly from the digital side. The changing nature of this two-sided supply system has led some to suggest that Apples supply chain is a new type of beast entirely. Thats not without its problems. When Apple rolled out the 3G version of the iPhone in 2008, there was no shortage of the new handsets themselves in the companys outlets. A sure sign the physical supply chain processes of manufacturing, inventory and logistics were working well. The digital side, however, proved more difficult, and the company initially struggled under the snowstorm of activation demands through the iTunes store triggered by the new phones. That, says Kevin OMarah, chief strategist at AMR, highlighted the problems of a company straddling these two very different kinds of supply chain. The pioneering position they have taken in the digital supply chain is showing how tough it is to compete in this new realm, he says.

Apples difficulties with that launch also highlight the strains placed on the supply chain by the companys marketing approach of building demand while restraining supply, and then releasing the goods in one big blazing launch. For years, industry pundits have lavished praise on Apple as an industry supply-chain leader that takes advantage of design and manufacturing expertise on a truly global basis, says supply chain commentator Jason Busch, founder and MD of Azul Partners, and blogger on Spend Matters. When it comes to such an innovative product, the possibility of potential issues rises exponentially early on in large-scale production runs, especially as suppliers at all levels begin to coordinate activities more closely. The challenge lies when product innovation outpaces the ability of suppliers to ramp up quickly enough in the early stages of a new-product supply chain. The companys ability to bring together two sides of the supply chain (digital and physical) efficiently and at increasingly low cost is a central plank to Apples rise to global dominance. So how has it overcome difficulties to be recognized as the best?

Perfecting outsourcing
Perhaps the key innovation Apple has made on its procurement side is that it has almost entirely outsourced its supply chain. Nigel Johnson, who worked at Apple for seven years before helping to found consulting firm Reclipse, believes outsourcing is the key to Apples supply-side success. Its probably one of the best supply chain models in the world, he says. It has done a very good job of perfecting outsourcing, of simplifying it and the way that its managed. It qualifies a supplier and builds with them globally, so somebody else does all the physical work and then it goes direct to the customer. But, whoever does it, the masterplan is always Apples. Using iPhoto [to order prints] is a good example. You press a button on a Mac or an iPhone or an iPad, and it goes off to an outsourcer somewhere, and Apple doesnt touch it, and then it goes to a customer that Apple hasnt touched.

That means its pretty good at understanding the whole end-to-end chain, and I dont think that kind of understanding has been developed yet among many companies. It also gives it a lot of sway over its supply chain. Dave Howell, another former Apple insider and now CEO of software developer Avatron, working largely on creating apps for Apple, believes this ability to outsource everything from innovation to risk is at the heart of the companys success. Apple has mastered the art of identifying negative metrics and moving them off its books, he says. It optimises its physical supply chain by requiring suppliers to carry adequate inventory and taking the associated pipelines off its own books. It does the same thing with software development for iPhone and iPad, where third-party developers take all the financial risk of developing apps. Apple still has a 30 per cent margin on iPhone apps, but has near-zero development cost. Also, in the iPad world at least, Apple owns its entire vertical pipeline, including chip design, industrial design, box assembly, operating system, applications, hardware distribution, software distribution, and soon advertising. In the Windows world these parts would be split up between companies such as Intel, Dell, Microsoft, Adobe, PC distributors, internet software sites and AdMob. Theres no way such a disparate system could ever be optimised for anything. Apples trick is that it not only owns all of those inputs, but controls them tyrannically and makes external companies carry the inventory. Tyrannical it may be, but Howell believes this supply model opens opportunities to suppliers, at least on the software development side, that they would never have in a more traditional arrangement, while also creating an innovation machine for Apple. They create an opportunity thats real, and they allow some people to succeed beyond their dreams, he says. Theyve created a mechanism for people to write apps without any marketing team, without even management or project management, to create apps with only engineering and graphic design. Now its possible, probably for the first time, to do it on your own in your bedroom.

So theyve got all these people taking the kind of chance that a start -up takes, that its hard for Apple to take any more. If you come up with an idea within Apple you have to run it through chains of management and veils of secrecy that manage to shut down most innovative thinking at an individual level. And now they have that working for them, without them having to even invest in it.

Conclusion
The supply-chain management success story apparently began when Steve Jobs returned to Apple in 1997. At that time, most computer manufacturers shipped their products by sea, which was much less expensive but also slower. Jobs wanted to ensure that the translucent blue iMacs that had just been introduced would be available for Christmas 1998, so he had the company pay $50 million to buy up all available holiday air freight space. Companies such as Compaq later tried to book air transport for holiday shipments, only to find that Apple had monopolized the space. Apple's ability to manufacture a product and ship it right to a customer's door began with the iPod era, and an ex-Hewlett Packard exec recalls that an HP staffer bought one and received it a few days later, watching its progress from factory to home on Apple's website. Mike Fawkes, who was the supply-chain chief at HP, recalls that "it was an 'Oh s---' moment." By doing this, Apple was able to avoid keeping large inventories of product in hand. Apple also buys up speciality equipment, including customized lasers that are used to poke the almost-invisible holes that are used to emit a green dot of light on many of the company's products, including the MacBook Pro and MacBook Air, as well as the Wireless Keyboard and Magic Trackpad. Those machines cost about $250,000 each, and Apple has bought literally hundreds of them to add a touch to its products that few people may notice.

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