Apple’s Supply Chain Capabilities Leak Out

First Apple's logo by Rof Janoff

The biggest company focused news in global supply chain circles this year has to be a Bloomberg BusinessWeek article that published this weekend. The article’s title is: Apple’s Supply Chain Secret? Hoard Lasers, and we urge all of our Supply Chain Matters readers to take the time and read this article since it represents one of the best in-depth commentaries and reflections regarding the inner workings of Apple’s global supply chain.

As a community, we all have observed Apple’s abilities to launch products with military precision, to have the ability to support product volume shipments the envy of many, and to undercut competitors in scale and price, all without missing a heartbeat. Supply Chain Matters has posted many commentaries related to Apple’s closed knit ecosystem, the latest being our own view of the company’s extraordinary strategic supply chain capabilities. Readers know all too well about the secrecy that Apple affixes to all of its business processes and credit should go to Bloomberg writers Adam Satariano and Peter Burrows for performing a fantastic feat in journalistic interviewing and detective work. The authors conducted over a dozen interviews with former employees, unnamed suppliers and management experts surrounding Apple’s internal supply chain, to stitch the picture of global supply chain strengths and overall capabilities.

Without taken away the thunder of the article, we can summarize some key highlights:

• Apple began its innovation in global supply chain capabilities upon the return of Steve Jobs in 1997, and his subsequent hiring of Tim Cook to lead overall supply chain operations.
• Apple takes extraordinary measures to maintain secrecy of information related to its products and supply chain activities, even to the point of deploying electronic monitors and auditors to monitor potential information leaks.
• Apple not only “thinks big” in product design and capability, it also does the same in designing and deploying required supply chain capability. The company plans to double capital expenditures in 2012, nearly $7.1 billion, on its supply chain capabilities, along with an additional $2.4 billion in pre-payments to strategic suppliers. There is also more reinforcement and acknowledge of Apple’s ability to lockout competitors in strategic supply of key components such as LCD screen and flash memory. One executive “with a major parts manufacturer” is quoted as stating that his/her company declined a $1 billion payment from Apple because it involved committing much of its existing manufacturing capacity.
• Life as an Apple supplier is indeed lucrative, but comes with many requirements for agility and responsiveness to Apple’s needs, while having to deal with Apple’s slow payment cycles.

In a July commentary, we called attention to an article that differentiated closed vs. open supply chains. We reflected that closed supply chains, like that of Apple, have come to the forefront as a result of corporate strategy needs, in essence, making the supply chain a fabric to pronounced industry advantage. A closed, strategic supply chain has important people, process and technology skill implications, and stems from an orientation of thinking big and broader vs. supply chain as a collection of cost centers to be driven to maximum cost competitiveness.

A closed, strategic supply chain may not be appropriate for every enterprise, or may lack the leverage that a mid-sized business can leverage.  After all, Apple has had the ability to garner extraordinary product margins and profitability in its overall business model. But upon reading this BusinessWeek article, we can all certainly gain an understanding of what thinking big and bold really equates to for Apple, not only in product design and innovation but in a focus that supply chain capability and investment absolutely does matter as well.

Why not drop a copy of this Businessweek article on Apple’s supply chain on the desk of your CEO and CFO with the caption: “worth reading and worthy of discussion”.

Source: http://bx.businessweek.com/supply-chain-performance

Posted by Bob Ferrari on Nov 7, 2011