Supply Chain Management: A Study on Apple’s Supply Chain

Swathi Krishna M R

B Batch
Reg No. 37121123
School of Management Studies
CUSAT, Kochi – 22
E-mail: Swathikrishnamr@pg.cusat.ac.in

1.0 INTRODUCTION

This report evaluates Apple’s supply chain management. The supply chain’s ecosystem gives Apple
an advantageous market position. Apple’s main priorities are to control activities in the supply chain
and product quality. This has incentivised Apple to become a market leader implementing efficient
and cost-effective supply chain activities and functions. However, there are challenges to adopting a
tech-oriented supply chain procedure.These are the top supply chain management trends as we
move through the next few years. A supply chain refers to a system by which an organization moves
its products and services through the suppliers to the end consumers.
Apple Corp. manufactures and markets a variety of computers and consumer electronics products,
including smartphones, tablets and music players. The investment analyst firm Market Realist
identified brand strength, innovation, supply chain management and premium pricing strategy as
key factors in the company’s competitive advantage.
Supply chain management is critical for organisations to attain a leading market position. This report
analyses and evaluates Apple and its supply chain activities and portfolio decisions. Apple’s
decisions regarding supply chain management and their advantages and disadvantages are also
analysed. Finally, challenges to its current ecosystem are assessed to determine how to facilitate
increasing productivity levels and market demand for the company’s products.
Supply chain can be a source of competitive advantage in a business environment. For a company to
compete effectively in the market, it has to be concerned about the supply chains of the competitors.
In fact, marketplace has of late been shifting from individual company performance towards the
supply chain performance. The success of a business organization in the market today will highly
depend on the effectiveness of the supply chain. This can be achieved through product availability
as well as timely delivery of the products which are satisfactory to the consumers. The performance
of a supply chain highly depends on the functional groups such as the engineers, as well as the
manufacturers and marketers.

It also crosses the companies’ boundaries. The functional groups are involved in designing the
products to meet the consumer needs and then distribution and sale of products to the final
consumer. On the other hand, the company boundaries are now changing as the companies try to
look for better ways to supply their goods and services. They are discovering the need to work
together so as to achieve their ultimate supply chain objective, to speedily and efficiently fill the
consumer orders (Sehgal 2009).
An ecosystem of suppliers, developers and business partners provides Apple with a strong
competitive advantage. The company owns chip manufacturers, controls manufacturing, follows
extremely strict software standards and operates its own stores. Deals with leading music and
entertainment companies provide a vast source of media for all the company’s products. It also has
a community of more than 6 million independent software developers creating applications for
Apple products. This gives Apple control over the entire process of product development,
manufacturing and marketing – an advantage that competitors find difficult to match.

How Apple Supply Chain Works?

As B.X.E. is a money-granting firm, its contract with Apple indicates the need to analyse Apple
future. To enhance its investment portfolio, B.X.E has shown great interest in exploring Apple’s new
iPhone (Mark, 2014). This supports the need to evaluate Apple’s global supply chain tactics to
promote a specific code of operations for the organisation. By viewing how Apple’s global supply
chain functions, B.X.E. can consider how their grants can be allocated to gain maximum production
ability in Apple’s international supply chain activities. This will assist B.X.E in allocating funds to
make Apple’s manufacturing supply chain as effective as possible
The supply chain management adopted by Apple assisted B.X.E. in visualising how Apple could
increase the effectiveness of its supply chain and control its ecosystem. Understanding Apple’s
supply chain practices is vital as this allows Apple to assess not only how Apple will use funds to
make its supply chain effective but also the relationship between the market and Apple’s changing
preferences towards consumer goods. As Apple is an important client, B.X.E. must consider its future
with Apple and whether it must change its client base to secure greater profitability and a better
position in the market. Examining the supply chain through Apple’s stock value is the only way the
company can review their practices as Apple has promised to adopt a mixed approach to products
in the future. B.X.E.’s approach to reviewing Apple’s supply chain allows it to forecast the future
concerning Apple’s fluctuating stock price and provides the incentive to secure a better future with
either Apple or another technology firm. Hence, the B.X.E. investment portfolio depends heavily
upon Apple’s current and future supply chain activities (Mark, 2014) which determine Apple’s
future stock value and impact on B.X.E.

