Electronic Commerce and Logistics ISM6485 1C96

University of Florida

Information Systems and Operations Management

Electronic Commerce and Logistics

ISM6485 1C96

Project Report

Apple Supply Chain

Group 9

Submitted by: Professor

Aaryan Gupta: [email protected] Dr. Xiajun Amy Pan

Vasundhara Panigrahi: [email protected]

Harpal Singh: [email protected]

Tapan Bajaj: [email protected]

Table of Contents

Introduction ........................................................................ 1

Supply Chain Distribution and Planning ........................................................................................ 2

Apple’s Supply Chain Challenges .................................................................................................. 4

How Apple resolve their problems? ............................................................................................... 6

Apple improvement programs in Supply Chain ............................................................................. 6

Sales Revenue Growth .................................................................................................................... 8

Conclusion ...................................................................................................................................... 9

References ..................................................................................................................................... 10

1

Introduction

Apple is an American multinational technology company headquartered in

Cupertino, California. The founder of the company was Steve Jobs along with

Steve Wozniak and Ronald Wayne. It was incorporated as Apple Computer, Inc

on January 3rd 1977.

Apple is the leading Consumer electronics producers in the world. They are the largest the

information technology company in the world. The major products are Mac, iPod, iPhone, iPad,

Apple Watch, Apple TV, Software and

Electrical Vehicles.

COMPETITORS:

Personal computers - Dell, Hewlett-Packard,

Acer, Lenovo

Mobile Computers - Google, Samsung, Nokia

and Asus

Smartphones - Huawei, Samsung, Sony, HTC,

Lenovo

Entertainment Media and Applications - Google PlayStore

Mobile Payments - PayPal and Google

HISTORY:

Apple was found in April 1, 1976. The initial years of establishment was happened from 1976-

1984. The next important milestone was in 1984 when Macintosh was the first personal computer

to be sold without a programming language at all.

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Apple had also launched lower cost consumer models, to be specific LC led to cannibalization of

their high priced machines. Examples of this will ‘Quadra’, mid-range ‘Centris’ line and ill fated

‘Performa’ Series. This was the dark phase of Apple which continued almost until 2006.

The picture mentioned here shows the brief overview of the history of Apple. The major success

started with their first Macbook pro with Intel’s Microprocessor in 2006 that’s when the dark age

ended. Eventually after that they also earned heavy success with Mobile devices.

Supply Chain Distribution and Planning

In 1998, Tim Cook joined Apple, he played a major role in helping to transform Apple’s complex

operations into a successful global supply chain model. He became Chief Operations Officer in

2005 and went on to become the CEO of company in 2011. Cook is a successful supply chain

expert who gets the credit for streamlining Apple’s supply chain and making it the most successful

supply chain in the world. Cook achieved this by outsourcing manufacturing and reducing the

inventory levels. Apple’s products are being sold through their online stores, wholesalers, retailers,

retail stores. iTunes Store, iBooks Store and Mac App Store manages their digital content and

apps.

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Components and materials are purchased from various suppliers and then transported via air to its

assembling plants in China. After that, the products are shipped (via FedEx or UPS) directly to

consumers who makes order from Apple’s on-line store.

For retail stores and distributors, Apple stores products at their central warehouse in Elk Grove,

California and products are shipped from there. Customer can send products to closest Apple store

or specific recycling facilities at the end of product’s life.

“A great amount of Apple’s supply chain success can be attributed to them continuing to design

their products in California, while leveraging the lower cost of outsourcing manufacturing to

China.” – Original quote from Jonathan Hamilton (IT Consultant)

Apple’s Annual Report for 2011 explains supply chain processes as below;

Supply Chain Planning

Planning of supply chain at Apple Inc is an example of New Product Development Process (NPD).

It is the combination of Marketing, R&D and other functions under supply chain management.

The above image explains that Apple Inc accelerates the new product introduction after getting

licensing and 3rd party businesses. Apple Inc has to do pre- payments to few suppliers to secure

raw materials.

Following will explain characteristics of Apple Supply Chain through metrics:

1. Inventory Turnover: It is a measure to determine how efficiently company uses its financial

resources to generate sales. The higher the number the better it is.

Inventory Turnover = Cost of Goods Sold/Average Inventory

2. Number of Key suppliers: Relationship with partners and suppliers is very crucial for a supply

chain management to be successful. Apple claims that they around 156 key vendors globally. This

amount is manageable.

