Apple Supply Chain - The Best Supply
Chain in the World
Apple is famous for its innovation and
design. But few people know that the way Apple handles inventory is
also a factor that led to success. As a matter of fact, Apple’s Supply
Chain has led Gartner's Supply Chain Top 25 list since 2013.Tim Cook,
the current CEO of Apple, a company that reached 260.17 billion in
revenues in 2019, was before the company’s Chief Operations Officer. He
had joined Apple in 1998, the same time Steve Jobs re-entered the
company, and he transforms Apple’s messy operations into a success,
becoming COO in 2005 and CEO in 2011.Tim Cook believes that when it
comes to technology such as smartphones, tablets and laptops, inventory
deprecates very, very quickly, losing 1-2% of its value each week “inventory is fundamentally evil” he says.You kind of want to manage it
like you're in the dairy business. If it gets past its freshness date, you
have a problem. "Back in 2011, a comparison of how tech companies
managed their inventory shows Apple was performing much better than
Dell, HP, Blackberry (RIM) and Motorola. Using the Inventory Turnover
formula that shows how many times a company’s inventory can be sold
and replaced over a specific time period (so the higher the number the
better), in 2011 Apple performed 2 times better than Dell, 5 times better
than HP, 4.5 times better than Blackberry, and 5.5 times better than
Motorola. Apple annual inventory peaked in 2017, with a value of $4.8
billion. In 2018, the company saw a 18.52% decline year-over-year but
they bounced back quickly and they had $3.8 billion in inventory in
2019, a 3.79% increase vs. 2018.
How does Apple run its supply chain
operations?
In a nutshell, Apple purchases components and materials from various
suppliers, then gets them shipped to the assembling plant in China. From
there, products are shipped directly to consumers (via UPS/Fedex) who
bought from Apple's Online Store.
For other distribution channels such as retail stores and other
distributors, Apple keeps products at Elk Grove, California (where
central warehouse and call center are located) and ships products from
there. At the end of product's life, customer can send products back to
nearest Apple Stores or dedicated recycling facilities
A Look at Apple’s Supply
Chain Management
Over more than 40 years, Apple Inc. has evolved from a small, garage-based computer
manufacturing firm into a technology giant and trendsetter.
All of this happened thanks to people who stood behind the brand. Specifically, Tim
Cook has made Apple a global leader in supply chain management. In this article, we
will focus on the logic behind Apple’s supply chain management as well as explain
how it works and what makes it so efficient.
In 1997, Steve Jobs returned to the position of an Apple CEO in order to bring the
company from bankruptcy back to profitability. A year later, Cook, a supply chain
expert, joined Jobs to help reinvent, speed up and simplify the Apple supply chain. It
was the best decision for the company at the time, because now the Apple supply
chain is considered to be one of the most powerful, efficient models ones in the world.
Actually, between 2010 and 2013, the supply chain of Apple was repeatedly named
the best in the world, according to the Gartner research company. During this period,
Apple’s revenue had grown from 21.7% to a stunning 51.5%. Besides, by 2011 it took
Apple only 3 days to complete the entire inventory management cycle and sell its
inventory.
So let’s see which strategies Tim Cook – who is now the CEO of Apple – was using to
achieve such tremendous results.
Apple Supply Chain Strategy by Tim Cook
•
Focus on non-seasonal products with life-cycles that exceed 12 months.
•
Cut down the number of storage locations, leaving only one central warehouse
in California.
•
Efficient synchronization of data between the central warehouse and Apple’s
stores and customers.
•
Cut down the number of key suppliers that are involved in manufacturing,
shipping and storage.
•
Maintain long-term and strategic relationships with suppliers.
•
Outsource the manufacturing to China, thus reducing the manufacturing cycle
time from 4 months to 2 months.
•
Cut down the number of SKUs to predict the demand more accurately and ensure
lightning-fast Apple inventory turnover.
•
Implement renewable energy sources, making up to 87% of their energy used
worldwide.
•
Brring in extraordinary Apple inventory management practices, which allow the
company to cut down on inventory costs, reduce waste and avoid overstocking.
Now let’s find out how Apple supply chain works.
Apple is famous for its simple and accurate supply chain planning processes. Here is
what they consist of:
1. Research and Development. At this stage, the company develops new
technologies, designs new products, licenses the intellectual property and
purchases third-party businesses.
2. Concept testing. This activity involves market research, product testing and
quality assurance.
3. Pre-launch. During the pre-launch stage, the company fixes the found issues,
provides software for the new products and makes prepayments to the
suppliers.
4. Launch. After the launch, the company makes the demand forecast for the next
150 days.
5. Quarterly reviews. During the quarterly reviews, the company checks the
inventory levels, analyzes the product life-cycles, adjusts the demand forecasts
and monitors the current sales levels and costs trends.
And this is how the supply chain management Apple
processes take place:
1. Sourcing. At this stage, Apple acquires components and materials from their
suppliers, and then ships them to the outsourced assembly plant in China.
2. Manufacturing. The products are manufactured at the assembly plant in China.
3. Warehousing. The manufactured products are shipped from China directly to the
consumers who order them online (drop shipping) by using the services of thirdparty shippers such as FedEx or UPS. They can also be shipped to the central
warehouse location in California.
4. Distribution. The products are distributed from the central warehouse location
to retail stores, wholesalers and network carriers.
5. Return. At the end of a product’s life-cycle, the consumers can participate in the
recycle/reuse program and send the products back to nearest Apple stores or
specialized recycling plants.
Such simplified supply chain management has brought Apple much success. One of
company’s secrets is that it treats its hardware products – MacBooks, iPads and
iPhones – as perishable inventory with expiration date. For example, the inventory for
certain food products need to be refreshed as quickly as possible, and this is also true
for Apple products. Have you ever heard of, seen, or stood in queues in Apple stores
every year when a new iPhone was released?
If yes, then you can see that the company is really capable of achieving such fast
inventory turnovers. They combine innovation and sleek design with revolutionary
supply chain strategies that can serve as a role model for a range of technology
companies.
We hope that now you are inspired by the supply chain of Apple and maybe
someday your business will become the next Apple.