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Apple INC.: Managing a Global Supply Chain
Apple Inc. has successfully managed a global supply chain, combining creative development in the U.S. with outsourced manufacturing in Asia, leading to its position as the world's largest company by market capitalization. Despite challenges such as stock performance and skepticism about future product innovations, CEO Tim Cook reassured investors of a strong product pipeline and effective supply chain coordination. The company employs a just-in-time production strategy, tight supplier relationships, and extensive retail presence to enhance customer satisfaction and operational efficiency.
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Apple INC.: Managing a Global Supply Chain
- 1. APPLE INC.: MANAGINGA GLOBAL SUPPLY CHAIN ABDUL REHMAN AYESHA MAJID DONIA ISMAIL ELEENA NAZ SHERMEEN ABBAS
- 2. Jessica Grant wasan analyst with BXE Capital (BXE) vice-president, Phillip Duchene Both Grant and Duchene were trying to identify what changes, if any, they should make to BXE’s portfolio. “Apple is investing in its next generation of products, potentially the first new major product lines since Tim Cook took over from Steve Jobs,” she said. Apple Inc., the world’s largest company by market capitalization, had introduced a series of consumer products during the past dozen years that had transformed it into the industry leader in consumer devices. INTRODUCTION
- 3. Apple managed aglobal supply chain with creative development in the United States, outsourced manufacturing in Asia and components sourced from suppliers around the world. Apple was in the centre of a complex ecosystem that produced market-leading consumer devices. With $160 billion in cash in February 2014, the company was well- capitalized. Despite its commercial success, Apple’s stock was at $524.47 on February 28, 2014, 25 per cent below the $700 level it had reached in 2012. Cook reassured investors that the firm was focused on the future, and it had a solid pipeline of new products. This was his way of signaling to stakeholders that he would be able to run the firm following the death of Steve Jobs, “We’re working on some things that are extensions of things you can see and some that you can't see,” Cook said at Apple’s annual shareholders' meeting on February 28, 2014. INTRODUCTION
- 4. Industry observers wereskeptical that the company could deliver new product successes The were unclear if Cook can successfully reshape the cult-like culture that Jobs built. INTRODUCTION
- 5. Founding members: SteveJobs, Steve Woznaik, Mike Markkula People had to assemble individual components of computer themselves Apple provided a solution to it With 30- Day credit term, suppliers were used to fund the startup 200 units of “Apple I” sold Became the largest private manufacturer of personal computer APPLE INC. 19801976 Apple Computers founded Initial Public Offering
- 6. Problems:- Retail Partners didnot display Apple’s products properly Apple’s machines were perceived to be expensive Poor operating controls Poor inventory management Failing to estimate demand (stock-outs/excess inventory) APPLE INC. 19851981 IBM entered the PC Market Steve Jobs left Apple
- 7. Apple’s sales fell MarketCapitalization: $11.6 billion –> $ 3.1 billion –> $ 2.5 billion Job’s first decision: stopped licensing Apple’s Operating System Market share fell from 10% to 3% as a result Microsoft to invest $ 150 million and release its Microsoft Office for Macintosh APPLE INC. 1995 19961993 1997 John Sculley resigned Michael Spindler became CEO Microsoft came up with Windows 95 operating system Gil Amelio became CEO but resigned later. Steve Jobs returned as CEO Apple partnered with Microsoft
- 8. APPLE INC. Introduced iPhone in2007 20072001 20031998 2004 Apple launched iMac computers Introduced iPod with iTunes – Built a strong financial base First Japanese retail store opened Gained control over its suppliers
- 9. 70% of theproducts sold directly to consumers – 30% through retail partners Jessica investigating on Apple 9 days away from launch and Apple had not begun to ramp up production - Apple confident about its just-in-time supply chain iPhone 5 sold at the rate of 3.7 million units per week for 3 months Available in 100 countries Jessica focused on iPhone to see how Apple coordinated its supply chain on a real-time basis APPLE INC. 20122010 Launched iPad with instant commercial success Launched iPhone 5
- 10. SUPPLY CHAIN Tied R&Dto suppliers and assembly base 156 suppliers Inception – customer model Internally controlled supply chain Just-in-time
- 11.
