Apple INC.

: Managing a Global Supply Chain

C a s e B a c kgr o u n d :
Jessica Grant, an analyst with BXE Capital (BXE) that is a money management firm based in Toronto,
discussed her U.S. equity mandate with BXE vice president. They tried to identify what changes could
be made to BXE's portfolio and to see whether to continue with Apple as a key holding in BXE's fund.

B r i ef s u mma r y o f A p p l e ’ s hi s t o r y a n d i t s de ve l o p me n t
Apple was found by Steve Jobs, Mike Markkula, and Steve Wozniak in 1976 which the primary core
activity was manufacture desktop computers with their in-house develop operation system. After few
years of operation, Apple became the leader of private manufacturing personal computers and held its
initial public offering in 1980.

However, the entry of IBM affected Apple hardly. In 1983, IBM became the best selling personal
computer manufacturers in US, which cannot be stopped by Apple. Worse, Steve Jobs left the company
in 1985. Moreover, their retail partners did not want to devote resources for them to display their
products at the desire place. The sales of Macintosh computers dropped even worse during the launch
of Windows 95. Within ten years of operation, market capitalization of Apple has dropped to $3.1
billion from $11.6 billion.

Although the future of Apple is still unknown in the future, Steve Jobs decided to return to Apple as
CEO in 1996. In 1997, Apple partner with Microsoft and launch the Microsoft Office for Macintosh.
In 2001, Apple announced that they would open their own retail stores to capture the market share and
educate their customers on Apple’s products. Besides, the successful launch of iPod helped Apple to
build up a strong financial base, which assists the future development of Apple.

By 2004, Apple starts to provide upfront capital for their suppliers in return of volume commitments
with a cheaper price. This move helped Apple to maintain a stable supply and lower the production cost
of their products effectively. In 2010, the launch of iPad had reinvented the tablet computer market, its
innovative design and multi-functional device make them success in this market. At the same time, 70%
of Apple’s products and services are sold directly to their customers. The excellent design, functionality,
and marketing effort are the drivers to push Apple toward success in previous decade.
 A n a l yzi n g 4 d i f f er e nt a r e as of A p p l e :

 S t r at e gy

Apple is adopting a more for more strategy in marketing their products. Different from their
competitors, Apple spends a lot resource on its R&D to develop innovative products that way beyond
their competitors. This allows Apple to charge more by providing superior products. Keep improving
 the functionality of the existing products and developing brand new products with heavy marketing
effort help Apple to get a lot of supporters.

 Supplier
Global suppliers allow apple to minimize the production cost of the products. Besides, Apple also
provides upfront support to their suppliers, which helps to build a good relationship with them and
ensure a stable supply. Besides, Apple engineers will also work closely with suppliers to update the
technology and manufacturing processes with them. However, high-volume orders of Apple allow them
to bargain a better price with suppliers, which greatly affect the profit margin of them.

 D i s t r i bu t i o n
Apple looked for innovative ways to speed up the supply chain since the return of Steve Jobs. They
started to use airfreight when most firms were still relying on shipments by sea. In 2001, Apple realized
it was cheaper to ship directly to customers from assembly plants in China. Apple also relied on
intermediate warehouses such as UPS and FedEx and own warehouse to store the inventory according
to demand forecast.

 R e t ai l
Apple is operating 424 retail stores in 16 countries; their online store is available in 39 countries. In
2010, 70% of Apple products were already sold to customers directly, while their retail partners sold
the remaining. Although 70% of sales were made directly, Apple still providing supports to their retail
partners. Launching the Apple Premium Reseller Program for retailers that focused on selling Apple
products, for example, providing quality Apple fixtures, merchandising materials and other resources.

W h at d i f f e r en c e s s et A P P L E a p a r t f r o m i t s c o mp e t i t or s?
Apple has become the market leader of smartphone and laptop and is having stable growth in recent
years. What makes Apple so successful is its strategy of setting itself apart from its competitor.

The major differences between Apple and its major competitor - Samsung:
 Apple always has high level of innovation. Unlike many competitors usually copying the launched
products in market, they create new products for the market, for instance, the iWatch - integrating smart
phone into fashionable watch, MacBook Air - the thinnest laptop etc. This makes Apple driving the
innovation and trend of the whole industry and not affected by the competitors. Also, Apple sustains a
short new product development cycle that results in keeping abreast of the ever-changing customers’
needs for gadgets and avoid easily being obsolete. To maintain their high level of innovation, Apple
typically invested heavily in research and development and conduct frequent market researches.

W h a t a r e t he c ha l l e n ge s t ha t A p pl e f a ce s i n t h e f u t ur e?