Figure 1: Supply Chain Planning at Apple Inc

Supply Chain Planning at Apple Inc is the classic example of the New Product Development Process
(NPD). It’s the integration of R&D, Marketing and various function under supply chain
management. From the above graphic, Apple Inc accelerates the new product introduction by
acquiring licensing and 3rd party businesses. The whole process looks very similar to that of other
industries. Interesting point is that Apple Inc has to make pre-payments to some suppliers to secure
strategic raw materials.

Figure 2: Supply Chain Planning at Apple Inc

Supply Chain Map is the way to express large system from points of origin to points of consumption
in a simple to understand manner. Information from the annual report is also used to produce Apple
Supply Chain Map.

Apple Inc purchases raw materials from various sources then get them shipped to assembling plant
in China. From there, the assembler will ship products directly to consumers (via UPS/FedEx) for
those who buy from Apple’s Online Store.

For other distribution channels such as retail stores, direct sales and other distributors, Apple Inc
will keep products at Elk Grove, California (where central warehouse and call center are located) and
supply products from there. At the end of a product’s life, the customer can send products back to
nearest Apple Stores or dedicated recycling facilities. 2)

Apple’s Supply Chain Challenges

What does it feel like to be “Apple Inc”? One journalist indicated that the life of Apple Inc is fairly
easy by utilizing its negotiation power. Believe me, Apple Supply Chain has very high risks. There
are many challenges to overcome, for example;

• The global economy could affect the Company.

• Some re-sellers may also distribute products from competing manufacturers.
• Inventories can become obsolete or exceed anticipated demand.
• Some components are currently obtained from single or limited sources.
• Some custom components are not common to the rest of the industries.
 • Ability to obtain components in sufficient quantities is important.
• Supply chain disruption such as natural and man-made disasters can be serious.
• The company depends on logistical services provided by outsourcing partners.
• The company also relies on its partners to adhere to the supplier code of conduct.

How Complex is Apple’s Supply Chain?

Some people in the blogosphere said that Apple Supply Chain is not that complicated. So this
section will explain some characteristics of Apple Supply Chain through various metrics and
compare them with Amazon Supply Chain.
Inventory Turnover
Inventory Turnover is the traditional financial measure to determine how efficient company uses
its financial resources to create sales, the higher number is the better. Supply chain professionals
also use this metric in the inventory management function. Generally accepted calculation is
(Cost of Goods Sold / Average Inventory).

Figure1 : Inventory Turnover of Amazon vs Apple Inc

The above picture shows that inventory turnover of Amazon and Apple is 10 and 59 respectively
(cost of goods sold of digital content/downloadable products are excluded). From the face value,
Apple seems to be more efficient.

Anyway, there is a reason for this. Apple Inc is now a marketing company with no manufacturing
facility but Amazon is a distributor of general merchandise. It’s pretty natural that Amazon has to
keep more stocks then inventory turnover can be much lower.

Number of Key Suppliers

Supply chain management is about the relationship between trading partners. Working closely with
strategic suppliers will bring competitive advantage to the firm.

Figure 2 : Number of key Vendors Amazon vs apple

Inventory Turnover

Inventory Turnover is the traditional financial measure to determine how efficient company
uses its financial resources to create sales, the higher number is the better. Supply chain
professionals also use this metric in the inventory management function. Generally accepted
calculation is (Cost of Goods Sold / Average Inventory).
Apple recently said that they have about 156 key vendors across the globe. This amount of
suppliers is quite manageable. According to this information, Amazon has about 3 million
suppliers in total. Top 5% of this is 300,000 suppliers, way more than that of Apple Inc.
Number of Warehouse Facilities
In the United States, transportation cost is a big portion of the total logistics cost. Then, good
management of related function is essential.
Apple inc has a central warehouse in California but Amazon has approximately 28
warehouses from coast to coast. What Apple has to do is to synchronize data between the
central warehouse and its own 246 stores + customers. With the appropriate level of
automation, this kind of operations can be done efficiently.

For Amazon, the thing is more complicated than that. Amazon is known to employ many
Ph.D. graduates in operations research/industrial engineering. The reason is that Amazon
distribution environment must be mathematically solved through optimization method.

