Nyamweya is a Kenyan scholar who has done many years of research on a diversity of topics
Background information of the company
Apple Inc. is a multinational technology company which is involved in the manufacturing and marketing of various electronic products. The range of products includes consumer electronics, provision of online services and computer services. This company is regarded as one of the Big tech companies alongside Google, Facebook, Microsoft and Amazon. This firm’s hardware products include the iPhone smartphone, the Mac computer, iPadtablet computer, Apple Smartwatch, the iPod portable media player, the HomePod smart speaker, the AirPodswireless earbuds. The range of software developed by Apple include the iTunesmedia player, macOS, watchOS, iOS, the Shazam music identifier, the Safari web browser, and the iwork and iLife productivity and creativity suites. Apple is also associated with professional applications which include Final Cut Pro, Xcode and Logic Pro. The company’s online services include the iOS App, the iTunes Store, Apple Music, Mac App Store, Apple TV and iCloud. Other services include Apple Card, Apple Pay Cash, Genius Bar and Apple Pay (Ritholtz, 2017).
In Australia, Apple iphone’s product has continued to maintain a stronghold on the smart phone market despite some remarkable challenges. For instance, a market survey by the market company Telsyte established that almost half of all smartphones (44.7%) that were bought in Australia in 2017 were Apple iPhones. This puts it a head of other popular brands in the country including Samsung, Huawei and OPPO (9to5mac.com, 2019). The various brands such as iPhone X, iPhone 8, iPhone 7 and 8 Plus are the biggest selling models in the country. Most of the iPhones products are very expensive due to the quality and features, and so most of the customers are the elite type and those willing to invest for a product with a longer cycle. There are also a group of customers who fancy new trends and technological innovations and since Apple keeps launching new products, such customers have come to be inclined towards it (Fernyhough, 2018).
Across Australia and New Zealand, Apple boasts of approximately 4,000 staff. The company is administered from Sydney, New South Wales where its head office is located. The company also operates several retail outlets in South Australia, Western Australia, New South Wales, Victoria and Queensland. According to Chanthadavong (2020), Apple Australia recorded a gross profit of AU$966 million during the 2019 financial year, leading to payment of a total income tax of AU$120 million. During the same year, the total revenue is also said to be higher at AU$9.4 billion compared to AU$9.09 the company realized in 2018
Raw Materials Used to Make iPhones
According to Moneycontrol.com, 38.5 percent of iPhone is made of iron and alumiun. The report reveals that an iPhone 6 16 GB variant is basically made out of four materials. They include Aluminium (31.1gm), Nickel, Chrome, Copper, Hydrogen, and Cobalt in varying degrees. Other materials that are used to make the phone include Gold, Tingsten, Tin, Gallium and other rare earth materials. Alongside the raw materials, the high cost of the end product is associated with the cost of manufacturing, testing, labor, marketing, logistics, taxes and shipping. Adding to these is the cost of Apple’s unique and proprietary operating system, iOS which makes the cost to go high (Moneycontrol.com, 2017).
2. Apple’s supply chain structure
Figure 1.1 Apple’s Supply Chain Structure: Source: supplychain247.com
Since 2013, Apple has been top of Gartner’s Supply Chain list of top 25 supply chain. Its supply chain management is touted as one of the best in the world. The company also has a better inventory management system compared to competitors such as Motorola, Blackberr, and even Dell. In a nutshell, Apple buys materials and components from different suppliers, after which they get shipped to the manufacturing factories in China (Hettiarachchi, 2016). The products produced in these factories are then directly shipped to consumers and markets in different parts of the world. Apple has also a local and global online store where customers can make orders and purchases directly. Apple also uses local distributors and retail stores in marketing their products. Accordingly, the firm maintains a central warehouse and call centers where items are shipped from to these local distributors and retail stores. When a products life cycle ends, customers are allowed to return the products to the nearest designated recycling facilities or Apple stores. Currently the firm is dealing with 154 main suppliers. The low number of supplier is a strategy that the company employs in facilitating better supplier relationship. In every country including Australia, Apple keeps only one central warehouse which is used to supply the rest of the company owned stores. What is more, since 2011, Apple has maintained a policy of not rushing selling of its products after being launched. After promoting and announcing the launch of a specific product, the official sales at the shops will begin the second day whether or not the customers are on the queues. This measure is maintained as a way of ensuring a smooth running of inventory tracking as well as ensuring no errors that could culminate in inventory inaccuracies. The strategy is also regarded highly by the company since it helps in avoiding keeping excess inventory as well as foreseeing sales levels as accurately as possible, particularly when new products quickly overshadow the old ones (Lu, 2020).
