Introduction
Apple Company has become famous in the world for its innovation and design. Even though many people are aware of the success of the company, very few know that one of the contributions of the success of Apple is the way it handles its inventory. A research firm known as Gartner had rank Apple supply chain as the best in the world in 2010 ( Kraemer, Linden & Dedrick, 2011 ). The company has an extensive supply chain system throughout the world which has been the key contributing factor towards its well organized and efficient inventory management across the globe. Apple Company has developed an extensive supply chain management which over the years has proved to be more productive and efficient making the company is rank as the world’s best supply chain management for over three years.
Overview of Apple’s Supply Chain
A comparison on how tech companies were managing its inventory in 2011 showed that Apple was performing much better than Dell, HP, and Blackberry. A comparison that was made on the inventory turnover formula which involves the number of times inventory can be sold and replaced over a specific period showed that Apple was three times better than Dell, five times better than HP and four times better than Blackberry ( Gereffi & Lee, 2012 ). The higher the inventory turnover, the better and in this comparison, Apple had the highest inventory turnover compared to other tech companies. In the year 2011, the company sold all the iPad it had made creating no wastages in its stores.
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Apple Company purchases components and materials from various suppliers and then have them shipped to its assembling plant in China. The company does not manufacture most of the components it uses, but it has outsourced them to other manufacturers across various places. In the other distribution channels including retail stores and other distributors, the company keeps the products at the Elk Grove in California where the central warehouse is situated, and all the call centers are located here. The initialization of the modern supply chain by Apple began when the CEO Tim Cook slashed the inventory and cut down on the warehouses thus making the suppliers compete amongst themselves ( Monczka et al., 2015 ). Cook also reduced the number of component suppliers from one hundred to twenty-four, a move which forced the suppliers to compete for Apple business. At the same time, Cook shut down ten warehouses with the aim of limiting overstocking, and within a month, the stock on hand had gone down one month to just six days.
Keeping the inventory on hand as little as possible is very important in minimizing the costs of storage on the warehouses and possible hits with the competitors. Manufacturers of technology products cannot afford to keep too much stock in hand because of the unexpected announcements from the competitors or emergence of an innovation which could change everything in the market thus bringing the value of the product low ( Christopher, 2016 ). Sakes levels forecast and maintaining low levels of inventory is essential in the technology industry especially because new products quickly emerge and cannibalize the old ones. Foreseeing the demands do not necessarily come in the form of what product the customers need but also on the kind of technology that will be in demand in the next years. This allows the company to reduce costs with the suppliers by placing orders for more extended periods of time hindering the competitors from ordering the components.
Reasons why Apple Outsourced its Manufacturing
Apple Company has outsourced most of its manufacturing in the overseas countries mainly in Asia. Most of its products are designed in California, but the actual manufacturing and assembling take place in countries such as China and Japan. For example, iPad is designed in the United States, and then the actual production and assembling takes place in China. While many have criticized this move by Apple to produce overseas when they can as well produce at home and create more jobs for the home country, there are several beneficial reasons why the company opted to manufacture abroad. One of the primary reasons why the company chose to outsource its production in the Asian countries is because most components of its products such as iPhones and iPads, which form some of the essential products of the company, are now manufactured in China ( Clelland, 2014 ). Since the major production components for its products are manufactured in Asia, the supply chain can be made more efficient by outsourcing its production in China than in the United States. Assembling the iPhones and iPads half a world away would create many logistical challenges for the company.
It is usually cheaper to locate a manufacturing plant in an area that is next to the materials or components used in production. In China, the component parts of the production are readily available, and this would increase flexibility when manufacturing and assembling are done in China. This would also enhance the ability to switch from one component supplier to another or from one manufacturer to another. This is compared to shipping the components from the Asian countries to the United States for production which would reduce the flexibility in the production and also inhibit easy movement from one supplier to the next or one manufacturer to the next. Flexibility in the technology is so crucial due to the issue of competition and the ever-changing technological demands. To remain relevant and competitive in the technology industry, it is essential for a company to maintain high levels of flexibility in its production while at the same time avoiding logistical challenges. Shipping the components from China to the United States could create logistical problems such as delay in the delivery of the parts which could then negatively affect the assembling processes. The main reason why Apple outsources most of its products rather than building its own is to avoid logistical challenges of having to ship components to the U.S and also to maintain high levels of flexibility which is a crucial aspect of remaining competitive in the technology industry ( Yan & Wang, 2012 ).