 Technology challenge
The IOS system keeps updated frequently, yet there are not great changes in terms of the functions or
hardware of iPhones. Moreover, the model, SE launched this year is more or less similar to the iPhone
6s

 Leadership challenge
The transition of management from Steve Jobs to Tim Cook cloud uncertainty to Apple. Lacking of a
leader with a strong vision, who new the market well. Investors may lose confidence towards Apple,
leading to the sales drop. Moreover, the products introduced by Cook are proven not as innovative as
before

Competition challenges

Apple faces strong competitor, Samsung where it launched over 30 models every year with lower cost
and various design whereas Apple only introduces very few models of iPhone per year. The potential
market may be captured by its competitors such as LG, Samsung. Apart from these two, there are
emergence of new local brands in China, such as XiaoMi, Meizu. The selling points of these phones
are that they are lower cost while the functions are satisfactory. Apple may lose a portion of China
market which it emphasized.

 Mass Production challenge

In order to have massive production at a lower cost, Apple manufacture its products in Foxconn which
is in China. Apple has been criticized for using sweatshop labor and squeeze their profits. Sometimes
there are sudden increased in Apple products, and the workers have to work overtime without extra pay.
The working condition in Foxconn is poor also. It adversely affect the image of Apple
 W h a t a r e t h e i mp l i c a t i o n s f o r i t s s u p p l y c h a i n ?

 Addressing labor issue

Since the news that negative working condition on suppliers’ factory and warehouse which Apple
outsourced go viral, criticism over Apple’s indifferent attitude towards labor rise. Unless Apple
undertakes remedy measures, Apple image, in the regard of labor treatment, will be compromised.

 Fierce Competition
Facing such fierce competition in the market among other brands such as Samsung, it urges Apple to
be responsive to the market demands by utilizing third party’s logistics companies and express
companies. It would enhance the efficiency of delivery and improve customer satisfaction
Procurement:
To avoid the over reliance of single supplier, Apple need to seek alternate supplier to diversify supply
chain risk. The increasing design complexities from the cheaper iPhone changes the supply chain.
Addition new suppliers will provide a greater flexibility and Apple can react faster to supply chain
disruption. There also indicates that Apple’s move has to be faster than before, making an early
exclusive deal with selected suppliers of major components in exchange for greater volume.

 New Product development

Given the electronic gadget market becoming fiercer, instability in market escalates. Inputs on demand
forecast and R&D are critical in the near future, making sure that there is adequate production capacity
and placing accurate volume pre-orders with suppliers and that new products / product lines should
feature cutting-edge technology that others in the market cannot imitate in short term in order to pre-
occupy untapped market share.

 Diversification of supply chain partners

As the width and depth of product mix (service mix) of Apple are enlarged, Apple is required to
minimise the risks of shortages of needed components or other vendor issues that can deter, or even
stop, the production. To achieve this, Apple is necessary to broaden its manufacturing partner base. On
one hand, this move can reduce the reliance on single or few suppliers when problems of the suppliers
appear. On the other hand, it expedites the competition among Apple potential suppliers for further
business with Apple, and therefore Apple likely secure better quality products with higher discount.

A s J e ss i ca G r a n t , w ha t r e c o mme n d a t i o n s w o u l d yo u ma ke t o t he c o mp a n y’ s V P?
E x p l ai n .
According to stock price of Apple stock, Apple stock has been seeing a steady growth over the past five
years, despite mild fluctuation. As a corporate with abundant capital, it is worth setting aside part of
capital, investing in Apple.
In addition, news from known and unknown sources hinted that the upcoming iPhone 7 are
characterized by a number of brand-new features, coupled with additional services and peripherals.
Reflection
Managing the global supply chain effectively is always challenging to every organization, which can
be a huge different to their profitability when the organization can manage their supply chain greatly.
Besides of bargaining to suppliers, Apple also provide different kinds of support to them. For example,
financing the machineries needed for mass production that fulfill the needs of Apple. Globalization
allow Apple to find suppliers to supply different parts of the products with lower price. Although it can
highly reduce the product cost of Apple, they are facing competition from companies all over the world.
Many companies are using the same suppliers, for example, Intel will supply the central processing
unit(CPU) to many companies, so some company may have to wait for a period of time to get what they
need as the capability of Intel is limited. Building good relationship with suppliers may help ensure the
supply of core parts of the products, which can also temporarily reduce the level of competition of the
market due to competitors’ lack of core components as they’ll have to wait for the supply.

After reading this case, we realized that managing the bullwhip effect effectively can help to boost the
supply chain performance greatly because bullwhip effect is a main problem that cause the supply chain
ineffective. In normal case, because of insufficient information, suppliers will reserve more inventory
for the swings of the demand to prevent any loss due to stock out, this problem will increase as it moves
upward from the supply chain. Apple have managed this problem effectively to ensure the supply chain
efficient. After providing the forecasting data to the suppliers, Apple will keep on adjusting the forecast
data to suppliers in order to give them the most accurate forecast data. This action ensure Apple can get
sufficient supply, also reduce cost of holding excessive inventories of their suppliers, thus, increase the
supply chain efficiency.