Apple Computer’s Suppliers

Hubs : A tale of three cities

TEAM 3
Satya Siddhardha
Bharath Chelluru
Goutham Sai
Chaitanya Dasari
Uma Sai Sudha Vungarala
 INTRODUCTION
• Apple Computer Inc. was founded in 1975 in Menlo
Park, California.
• It grew rapidly during the 1980’s by steadily
upgrading it’s product offerings with new
technologies such as icons, menu-driven software
and mouse etc;
• In the late 1980’s , Apple found struggling to
maintain market share as IBM and other makers of
other IBM - compatible PC’s entered the market.
• Focused on two strategies to compete effectively.
- R & D investment
- Cost Reduction
• In June 1994, Clark Winchester, the Director of Apple
Computer incorporated Sacramento site called a meeting to
discuss the need to boost manufacturing capacity to meet
rapidly growing demand for it’s Desktop PC and Server PC
products.
• Four Alternatives for decreasing on-site components inventory
- Establishing a company managed warehouse nearby
- Contracting for warehouse with a logistics company
- Having suppliers establish a local source of supply by
manufacturing or stocking
- Contracting with a logistics company to implement a
Supplier Hub
 HUB PROCESS AT CORK
• Implemented it’s first supplier hub in 1991 near it’s manufacturing facility
in Cork, Ireland
• PC’s made and configured in Cork were then shipped directly to the
customers or to Apple’s European distribution center in Holland.
• Logistics Service Provider that Apple used was Irish Express Company, a
local freight forwarder
• Apple does not take title of the component parts until they were pulled
from the hub to Apple Cork’s production line
• Inventory Ownership shifted from Apple to Suppliers
• Most of the Apple suppliers did not have sales or manufacturing
operations in Ireland
• PROCESS: Components stored at supplier’s hub where later sent to
manufacturing and assembling plant or either sent directly to customers
 ADVANTAGES

• Prices of computer parts decreased

• Carrying cost reduced
• Apple was able to reduce the cost of good sold
by 2 - 3 %
• Hassle free transportation

DISADVANTAGES

• Unfavourable weather conditions

• Inventory Control is in the hands of suppliers
 HUB PROCESS AT FOUNTAIN
• Apple opened a manufacturing facility in Fountain, Colorado in mid
1992 to manufacture it’s new PowerBook line of laptop computers
• It was extremely successful and Newsweek named it Product of the
year
• 1993 – Decided to build some desktop PC’s in Fountain
• Apple Chose Fritz Companies Inc., an International freight forwarder
in San Francisco
• Fritz company took responsibility of installing a supplier’s hub
• Logistics was provided by Fritz company
• 25 mins away from Apple site
• Information system was used to track components called as
FLEX
• Contract signed between 3 parties: Suppliers, Apple & Fritz
• Fritz also acts a custom broker and freight forwarder

TRANSPORTATION

• Apple purchases the transportation and uses Fritz as provider

• The supplier purchases the transportation and uses the Fritz as
provider
• The supplier purchases the transportation and uses another
provider
 DIFFERENCE BETWEEN TWO HUBS
CORK HUB FACILITY
• Stocked components of PC
assembly
• Logistic provider – Irish Express
company
• No separate software to track the
materials
• Shipment through the hub was an
arrangement between the supplier
and Irish Express
• No pallet system
FOUNTAIN HUB FACILITY
• Mfg. PowerBook line of laptop
computer and Desktop PC’s
• Apple chosen Fritz Company Inc. –
San Francisco
• FLEX system tracked the status of
hub materials
• Contract was between the three
parties ....Supplier, Fritz and Apple
• Full pallet shipment worked well
Changes that were made as part of the hub
implementation
Apple’s First Supplier Hub – the Cork Facility
• After the implementation of the hub, Apple did not take the title of
component parts until they were pulled from the hub for delivery to Apple
Cork’s production line. This shifted inventory ownership from Apple to
suppliers
• Before that Apple owned the four weeks of supply of inventory stocked at
its site.
• Apple was able to defer payment for component parts until the day of use
under a system called “Apple computer JIT supply program”
• Materials were delivered to the supplier hub under the classification DDU.
• By Deferring purchase of component parts, Apple shifted the carrying
cost of raw materials inventory to suppliers and paid lower prices for
component parts.
• By deferring payment of duties, Apple saved an amount equal to the
interest on the duties for the period of deferment.
• The prices of computer parts decreased steadily over time as much as
10% per quarter. So , Apple was able to reduce its cost of goods sold
by 2-3%.
FOUNTAIN THE SECOND SUPPLIER HUB – THE FOUNTAIN,
COLORADO, FACILITY
• Reducing the number of logical grouping of entities involved from nine to
three - one at the port of origin, one at the port of entry, and one at the
Fountain hub
• Investment on Technology which enabled efficient tracking of materials
movement for Fritz, Supplier and Apple
• Tracking of Defective Material through the Flex System
• Enabled complete end to end tracking of Material Movement from start to
finish
• There has been a change in the percentage of Hub vs. Non Hub from 20-80
to 40-60.
• The FLEX system tracked the status of hub material through seven
categories FLEX had an additional category for defective material
• Apple’s buyers had access to FLEX via terminals on their desks, they had
full visibility of all material in the pipeline. This “womb-to-tomb” tracking
was a breakthrough for Apple Fountain
Could apple have made this changes without
implementing a suppliers hub ?

Yes, Apple could have made this changes without implementing a

suppliers hub .
Apple's one of the major issue was lack of space for their increased
demand of products in global market .
Inventory control shifted to suppliers .
Issue may occur during order cycle.
Alternative Solutions that could have been
implemented
• Kanban / JIT program can be used as alternative solutions that could
have been implemented .
• Kanban /JIT programs eliminates the wastage in production and it
gives brief idea for the company about
It tells about what to produce
How much to produce
When to produce .
• where when company knows how much to produce it will decrease obsolesce
products production which lead to save huge space for the company.
 JUST IN TIME & MAKE TO ORDER

Manufacturing
Distribution
Local Suppliers plant /
center
assembling point

Resellers Customers
 Local suppliers

Stock for
Production line 1: manufacturing plant
Personal computers as more demand (fast
moving goods)
Assembling point /
manufacturing plant
Components from
Production line 2: local suppliers when
Desktops needed (Make To
Order)
 NEAR TO WATER
TRANSPORTATION THROUGH
WATER IS EASY
 JUSTIFICATION
• Sacramento site needs to free up 60000 sq. Ft for more production
line.
• Suppliers Hub not required for Sacramento as distribution center was
moved from san Francisco to Sacramento also installed OPS center
assembly.
• Huge market demand for PC was observed in 1990’s
• IBM entered in manufacturing PC
• To minimize inventory level and cost.
• New products and discontinue of obsolete products.
• Sacramento was into manufacturing of computers instead of laptops.
 JUSTIFICATION
• Supplier hub would release stock every 1 week or in a particular cycle
• 10-day inventory is not needed in supplier hub if JIT approach is used
as PC are high in demand.
• Help build companies reputation by inventory turn over .
• Proper demand forecast would help understand which product or
model is fast moving.
• Customer satisfaction can be hampered if supplier hub is in place
• Major import of components are through ocean
• Weather conditions are favorable
Factors to be considered
Findings
• Just In Time
• 3PL
• Cork is using Bonded Warehouse and Fountain is using Field
Warehouse
• Fountain’s tracking system is FLEX but its was unable to track
few components
• Reduced Inventory cost
Recommendations

• The third alternative out of four is the best recommended

alternative on the Sacto OPS centre
Establishing a local source of supply for manufacturing and
delivering them using JIT/Kanban program.