Apple’s current system of sourcing materials and services, producing goods/services
The sourcing process at Apple is designed to ensure fair and equal treatment of suppliers which allows participation in a competitive procurement process. Suppliers wishing to participate in the procurement process are required to register through the company’s Prospective Supplier Portal. The portal is a secure online database which the company has solely dedicated for potential suppliers wishing to join to the procurement process. Apple has specifically designed this procurement portal for the purpose of enabling the firm’s procurement officers in accessing essential information pertaining to the potential supplies which includes their strengths, service/product descriptions, diversity certifications, contact information and industry classification codes (Apple Inc, 2020).
A supplier desiring to do business with the company has to register the company’s details on Apple’s prospective supplier portal. In the event a need a rises for the type of services or products provided by the potential firm, Apple procurement personnel then makes a contact to the prospective supplier for the purpose of evaluating the company’s capabilities as well as a discussion on the upcoming potential opportunities. However, in case there is no available supply opportunity at the moment, the information submitted by the prospective company then remains in the portal for up to six months. Nonetheless, all sourcing and purchases by Apple are made in a competitive marketplace. This implies that a potential supplier which has been registered at Apple’s Prospective Supplier Portal does not automatically get considered on the “bidders list” nor does it imply approval as an Apple Supplier. Further, this registration does not give Apple any obligation to solicit requests for quotations (Apple Inc, 2020).
This system of sourcing has ensured that Apple has access to diverse and multiple suppliers who are able to meet their demands and obligations as and when required. In other words, it also means that the company wishes to maintain a higher supplier bargaining power as compared to the rivals for the purpose of controlling production costs. For example, Foxconn, a Taiwan company which is a well-known supplier for Apple has a capability of producing thousands of iphones each day with a relatively low cost of production. Pegatron is also another Taiwan company that supplies Apple with specific iphone versions. Furthermore, the scale of suppliers for Apple keeps on growing on a regular basis (Rowland, 2019).
Despite a fair share of success portrayed by Apple’s current sourcing system, it is possible that the strategy can still be improved to make the company even more effective and efficient. Though effective outsourcing facilitates specialization and labor reallocation, there are potential risks for a company dealing with many suppliers. For instance, labor problems that happened in China including dangerous working environment, excessive overtime, and low wages could disrupt the company operations. Instead of looking for low cost suppliers, Apple need to learn on developing a long time working partnership with a supplier by ensuring that they are well paid and in turn make the working environment for employers safe. Stated differently, Apple’s practice of sourcing for low cost suppliers has a potential for high switching costs. This is because the suppliers are always looking for companies with that pay well. This means that Apple has to incur extra switching costs by moving from one supplier to another (Anca, 2019).
The transportation and distribution system of APPLEs main customer
According to statistical data from CSI market, Apple targets a variety of key consumers, with online retail giant Amazon being its major consumer. Like other colossal businesses such as Facebook and Google, Amazon employs a highly complex logistics structure that ensures safety, reliability and competency. The company’s distribution system features an elaborate and efficient design, which involves a score of distribution centers, trucks and logistics and supply chain experts. This efficient distribution strategy is made possible by the strategic approach to locations and stock levels. Ideally, Amazon is moving more distribution centers, particularly warehouses closer to metropolitan areas. This pure push warehousing stratagem is essential, considering it allows the company to infer future predictions in a given location (CSI market, 2020).
As for the commodity transportation part, the enterprise utilizes an array of transportation modes to deliver Apple products to different regions. Amazon makes use of proprietary planes that take flight from 20 different airports in the U.S and other countries like Australia. The company might also employ third-party delivery services to meet the needs of prime customers through household delivery companies like FedEx, UPS and the U.S postal service. Trucks are also a prevalent transportation mode that this enterprise uses to ensure punctual product delivery.What’s more, Amazon offers a commodity tracking service, which aides customers keep an accurate track of their product’s location (Snapp, 2017).
