APPLE: THE BEST SUPPLY CHAINS IN THE WORLD?
For eight straight years, Apple has been recognized as havingthe best worldwide supply chains in the “Gartner Global SupplyChain Top 25” ranking. In the most recent ranking, Apple wasactually classified above the ranking as a "Master" (Amazon.com wasthe listed the number one company). The Master status recognizesthe accomplishments and capabilities of long-term global supplychain leaders in the Gartner Global Supply Chain Top 25. Companiesqualify for the Masters category if their score places them in thetop five rankings for at least seven out of the past 10years.
Numerous accolades have also been made about Apple’s supplychain strategy, operations, and results. For example, Apple’ssupply chains “best demonstrate leadership in applyingdemand-driven principles to drive business results.”*“Appledominates because it consistently brings both operational andinnovation excellence to bear in some of the most competitivemarkets in the world.”* Basically, Apple gets a lot of credit inthe supply chain profession for being able to ramp up volumes bothin hardware and software while also uniquely helping redefine theconsumer electronics market (e.g., iPhone, iPad, MacBook).Page431
Apple is the world’s second-largest information technologycompany by revenue after Samsung and the second-largest mobilephone producer also after Samsung. In Interbrand’s Best GlobalBrands report, Apple is now also the most valuable brand in theworld. It overtook Coca-Cola in 2013 for the number one positionafter Coca-Cola’s 13-year run at the top and has stayed at the topevery year since that time. Apple has an estimated brand value ofmore than $170 billion. “Few brands have enabled so many people todo so much so easily, which is why Apple has legions of adoringfans.”* These “fans” or customers have downloaded apps for Apple’selectronic gadgets more than 60 billion times.
The company’s general supply chain model follows the path ofmost large multinational corporations' supply chains. They doresearch and development to cultivate new technologies and/or toacquire intellectual property needed for future products. They testthe product concepts via marketing research, product testing, andtotal cost analysis. After that, Apple typically does a prelaunchof new products, where global production, sourcing commitments,inventory management, and so on are evaluated. The product launchinvolves doing demand forecasts, resolving potential backlogs, andensuring that the products are in the hands of its customers in asfast a cycle time as possible. After the launch, monitoring startswith periodic reviews of inventory, demand, life cycle status, andcomponent cost forecasts.
A number of factors make Apple’s global supply chains worldleading. First, early on, Apple took steps to manage the totalvalue created in its global supply chains by managing its suppliersand all other providers within the chains. Predeterminedexpectations of suppliers, exclusivity in supplier arrangements,and volume guarantees ensured a supply chain infrastructure thatcould support Apple’s aggressive market leadership. Apple’srelationship building with its network partners is also a strengththat has helped with increased scaling of production and resultedin improved quality in the manufacturing processes. Plus, and notto be underestimated, Apple has amassed lots of cash! The availablecash funds have partially been used to place high-volume orders,which strengthen supplier relationships, and in other ways maintainglobal supply chain leadership.
Using its supply chain infrastructure, Apple has managed tosolve most of the challenges it has faced. For example, while theglobal economic downturn in 2008 presented problems for virtuallyall companies, Apple came through it in great shape. At the time,CEO Steve Jobs said, “We’re armed with the strongest product linein our history, the most talented employees and the best customersin our industry. … Apple just reported one of the best quarters inits history.”* Other challenges that Apple is facing includeobtaining enough quality components for its consumer electronics,potential for supply chain disruptions (natural and peoplecreated), dependence on third-party logistics providers, andinventory management issues. In each case, so far, Apple hasstrategically solved major issues to the satisfaction of themarketplace (the company consistently ranks at the top in “customersatisfaction” in the American Customer Satisfaction Index).
However, everything is not all rosy or positive about Apple.The company’s reputation has taken a few hits recently. Forexample, Apple was found guilty by a U.S. court of conspiring withpublishers to set the price of e-books that were bought usingiTunes. The ongoing feud with Samsung regarding various patentskeeps lingering year-by-year, and worldwide customers are almostfanatically taking sides for or against Apple. There have also beenallegations about the treatment of employees at Foxconn in China(one of the Apple suppliers). Plus, there was a U.S. Senate hearingthat investigated Apple’s “highly questionable” tax minimizationstrategies. Now, on the more positive side, Apple has a portfolioof potential blockbuster products, welcomed upgrades, andinnovative services in the making that are sure to remind its fanswhy they favor Apple products.
The challenges attached to these new offerings are sure totest Apple’s leadership in both brand value and best global supplychains. To some degree, the future challenges are clear. To stay atthe top of its industry, Apple has to succeed in slowing Samsung’smomentum and capturing the booming Chinese mobile phone market. Asalways with Apple, as set in our expectations over the years bySteve Jobs’s “one more thing” announcements, CEO Tim Cook and thenew Apple leadership team must keep communicating to the marketthat their vision, innovations, and leadership can drive the ideathat Apple’s best days are ahead. As one way to do this, Apple ison a hiring binge in Asia, adding hundreds of engineers and supplychain managers to its staff in Shangai and Taipei as it seeks toincrease the speed at which it introduces new products. Plus, withCook as the CEO, Apple has a global production and supply chainmanagement expert at the helm who constantly scrutinizes Apple’ssupply chains, production operations, and fair laborpractices.
Sources: D. Hofman, “The Gartner Supply Chain Top 25,” 2013,www.gartner.com/technology; “Interbrand’s Best Global Brands 2013,”www.interbrand.com; “Apple Is the World’s Most Valuable Brand at$98 Billion,” The Huffington Post, September 30, 2013; “AppleReports Fourth Quarter Results,” Apple Press Info, October 21,2008; E. Doe, “Apple Goes on Hiring Binge in Asia to Speed ProductReleases,” The Wall Street Journal, March 3, 2014(http://www.wsj.com/articles/SB10001424052702304360704579416660215507816);American Customer Satisfaction Index, http://theacsi.org; “FixingApple’s Supply Chains,” The New York Times, April 2, 2012(http://query.nytimes.com/gst/fullpage.html?res=9C03EED91F3FF931A35757C0A9649D8B63).
Case Discussion Questions
1. According to Interbrand's analysis, Apple's brand is valuedat more than $170 billion, while Google in second place is valuedat $120 billion and Coca-Cola in third is at $78 billion (2015). Doyou agree that Apple should be so far ahead of its nearest brandcompetition? What about Samsung, which is larger in size (Samsungis valued at $45 billion)?
2. With Steve Jobs, Apple's legendary founder and CEO, passingaway in 2011, what can we expect from Apple in the future? Willthey be as innovative? Will they maintain brand value leadership?Will they run the top global supply chains in the world?
3. Apple products have usually been priced above theircompetition and sold for their value, intrigue, and marketleadership. Some would say Samsung is catching up on many of thesefronts and even passing Apple perhaps. Do you think Apple cancharge a price premium for their products much longer?
4. Apple's global supply chains make their business thrive.There is secrecy among suppliers, superior quality standards byevery party involved in Apple's supply chains, and a total valuefocus that ultimately makes the customers happy. Is this asustainable business model for their global supply chains?