- 12. Short cycle Coordinated withvariety of stakeholders Hardware Software production Designers worked with suppliers who provided their in-house engineers Design & Engineering HQ California Offered limited configuration to streamline supply chain NEW PRODUCT DEVELOPMENT
- 13. Key components Single manufacturer Exclusivityagreement Lead to regular stock-outs Bought suppliers production capacity Bought capital equipment for suppliers in return for promise of achieving Cost targets Volume targets PROCUREMENT
- 14. Product forecast 150-daysin advance Continuous updates to supplier For order changes Instant response required Used sales targets to manage Production schedule Purchase orders Payment schedule Quarterly inventory levels reviews to adjust demand forecasts and production schedule CONT’D Closed ecosystem enabled Large discount negotiations Flexible manufacturing volume Direct control Detailed cost breakdown from supplier Supplier kept 14 days inventory in their pipeline Cost to carry parts borne by supplier Payable time period 90-days Few suppliers were heisted to capacity commitments
- 15. Final production- HonHai Precision (Foxconn) Component manufacturing Complex quality controls Labour intensive Testing of individual parts Network of recruiters & subagents Ensure secrecy of assembly process Electronic monitors in selected boxes Trace components remotely from Cupertino PRODUCT ASSEMBLY
- 16. Air-freight As a back-up Makesit cheaper to deliver directly to customer from supplier Intermediate warehouses FedEx UPS Elk Grove, California Close management Plain boxes Each united accounted for LOGISTICS
- 17. Managed Warranty claims Trade ins Applerecycle & reuse program Effect Decreased cost Increased customer satisfaction 48-hr response Product pickup Created a performance database Lowered calls to support service Reduced errors in return process REVERSE LOGISTICS SYSTEM
- 19. 424 Stores in16 countries Online stores in 39 countries High customer footfall location High quality customer experience Ambiance to boost product presentation & marketing Store performance monitored by the hour Apple fixtures to enhance reseller sales Product advice service & training RETAIL
- 20. FINANCIAL ANALYSIS PAST YEARRECENT YEARS 2005 2004 Net Sales 13,931,000 8,279,000 Cost of Sales 9,888,000 6,279,000 R&D Expense 534,000 489,000 Net Income 1,335,000 276,000 Account receivable 895,000 774,000 Account Payable 1,779,000 1,451,000 Inventory 185,000 101,000 2013 2012 Net Sales 170,910,000 156,508,000 Cost of Sales 106,608,000 87,846,000 R&D Expense 4,475,000 3,381,000 Net Income 37,037,000 41,733,000 Account receivable 13,102,000 10,930,000 Account Payable 22,367,000 21,175,000 Inventory 1,764,000 791,000
- 21. Samsung • Net Salesare 217,462 • Cost of Sales are 130,934 Blackberry • Net Sales are 6813 • Cost of Sales are 6856 Nokia • Net Sales are 17497 • Cost of Sales are 10138 INDUSTRIAL ANALYSIS
- 22. Net Sales 20132012 America $62,739 $57,512 Europe $37,883 $36,323 Greater China $25,417 $22,533 Japan $13,462 $10,571 Rest of Asia pacific $11,181 $10,741 Retail $20,228 $18,828 APPLE’S SEGMENT
- 23. Rank Peer Opinion (172 voters) (25%) Garter Opinion (33 voters) (25%) ThreeYear Weighted ROA (25%) Inventory Turns (15%) Three Year Weighted Revenue (10%) Composite Score Apple 3,203 470 22.3% 82.7 52.5% 9.51 MC Donald 1,197 353 15.8 147.5 5.9% 5.87 Amazon 3,115 475 1.9 9.3 33.6% 5.86 Unilever 1,469 522 10.5 6.5 9% 5.04 Intel 756 515 15.6 4.2 11.4% 4.97 P&G 1,901 493 8.6 5.8 3.6% 4.91 Cisco System 1,167 517 8.5 11.2 7.8% 4.67 SUPPLY CHAIN RANKING
- 24. APPLE’S KEY SUPPLIER Samsungand Infineon Primax electronic, Foxcoon, Entery industry, Cambridge Silicon Broadcomm and Marvell
- 25. APPLICATION OF PAPERWHAT IS STRATEGY TO CASE