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OPERATIONS MANAGEMENT

ASSIGNMENT

CASE STUDY ON APPLE COMPUTERS SUPPLIER HUB

Submitted by: 152: Jayati Agrawal 157: Chaitanya Agrawal 166: Jenish Shah 167: Surbhi Koshal 168: Anukriti Kothari

What strategy is Apple pursuing to remain competitive? These are a few things , In my opinion. where Apple has got the equation correct. And what other business can do a little bit of learning from.

1. Innovation - Allow innovation within the organization, you will be shocked to discover the creative pool within your own company. 2. Encourage Creativity following up on the above point, Creativity will give you the edge over competition. 3. Research and Development While several businesses shy away from R&D, there is a great ROI hidden from Research and Development, you just have to know how to get it right. 4. Invest in Usability Again several companies dont invest in usability testing of their products, which renders a probably great idea to just another good idea. 5. Invest in your EMPLOYEE - while this might seem absurd to some, but its as important as coming out with a successful product. When an employee is looked after well (I mean monetarily and Emotionally), they will stretch to the extremes of their talents to develop your business. And I think that is the most simplest but most powerful formula for any successful business. 6. Marketing There are the marketing gurus (MBAs and IIM) who think no end of themselves, but none of that helps when it comes down to the reality of the market, and surely there isnt One formula that will get it right for you all the time (which you probably used in the last organization and got you lot of compliments). 7. Know your product well If Apple didnt know what their iPhone/iPod well, they probably would have never been able to dig into this goldmine. And make sure each and every employee understands your products. 8. Know your Target audience And then target it well If your a mobile company and think everybody using a mobile is your target audience, you probably should go burn your B-school degrees right now.

What role does Apple's materials management organization play in making Apple successful? Take a lead role in the implementation of a comprehensive ERP & Document Control System. Direct and coordinate the establishment of production schedules and resource allocation personnel for work schedules, materials, equipment to meet customer orders. Budget for and oversees expenditures towards staffing, raw material purchasing and capital purchases for Operations Set criteria for supply sources and establish approvals, standards and certifications. Responsible for final negotiation of all supply and service contracts Manages all key supplier relationships, including external manufacturing partners Directs and formulates procedures and policies to insure that materials are available to support production schedules and customer service targets levels. Manages and controls inventory investment to set goals and objectives Interacts with Sales/Marketing to understand product forecasts and demand. Conducts monthly Sales & Operations meeting to ensure shipments & revenue target are met. Interacts with Quality Assurance on matters of vendor delivered quality and vendor rating systems. Interacts with Design Engineering seeking ways to improve quality and reduce costs of purchased materials

What performance measures should Apple use with respect to materials management?

The Corporate Goals and each Business Process Goal set contains six measures with appropriate metrics for each measure. A Business Process Goal set is created for each critical manager, department or team in the organization. Business process measures at lower levels in the organization should be designed to support higher level goals. Business Process Goal sets are all linked to Corporate Goals and linked to each other via the Customer Service measure. The six measures are as follows: a. b. c. d. e. f. Quality Products and processes. Service Both internal and external customer. Revenue/Cost/Margin Both products and processes. Velocity Cycle time of products and processes Knowledge Organizational resources and capabilities. Investment Effective use of financial resources.

Analyze the hub process at Fountain, Colorado a. What changes were made as part of the hub implementation? Following changes were made as part of the hub implementation: i. Raw material was stored outside of Apples site ii. Logistics handling was the responsibility of Fritz iii. Raw material stored at the hub was owned by the supplier and not Apple

b. What role does Fritz play in the hub? Fritz coordinated materials flow and information flow and acted as customs broker. Transportation from the supplier to the hub and from the hub to Apples site was the responsibility of Fritz. c. Could Apple have made any of these changes without implementing a supplier hub? What alternative solutions could have been implemented? The main issue to be resolved for Apple was the clearing of space utilized by storage on-site to free up space to ramp up production. This issue could also have been resolved by the implementation of the following: i. Establishing a company-managed warehouse near the site ii. Contracting for warehousing with a logistics company iii. Having suppliers establish a local source of supply and thus supplying using a Kanban/JIT system

d. What effect did each change have on suppliers, Fritz, and Apple? Quantify the costs and benefits. What risks are being assumed by each entity? Effects: Suppliers As raw material was stored outside Apples site and was not owned by Apple, inventory carrying cost was borne by them Fritz To seamlessly coordinate the and successfully implement the hub system, Fritz had to implement an IT system of the sort it had not created before Apple Apple could now clear its site space and ramp up production Benefits: Suppliers Suppliers could use the hub not only for the distribution of raw materials to Apple, but also to other manufacturers since the inventory was owned by the suppliers themselves. This, thus, reduced transportation and warehousing costs for the suppliers.

Fritz Fritz used this as an opportunity to build its IT infrastructure and gain experience at the implementation of the hub system, which it could then suggest to other firms and industries. Apple Apple could now ramp up their production. Also it reduced the inventory on books. Inventory carrying cost was also eliminated. Risks: Suppliers As the inventory was carried by the suppliers, the risk of obsolescence was of the suppliers. Fritz Fritz had made a huge investment for the IT infrastructure for the hub system. Had the system failed and not continued with, it would have incurred financial loss. Apple By not interfering at any stage of the procurement process, Apple has risked the possibility of failure of availability of raw materials which will affect its production schedule. e. Why was the supplier hub option chosen by Apple Fountain? Was it successful? Reason for opting supplier hub by Apple Fountain: i. Clearing space on site to increase production ii. Reduce owned inventory iii. Reduce inventory carrying cost iv. Lower prices for components v. Implement Kanban/JIT successfully The supplier hub system can be said to be successful as it could accomplish all its objectives stated previously. Should Apple implement a supplier hub for its Sacramento site? Why or why not? If yes, what components should flow through the hub? Should the process differ from that implemented at Fountain? How much material should flow through the hub?

Though the conditions at the Fountain and Sacramento plants are very different, the supplier hub system in principle is a highly efficient and advantageous method of distribution and warehousing for all parties concerned. Thus, Apple should implement a supplier hub system for its Sacramento site albeit some modifications as per the changed conditions.

Such a system is best suited to be applied where the lead time in transportation is high. Thus, in case of Sacramento, components that are procured from outside the U.S. Monitors, PC Assemblies, Power Supplies and Mass Storage should flow through the hub. What are the differences between the Cork and Fountain hubs? Following are the differences between the Cork and Fountain hubs: i. Fountain hub has Fritz as its sole logistics controller. Cork insisted its suppliers to use Irish Express as its logistics controller, but the choice was left up to the suppliers ii. Difference in duty laws at the two sites