Typically, they have to determine how many facilities they should have, where serves which
market, items/quantity stored in each location, how to manage transportation between
warehouse-to-warehouse and warehouse to customers in order to minimize cost and
increase service level.
Number of Items (Stock Keeping Unit)
Stock Keeping Unit aka SKU is another indication of supply chain complexity. One model of
phone but different software inside is considered different item/SKU.
According to this, Amazon has about 170 million items on its catalog. About 135 million
items are physical products. For Apple, they have about 26,000 items (rough estimate, subject
to change). The point is that if you have to make a demand forecast, which one will more
difficult for you, 135 million items or 26k items.
Product Life Cycle
The product life cycle is how long you can sell products
From a rough estimate, Amazon has some seasonal products such as summer wear. They
can only sell it for 3 months max. The life of Apple’s key products is way more than 12
months. It goes without saying that demand forecast of seasonal, short life cycle products is
very very difficult to estimate.
Amazon’s Supply Chain is far more complicated than that of Apple Inc.

Apple Inc. global supply chain

Outsourcing raw materials or services from a third party can cause issues related to the
quality dimensions of the raw materials (Li, et al., 2012). When outsourcing services,
organisations are concerned with the cost and quality of the services rendered. Hence, Apple
believes in internal manufacturing and conducting supply chain activities internally to
provide a controlled ecosystem whereby its supply chain activities operate both internally
and globally. As outsourcing can cause issues with quality, Apple has significant concerns
regarding outsourcing as Apple products are marketed as having a luxurious element
attached to them .Thus, Apple conducts its supply chain activities independently. Apple has
transformed all of the key players in the supply chain to work in accordance with Apple.
Before assigning contracts to suppliers, Apple ensures that they can rent out a total capacity
and layout design to the suppliers to manufacture and so they can meet fluctuating demands
. This helps Apple address fluctuating market demand and assists suppliers in providing
excessive raw materials in case of any anomaly. Additionally, limiting the number of
suppliers allows Apple to form reliable relationships with them, promising tremendous
flexibility regarding varying demand and forecasting the product. Apple’s supply chain
ecosystem provides the core advantage of being able to evaluate each supply chain process,
identify anomalies and forecast the company’s future (Mark, 2014).
An effective supply chain requires efficiency and cost-effectiveness. Apple can quickly
change its forecasting technique and thereby run its supply chain based on future market
needs while supporting its current productivity and supply activities. Additionally, having
control over its supply activities from the beginning of the iPhone’s manufacturing to its
delivery affords Apple an advantage in the market. Controlling the manufacturing process
also allows Apple to identify any inefficiencies or problems in assembling its products
(Hettiarachchi, 2016). To be efficient in the technological era, Apple has lowered its cycle and
lead operation times to achieve a better market position than its competitors. A critical aspect
of its in-house supply chain is that it achieves better performance than that of its rivalries.
Additionally, Apple believes in just-in-time inventory, which lowers the cost associated with
inventory management, further easing supply chain practices. Fostering good relationships
with supplies and having inventory arrive when needed ensures efficiency in supplying its
iPhone worldwide (Lockamy, 2017). Furthermore, Apple has extensively studied efficient
reverse logistics systems. Reverse logistics addresses defects and consumer complaints
(Criag & Ellram, 1998). Apple has ensured smooth reverse logistics by offering adequate
customer services. Apple has also systematised its reverse logistics system to reduce
problems associated with its reverse logistics supply chain.
Apple encourages a direct relationship between its engineers and suppliers. Communication
time has been lowered, reducing its supply chain activities. Engineers can easily discuss any
design and feature challenges associated with the new iPhone launch; Apple works
synchronously with suppliers and engineers to increase productivity levels. This lowers the
lead time of components arriving and being assembled at the warehouses. To eliminate
logistical problems with the iPhones, Apple has established outlets and warehouse facilities
in diverse countries. Transportation and storing problems have been eliminated via Apple’s
in-house supply activities chain (Heracleous, 2013), which is cheaper than contracting third
parties. Moreover, shipping iPhones from the manufacturing facility to the consumer is less
expensive, making the supply chain more cost-effective.
Apple Global competitiveness

