Apple Supply Chain

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For Apple it is a strategic decision to keep control over SC by signing exclusivity agreements with key suppliers in order to manage a close ecosystem for negotiating large discounts as well as enjoy access to flexible manufacturing volume in cases of high demand, which saves on other SC costs (Mark, 2014).

Secondly, it allows Apple to demand better quality or more services (Porter, 1980), in fact, updates have been continually sent to suppliers to adjust their production schedules in response to demand forecasts (Mark, 2014). Due its dynamic capabilities (Teece, 1997), this power along the SC allows Apple to create one that can proactively address any market change (Valdani, 2014). In fact, the Apple supplier Foxconn was known for waking up its workers during the night. Apple’s SC is nurtured by a combination of competition and cooperation, explained by the Game Theory (Willmann, 2014) in which is it possible to achieve targets with a cooperative network. A just-in-time SC is an incredible tool that serves the iPhone’s one-year life cycle, allowing it to go to the market faster than would be the case for competitors and with effective cost control management. Being faster than competitors is an overall competitive advantage when it comes to the delivery of new products during critical sales periods. To achieve this aim Apple has invested over 50 billion$ in air freight, which has shut out rivals and avoided backlogs. Furthermore, Apple has cut its costs by having its products delivered directly from its Chinese suppliers to customers (Mark, 2014). Another key success factor of the Apple SC is the reverse logistic system, which ensures excellent customer satisfaction experience and effective cost management (Mark, 2014). In cases involving of defective devices, Apple allows customers to enter data on its website. Identifying the purchase with a serial number, Apple gives instructions within half a day about how to return the product, and within 48 hours the customer receives a pre-addressed box with an assigned courier to pick up the product from the customer (Mark, 2014). Apple competes on dimension rather than price, such as product features, support services, delivery time and brand image, which enhance customer value, and allow the company to charge higher prices and impose barriers for new entrants (Porter, 1980). Another key factor success is Apple’s retail strategy. It has 426 retail stores, located in high traffic locations, in order to engage people and create a memorable buying experience (Pine, 1998). A centralized information system allows through the stores to monitor the products sold and this information is used to make production forecasts (Mark, 2014).

The technology industry structure has time bound-product life cycles, strong investments in R&D, competition based on dimension, added value services; structural changes are therefore possible, and for small competitors and new entrants these changes offer great opportunities (Porter, 1980). To sustain its competitive advantage in this industry and improve its SC, Apple continues to invest in machines to ensure products are made more quickly and cost effectively (Mark, 2014). Apple’s huge investments in R&D and diversified product development (e.g. the iWatch) have important implications for its SC. As new products require new components and machines, there is the possibility that the supplier may not be expert with an innovative part or material or may not responsive as Apple’s SC needs to be. This could create delays in the production, increasing the costs and affecting the reputation of Apple. The development of training programmes for suppliers before introducing new products or machines could deal with any lack of experience that suppliers may have regarding innovative components, which would cause delays in production and increase the costs to Apple. Many companies have used training and development programmes to enhance the skills needed from their suppliers for future products or services, which have had positive effects on cost management. For example, McDonald’s has developed programmes targeted at suppliers to enhance the quality of its services and to improve internal cost efficiency (Mahajan, 2014).

A second challenge that could impact the Apple’s SC is whether, during an increase in demand, a single manufacturer would be able to manage a significant spike in orders from the company and to deadline. A single supplier of components ensures control and flexibility in normal situations. If Apple could have more than one supplier for its components to satisfy increased demand, then spreading purchases amongst a wider supplier base could help enhance the level of quality through a competition between suppliers, thereby increasing the bargaining power of the company (Porter 1980) and leading on positive effects on quality and service. Furthermore, in the case of a peak of production or other unexpected scenarios, Apple would be able to manage risk more effectively.

Since 2001 the wages have been increasing in China by 12% per year (Jiaxing, 2015) which is an issue that Apple ought to consider if it wishes to continue managing its cost effectively. There is also a reputational issue which could impact Apple’s SC; in fact, numerous strikes and disputes have recently indicated that the time has come for the Chinese workers to reclaim their rights (Jiaxing, 2015). Apple has to consider the opportunity to develop ethical agreements when selecting suppliers. It has to be understood that what happens at Foxconn is effectively happening at Apple. If Foxconn does not have ethical and sustainable processes, the reputational damage caused by Foxconn’s policies will also affect Apple and with far greater repercussions. Indeed, Apple would do well to remember Nike’s experience in relation to the unfair labour practices of its suppliers. The development of a sustainability culture at company level should be transferred across the whole SC given that Apple is the dominant partner (Centinkaja, 2011). Working on the development of a sustainability culture within the framework of cooperation represents an investment in reputation. On the one hand, this will ensure that sustainable practices permeate the SC with regard to the environment as well as ethical labour practices. On the other hand, it will ensure that suppliers respect the need for secrecy, building awareness that its success belongs to the entire network. In addition, this will generate added value in the eyes of consumer. In fact another challenge for Apple is concerned with secrecy. According to Penrose (1959), “the firm is not an island”; in other words, when the competitiveness is based on the integration of the SC and when for every part or component has different suppliers, the secrecy is an important challenge for Apple.