Demand Management and Inventory System at APPLE
Statistically, the demand for a newly launched Apple product presently stands at a7.2% increase per month. The trend and demand level shows display an increase over four consecutive months. Essentially, this translates to nearly 5 million of Apple product units sold over the mentioned period. The three significant factors that affect iPhone demand are forecasting demand, Apple's perfectionism, and component shortages. Apple has devised a successful ingenuity to facilitate an effective demand management strategy, which involves the use of an excellent inventory system alongside expertly competent market forecasters. However, this rather unorthodox demand management strategy doesn’t require predictions to be regularly correct. This is so because the company has a mass of customers waiting in line for yet to be launched products (Kaur and Arora, 2015).
In retrospect, Apple uses a FIFO (First in First Out) inventory system. The strategy surely comes with several benefits, including ease of application and utmost security. The system does not support any manipulation of income while the assumed flow of costs corresponds with the normal physical flow of goods. Moreover, the balance sheet cost for inventory is plausibly to equal the present market (Sembiring et al., 2020).
From this review, there is no doubt that Apple’s supply chain is a unique one and the strategy has enabled it to excel beyond its peers. Its online supplier management portals ensure that it has access to an array of suppliers with the necessary details pertaining to resource capability at the lowest possible price. This way, the company is not only able to have a higher supply bargaining power but also control the cost of operation and thus make reasonable profit in the long run. Likewise, it is also noted that APPLE has benefited from one of its biggest customer, Amazon, who has vast resources and capabilities in transporting and retailing its products in different parts of the world.
Apple Inc. (2020). Apple and Procurement. Available at: https://www.apple.com/procurement/ (accessed on 8th, September, 2020).
Anca, V. (2019). Logistics and supply chain management: an overview. Studies in Business and Economics, 14(2)/, 209 - DOI 10.2478/sbe-2019-0035
CSI market. (2020). Internet, Mail Order & Online Shops Industry Growth retrieved from https://csimarket.com/Industry/Industry_Growth.php?ind=1302 (Accessed at 8 September, 2020).
Chanthadavong, A. (2020). Apple Australia sees increased revenue, profit, and income tax. Available at: https://www.zdnet.com/article/apple-australia-sees-increased-revenue-profit-and-income-tax/ (accessed on 8th September, 2020).
Hettiarachchi, H. (2016). Apple’s Supply Chain Strategy. University of Kelaniya: DOI: 10.13140/RG.2.2.32075.49448
Fernyhough, J. (2018). Apple’s unique stranglehold on Aussie smartphone market continues. Available at: https://thenewdaily.com.au/finance/finance-news/2018/02/20/apple-iphone-popularity-australia/ accessed on 8th, September, 2020. Rowland, C. (2019). Apple Inc.Operations Management: 10 Decisions, productivity. Available at: http://panmore.com/apple-inc-operations-management-10-decisions-areas-productivity (accessed on 16th, September, 2020)
Ritholtz, B. (2017). "The Big Four of Technology". Bloomberg Available at: https://www.bloomberg.com/opinion/articles/2017-10-31/the-big-four-of-technology (accessed on 8th September, 2020).
Lu, C. (2020). Apple Supply Chain - The Best Supply Chain in the World. Available at: https://www.tradegecko.com/blog/supply-chain-management/apple-the-best-supply-chain-in-the-world (accessed on 8th september, 2020)
Kaur,S and, Arora, S. (2015). Case Study of Supply Chain Management. International Journal Of Business Management, 2(1), Available at www.ijbm.co.in
Moneycontrol.com. (2017). DATA STORY: An iPhone costs hundreds of dollars but its raw material costs just over $1. Available at: https://www.moneycontrol.com/news/business/companies/data-story-it-takes-hundreds-of-dollars-to-buy-an-iphone-but-just-over-a-dollar-to-make-one-2365065.html
Snapp. S. (2017). How To Best Understand Amazon Transportation Services. Accessed at: https://www.brightworkresearch.com/fourthpartylogistics/2017/01/best-understand-amazon-transportation-services/ (Accessed on 8 September, 2020)
9to5mac.com. (2019). Despite higher profits, Apples tax bill in Australia was down in 2018. Available at: https://9to5mac.com/2019/01/25/apple-profits-australia/ (accessed on 16th September, 2020).
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.