Global competitiveness is determined by the economic value of a business or country

concerning its product revenue and that of its competitors in the global market (Zahra, 1999).
Using a supply chain management ecosystem, Apple can achieve a global competitiveness
advantage. There are various areas of supply chain activity that have advanced the global
competitiveness of Apple which are discussed in the following sections.
In house manufacturing
By producing materials and iPhones in-house, Apple can reduce any problems that may
arise with outsourcing material from suppliers, as is done by its competitors. This gives
Apple global competitiveness as it has strategic insight towards housing, manufacturing,
and assembling iPhones; Apple has a better shelf presence at all of its global outlets and
sufficient presentation space in retailing businesses. Furthermore, it has various retail outlets
across the globe. By minimising the presence of Apple products in different retailers, the
company can standardise its method of offering products in the market physically.Apple’s
retail stores implement a sophisticated purchasing style and sales approach, ensuring a
standard of luxury for its customers and presenting Apple’s value proposition.
Logistics
Having an efficient logistics system is vital to ensuring better lead times for delivering
products to the final customer (Lockamy, 2017). Apple’s logistics are incredible compared
to its competitors. The company has created affiliations with various logistics organisations
such as FedEx and DHL. These relationships have assisted Apple with the smooth operations
of its reverse logistics system, enabling Apple to satisfy customer needs. Electronic analysis
of customer complaints has reduced logistics problems on a global scale (Cohen, 2015). The
company maintains a systematised reverse complaining system which has lowered customer
complaints and eased Apple’s supply chain activities.
Quality assurance
By conducting supply chain activities internally and creating an ecosystem of activities,
Apple ensures the high quality of its products (Mark, 2014). Ensuring quality in every
process from manufacturing to assembling the final product is a crucial benefit of conducting
internal supply chain activities as it not only ensures global competitiveness but decreases
defects and issues that arise with technological gadgets. With quality being a main priority
of Apple, its suppliers and affiliates are also obligated to ensure quality in the materials and
services they provide (Cohen, 2015). This creates an ecosystem directed towards quality
assurance and, in turn, improves the competitive position of the company. It also ensures
fewer product deficiencies and less product recall, which has helped address reverse
logistics challenges. Overall quality management is conducted by integrating quality tools
into every process to validate Apple iPhone quality assurance.
Research and development
The research and development (R&D) department is the department that forecasts and
analyses changing customer preferences. Apple’s R&D is impressive; it has a central research
department that is the sole decision-maker concerning research activities (Mark, 2014). This
ensures a balanced visualisation of present and future changes in technological advancement
and provides Apple with an incentive to review the demands of every product being offered.
Additionally, the research department conducts new product development with the help
and insight of the company’s stakeholders and internal members. This ensures the creation
of market-oriented products that meet stakeholders’ expectations (Hettiarachchi, 2016). The
present global competitiveness of iPhone manufacturing is based on the highly quality
points. Apple has ensured that its supply chain activities range from raw material processes
to reverse logistics; its supply chain management has been systematised and customised to
ensure efficiency and cost-effectiveness. This not only enables Apple to reach its break-even
point ahead of schedule but promises better profitability than its competitors. Apple’s
sophisticated style of offering products in its outlets incentivises Apple customers to
purchase products (Cohen, 2015).
The advantages and disadvantages of Apple’s global supply chain strategy

The current strategy adopted by Apple has certain advantages and disadvantages for its
global supply chain activities. However, the benefits outweigh the disadvantages in the
competitive global marketplace. Both are discussed in the following sections.
Advantages
The current global supply chain strategy has given Apple the core advantage of effectively
controlling the ecosystem of its practices. It has also provided an adequate operating and
production environment. Apple can control anomalies and quality issues with its in-house
quality processes which are integrated with its suppliers and affiliates (Clarke & Boersma,
2017). Additionally, having a good R&D department has enabled Apple to better forecast
demands and customer preferences regarding future technological products. Just-in-time
inventory management has lowered costs associated with storing inventory, giving the
company an advantage regarding cash and capital (Li, et al., 2012). Furthermore, its reverse
logistics system has ensured customer satisfaction by reducing the number of defects that
occur and the number of complaints that are received (Lockamy, 2017). This creates a good
experience for customers and reduces Apple’s challenges concerning the reverse logistics
supply chain. Having different types of retail outlets has also allowed Apple to maintain its
standards regarding delivering products to customers and prioritising customer experience
over revenue (Clarke & Boersma, 2017). Logistics facilities and outsourced suppliers can
create barriers regarding the global supply of products; Apple’s strategy has eliminated
these challenges. The company has controlled logistics facilities in various countries, which
lowers its lead time of operations and reduces its production cycle time (Lockamy, 2017).
This enables Apple to not only manufacture products within a shorter cycle time than its
competitors but also mitigate transportation issues that may arise when serving a global
marketplace. Moreover, Apple’s minimal number of suppliers ensures quality and reliability
throughout phases of fluctuating product demand. Having fewer suppliers allows for better
production and availability of the required inventory as the suppliers prioritise the needs of
Apple ahead of its competitors (Cohen, 2015).
Disadvantages