Other than logistical issues, the Apple also outsources its manufacturing in the oversee counter due to the flexibility of the labor force and speed of production. Studies have shown that the company can produce five times more units when operating in China than in the United States because workers there are more flexible and can work both day and night ( Satariano & Burrows, 2011 ). The presence of skilled and affordable labor force in overseas countries thus prompted the company to locate its manufacturing in outside nations. However, the CEO of the company maintained that the main reason why they outsource their production and assembly is to avoid logistical challenges and increase flexibility given that the components that are used to manufacture their products are readily available in China than in the United States.
What makes Apple's Supply Chains so Productive and Efficient?
Apple has been identified as an example of a company with the most efficient and successful supply chain. Among many other factors associated with the success of this company, an efficient supply chain is at the core of the success of this company. The company has been able to have control of the overall supply chain through the leadership of its CEO. The first secret to the success of the Apple’s supply chain has been due to a strong relationship that the company has maintained with the suppliers ( Montgomerie & Roscoe, 2013 ). A strong supplier relationship has given the company a platform to be flexible at the times when the company wants to release new products. Whenever there is a change in demand and the company intends to produce more products or introduce new ones, the strong relationship with the suppliers has always given the company an advantage over its competitors through increased flexibility.
Also, the decision to outsource most of its production to China has worked well for the company. Outsourcing allows the company to reinvent the products than if it were doing its production in the US factories. Producing in the overseas countries increases flexibility when the company wants to produce new products ( Sandoval, 2015 ). This also helps avoid logistical problems such as delayed delivery of the components if the company was producing in the United States. Outsourcing has therefore enabled the company to maintain a strong and efficient supply chain globally. The company through the CEO also managed to remove inefficiencies which were initially in the supply chain. For example, cutting down on the number of suppliers forcing them to compete to do business with the company has led to having more competitive suppliers who meet the standards of the company. Also, cutting down on the number of warehouses and minimizing stock at hand has made the supply chain of the company successful. Maintaining less inventory at hand help cut costs of warehouse storage and prevent issues such as the emergence of new technology which could make the old stock reduce in value. The introduction of inventory tracking mechanisms has made sure that the management can at all times monitor and track its inventory to avoid any overstocking or understocking.
Problems with Apple’s Extensive Supply Chain
Reports by the Wall Street Journal have shown that Apple has hit a production snag for the essential components used in the production of new iPhone X. Initially, there were supply chain snags in minor products such as watch which accounts for less revenue of the company. The company is indeed enduring some difficulties in its supply chain, with the production department running out of the crucial components ( West & Mace, 2010 ). There had also been reports of slow sales for iPhone 8 which is a show that the company could be facing difficulties in its logistics and supply chain. Having a problem with the components shows that extensive supply chain could lead to trouble in the supply-partner management. When the chain is too broad, challenges arise in managing and maintaining the supplier partnership. At the same time, extensive supply chain could lead to problems with customer service and satisfaction. The fact that the sales of iPhone 8 were very slow shows that the company never provided the right product at the right time thus leading to low sales.
Conclusion
Apple Company has developed an extensive supply chain management which over the years has proved to be more productive and efficient making the company be rank as the world’s best supply chain management for over three years. By outsourcing its manufacturing to outside countries, the company has been able to minimize on the logistics challenges while at the same time increasing flexibility in case there is a need to launch a new product. A strong supplier relationship, cutting down on the number of suppliers and reducing the number of warehouses has made the supply chain of Apple more efficient and prosperous compared to that of other firms within the same industry.
References
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