3. Number of Warehouse Facilities: Transportation cost plays a huge role in deciding the costs

of the logistics. So apple has a centralized warehouse in California. Synchronization of data

between central warehouse and 246 stores can be done efficiently with proper automation.

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4. Number of Items (Stock Keeping Unit): Stock Keeping Unit also known as SKU is another

measure of supply chain complexity. One model of phone but having different software is counted

as different item/SKU.

5. Product Life Cycle: It is the duration of selling product. The longer, the better. Key products

of Apple have life more than 12 months.

So based on the above characteristics we can say Apple’s supply chain is simple.

According to a comparison of how different tech giants managed their inventory in 2011, Apple

outperformed Dell, HP, Blackberry (RIM) and Motorola. By using the Inventory Turnover

formula, it in 2011 Apple performed

2 times better than Dell

5 times better than HP

4.5 times better than Blackberry

5.5 times better than Motorola.

After Tim Cooks took over the charge for Apple’s supply chain, cook reduced the number of

suppliers from 100 to 24, which forced companies to compete for their business. He shut down 10

of the 19 warehouse of Apple to control overstocking.

By 2012, Apple had to turn inventory every 5 days. This was one of the main reason that research

firm, Gartner placed Apple’s supply chain the best in the world.

From 2010 to 2013, Apple’s Supply chain has been ranked #1 in world by research firm Gartner.

In 2014, Gartner placed Apple in a new category for demonstrating sustained leadership and for

their definition of “solution” supply chain.

Apple keeps everything simple from their logo to their product designs and to the simplified supply

chain planning and management models.

Apple’s Supply Chain Challenges

According to Apple’s 10k report, the company can be affected by public health issues, wars,

terrorism, and geopolitical factors. This could affect company’s global commerce activities,

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supply chain, logistics, and manufacturing activities. This in turn will affect the vendors, channel

partners and customers. Changes in climate, accidents, disputes among workers, shortage in power

can cause interruptions in business operations. As a result, apple could see decrease in demand as

well as problems in product delivery. Some other factors contributing to problems in supply chain

process could be changes in freight regulations, regional limitations in product movements,

productions delays for new launches.

Supply of components:

One of major issues in Apple’s supply chain is relying on a single source for various components.

While majority of the components are obtained from various sources, a number of components are

sourced from a limited number of suppliers. Additionally, Apple faces competition with other

companies for the components of various PC’s, media and mobile communication devices. As a

result, even the components available from multiple sources face shortage. This leads to

fluctuations in price and hence has adverse effects on Company’s operations and finances.

The risks of relying on a single source include shipment delays, shortage of component quantity,

difficulty finding alternative sources. Additionally, some custom made components may only be

available from specific sources and it might be almost impossible to find alternative sources in a

given amount of time.

Apart from some of Apple’s MacBook’s, which are manufactured in Ireland and US, a

considerable number of Apple’s hardware components are obtained from outsourcing companies

in Asia. A significant number of these outsourcing suppliers are the only source of these

components. This could have adverse effects on company’s operations if the outsourcing partners

fail to deliver on time.

Another example of the risks of sole-sourcing is GTAT bankruptcy. Apple wanted to introduce

sapphire screens with the launch of iPhone 6. However, the supplier of these screens – GTAT went

bankrupt. In this case scalability was the issue, as GTAT faced a huge demand of 10 million pieces

in a short period of time. The supplier could not manage the huge demand and resulted in a failed

investment in GTAT. Later, Apple had switch back to the Corning Gorilla Glass

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Apple Watch Supply Problem: Apple Watch made by one of two suppliers was found to be

defective with Taptic Engine so Apple has to move all production of Taptic engine to other supplier

which increases the dependency on other supplier Nidec to ramp up the production of components

as per the Apple requirement which causes delay in the Apple Watch orders

How Apple resolve their problems?

Apple started working closely with new suppliers to make sure that all process of product

development and the supply chain run smoothly.

Apple is increasing the manufacturing partners for the iPhone 6 and Apple watch to reduce

the impact of shortage of order and other issues. Last year the provider for Sapphire

displays, GT Advanced Technologies, could not deliver, and stalled plans for Apple’s

Sapphire display on its new technology.

Apple reduces the risk of relying on one company by diversifying the number of Product

assembly companies.

Apple improvement programs in Supply Chain

According to Supplier Responsibility Progress 2016 report the company has taken steps for

improvements in labor conditions and environmental improvements throughout the supply chain.

Labor improvement:

Apple has initiated program to help educate migrant workers to know about their rights and how

to report illegal practices and abuse.