As it has created an internal supply chain ecosystem, there are significant barriers to its
operations. Supply chain activities manage this extensive system, which has various
dimensions of production and operation. The organisation’s workload has significantly
decreased, which can cause management and quality issues. Additionally, limiting the
number of suppliers can also cause issues (Mark, 2014). Suppliers mainly demand the high
cost of affiliation with only Apple. Apple must purchase space before its suppliers may begin
production. This is an additional cost that could be avoided if Apple outsourced suppliers
and operated as do other competitors in the market. Extra care taken with supplier
relationships is not mandatory as better quality is needed in assembling Apple products over
the raw material outsourced (Cohen, 2015). Apple has adopted a policy of temporary labour
services due to the fluctuating demand of its products; this can cause problems with legal
legislation concerning labour rights as extra labour activity may bring court challenges
regarding breaches of labour laws. Furthermore, hiring a temporary workforce creates
problems concerning training and employees’ knowledge of how Apple products must be
manufactured and assembled (Zahra, 1999). It is uncertain how Apple can ensure that every
temporary employee understands Apple’s core values. The ecosystem management is a
challenge as Apple conducts all supplier activities in-house and integrates specialisation into
all dimensions of the supply chain (Criag & Ellram, 1998). This is a disadvantage as the
company cannot hire specialists to complete particular tasks. Hence, by managing the supply
chain independently, Apple loses the opportunity to engage in better supplier activities.
Future challenges
Apple will face specific challenges in the future regarding their current practices. Firstly, as
the supply chain activities of Apple are currently controlled by the organisation, the activities
that are conducted are limited. The demand for Apple products has increased over the years.
The company will need to expand its warehouses and increase its capital to meet demand
(Lockamy, 2017). Hence, to progress with this equal system of activities, significant capital
investment and management will be required to allow for the company’s expansion.
Additionally, as customer preferences are subject to change, Apple’s future is uncertain.
Consumer demand may shift from iOS to Android devices. These challenges can affect
Apple’s supply chain activities and market performance. Moreover, with limited suppliers,
Apple has limitations regarding the products it can manufacture in the light of fluctuating
demand. This can cause challenges regarding future global demand for its products as the
need to push for technology-oriented to increasing tremendously (Lockamy, 2017).
Integrating technology into research will also be required to determine the skills that will be
needed in the future.
With the increasing demand for Apple products, the company will require a significant
liquidation of cash to ensure that it can invest in inventory and raw materials to cater to
demand (Clarke & Boersma, 2017). Furthermore, adequate training and investment in
management will be a future challenge. The company must maintain its standards while
expanding and serving globally. Thus, Apple must communicate its value proposition to
employees and management to maintain an advantageous market position (Cohen, 2015).
The company can quickly eliminate these challenges if it prioritises quality assurance over
productivity levels as quality and standardisation are vital elements to remaining in the
market.
2. CONCLUSION
This analysis has reviewed the current dimensions of Apple’s supply chain and evaluated
the future challenges for Apple. Apple’s supply chain indicates the importance of
implementing efficient and cost-effective supply activities and promising value at every
process and procedure to provide high-quality products. Apple can maintain its market
position by controlling supply activities, limiting its suppliers and expanding its logistics
facilities to the global marketplace. Apple has the advantage of good relationships with its
suppliers and a good research department that provides adequate forecasting and demand
fluctuation analysis ahead of schedule. However, there are also disadvantages as the
company cannot achieve expansion with limited capital and suppliers.
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