Environmental Improvement:

The Tin Working Group was set up following Apple’s discovery several years ago that

many small-scale tin mines in Indonesia were putting workers’ safety at risk and causing

pollution. So in 2015, Apple and the Tin Working Group worked with NGOs and mining

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companies to form a five-year regulatory reform strategy which will define tin mining best

practices.

Clean Energy Program:

Apple’s Clean Energy Program to reduce carbon emissions throughout its supply chain

which results the production in China of more than two gigawatts of clean energy.

By 2018, Foxconn will create 400 MW of solar energy which is enough to power final

production of the iPhone.

Program led to improvements at 13 sites that resulted in a reduction of over 13,800 tons of

carbon emissions in 2015.

Waste Diversion Program:

Program aimed at helping suppliers to reduce or recycle waste through reusing internal

packaging, shipping packaging materials back to vendors for reuse, and limiting food waste

from worker canteens.

Apple estimated that these efforts saved 73,773 tons of waste.

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Sales Revenue Growth

According to 10 K revenue growth of 2016, Apple has earned $75,872 of revenue which is

nearly similar to Q1 of 2015 i.e. $74599. Most of the revenue Apple gain from America.

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Sales trend of various product line does not surprise much, as always apple iPhone generated

68% of revenue growth for this year. While iPad generated only 9% which is 21% less as

compare to last year, even the new iPad Pro could not stop the iPad sales fall, Mac sales continue

to stagnate, and Apple Watch sales continue to grow in insignificant volume to impact the

Apple’s top-line as shown in the above graph. [4]

There can be factors like economic slowdown in China, change in the US dollar rate which might

have direct impact on company’s stock performance for Q1 2016. According to Apple, Apple sold

74.8M units of iPhone worldwide, which is below analysts’ expectations of 75.46M units. CFO

Luca Maestri mentioned that “for-ex had a significant impact on iPhone’s ASP in Q1, pressuring

it down from $740 to $691. In the rest of 2016, for-ex is expected to play a substantial role in the

company’s reports, as global currencies fluctuate sharply against the U.S. Dollar”.

According to CFO Maestri, the current slowdown in Apple’s growth rate is temporary, and the

company will continue to grow significantly in the second half of 2016, after a challenging Q2

High-profile acquisition with Tesla, Netflix might be the catalyst to drive Apple’s growth in the

future.

Hopefully, Apple again rise in coming quarters as always through innovations.

Conclusion

Apple continuously provides improvement through historical learnings either by mitigating the

risk of shortages and vendor issues or by taking additional steps such as initiating various programs

like Waste Diversion program and Labor Improvement schemes. According to Apple’s recent

annual reports, the company is looking to work with more number of suppliers. This will encourage

more competition between suppliers. As a result, the supplier costs will go down and will further

increase Apple’s revenues.

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References

1. http://www.usanfranonline.com/resources/supply-chain-management/apples-process-

improvements-make-it-a-global-supply-chain-leader/#

2. (http://www.opsrules.com/supply-chain-optimization-blog/bid/359149/iPhone-6-Apple-

Supply-Chain-Revisited)

3. http://www.cips.org/en/supply-management/news/2016/april/apple-declares-three-cases-

in-child-labour-in-its-supply-chain/

4. http://amigobulls.com/articles/apple-earnings-show-slowdown-but-dont-sell-your-shares-

yet

5. http://investor.apple.com/secfiling.cfm?filingid=1193125-15-356351&cik=320193

6. http://images.apple.com/supplier-responsibility/pdf/Apple_SR_2016_Progress_Report.pdf

7. https://en.wikipedia.org/wiki/Apple_Inc.

8. http://www.slideshare.net/2AM/apple-inc-presentatioin

9. https://www.google.com/url?q=http://www.slideshare.net/mahiadel94/apple-inc-strategic-case-analysis-presentation&sa=D&ust=1461002884469000&usg=AFQjCNEWSSgxzBRQCGnsOMUz3F74Nb1HLQ

10. http://www.supplychain247.com/article/is_apples_supply_chain_really_the_no._1_a_case_study

11. 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

12. https://smbp.uwaterloo.ca/2015/06/apple-a-global-leader-in-supply-chain-management/

13. http://www.slideshare.net/mahiadel94/apple-inc-strategic-case-analysis-presentation

14. http://www.slideshare.net/2AM/apple-inc-presentatioin

15. http://investor.apple.com/secfiling.cfm?filingid=1193125-15-356351&cik=320193