This research provides an analysis of Apple Inc.’s supply chain risks and methods used to mitigate the risks. Apple is one of the most popular companies in the world, producing mobile phones, music gadgets, computers, and smart devices. The company is mainly known for its two main products; the iPhone and the Mac computers. Apple controls a market share of 14.5% of all smartphones being used in the world. The iPhone has undergone improvements since its introduction. The latest iPhone being iPhone 11 pro max that was released in 2019. The phone is estimated to cost from $1,099 to $1,449. Another famous phone was the iPhone 7. The supply chain cost of producing and distributing of products has increased from 2010 to 2020 with an annual growth of 15%.
Apple’s Risks in Supply
According to Albertin (2017), it is not possible to fully predict what is going to be the outcome of a future event. Regardless of the analysis approach methods used by a company, there are uncertainties in the future that bring risks. Even though risks are sometimes connected to positive results, they are usually associated with negative results. Most of the times, managers talk about the likelihood of having some negative outcomes, low sales, delayed delivery, etc.
In a review conducted by Lockamy (2017), high-tech companies face many challenges during operation. Lokhande (2014) stated that Apple has been able to manage its global supply chain from the United States by outsourcing manufacturing from Asia while components being sourced from suppliers across the world. By 2014, Apple was well capitalized with a complex ecosystem that produced market-leading consumer devices. However, despite the success in the strategy, the company was 25% below the level it had reached in 2012.
According to Worstall (2014), Apple has changed its economic materials and how it invests in the production process. The company needed its financial muscle to distribute its products. The aluminum casing, for instance, costs the company more than 30 times the $900 worth of electricity (Arthur, 2014).
After the death of Steve Jobs, Cook was left with a company that needed to have a consistent production of new products. However, up to 2014, the company had not been able to launch a new product. Apple Inc. has been a respected company in the tech industry. Between 1998 and 2001, the company launched the iMac computers. The computers were made from bright colors while maintaining the quality of the hardware component. In May 2001, the company announced that it would open its own retail stores to grow its market share by educating its consumers. In October of the same year, the iPod was launched. The portable music system led to the development of iTune, a content selling platform being used till today. From 2007 to 2013, the company’s success has been through the music player that allows Mac, iPhone, Apple, and iPod users to download and use the content.
Apple Supply Chain
Despite the company being termed as the leading tech company in the world, it is being faced with stiff competition from other tech companies. According to Grimes & Sun (2016), about 198 companies and 336 subsidiaries were located in China by 2015. About 48% of the subsidiaries were part of the main components suppliers, while 38.4% were core components suppliers. China has become one of the most significant locations for supplier companies, including Apple Inc. There is an increased shifting of main companies to China as their main source of components. In all 51 US important component companies and 216 subsidiaries supplying Apple, 32.8% of the subsidiaries were in China. Companies that used to supply Apple with major components such as Infineon have been supplying them from China. Robert Bosch, a German semiconductor company, has plants in China, so does the NXP from Dutch. The NXP currently has nine supplier subsidiaries in China. Freescale Semiconductor, another company, supplying products to Apple, is in the process of merging with a Chinese company. ST Microelectronics, a company in Switzerland, has 11 supplier subsidiaries, one of which is located in China. This shows the impact of the Chinese market in the development of geographic competitiveness, forcing some of these companies to merge with some of the leading companies in the tech business.
The pie chart in figure 1 shows that procurement spending of Apple Inc. the graph indicates that about half of the company’s manufacturing facilities are based in China.
Figure 1: Supplier Distribution
Ferrari (2019) added the likelihood of Apple shifting some of its iPhone and other consumer electronics manufacturers in China. The company also requested its major suppliers about the cost implications of 15 to 30 percent of production capacity from China. The research was guided by two hypotheses;
H0: There is no significant risk impact on the supply chain of Apple.
The retail landscape of Apple has disrupted the traditional suppler-retailer relationship since both box stores they are both big suppliers to a big box store. The introduction of content supply chain has been the major innovation as a result of technology. The company have shown a high turnover from introduction of content products. This study therefore rejects the null hypothesis that stated that there was no significant risk on supply chain of Apple.
- What risks has the supply chain of Apple faced?
The Apple Inc’s supply chain system was characterized by high order, multiple loop and nonlinear feedback structure. The company also implement a global supply chain system. The system is complex by the virtual of the way it evolved. Additionally, since the company operates in in a global market place, it does not have the ability to adjust to market oppotunities in a timely manner due to lack of common market conditions. The supply chain share many characteristics concerns regarding the international models. The supply chain system being implemented by Apple is faced with a number of risks:
First, the system lacks adequate understanding of the systems being modeled and a system to validate the models. Secondly, the system lacks the ability to deal with stochastic elements in the modeled system. The fact that the company operates in a global supply chain means that the company may face risks such as environmental changes and variability problems. The characterization model requires the company to develop a supply chain agile.
The emergence of Asian tech giants and produces has increased Apple’s supply chain. Android based products has taken a considerable market share that was taken by Apple. Main companies supplying inventories to Apple Inc. have either merged or moved to China and Korea. The company is therefore facing inventory risks of loosing US companies supplying products to Apple Inc. Apple Company therefore faces the global supply chain inventory risk. The company is now faced with the risk of delays, design for localized markets, combined factors of production and inventory placement risks.
In contrast to the expected innovation in Apple’s business model, the company operates using a physical supply chain. The company operates using a similar model with major electronic companies only that it combines it with the luxury brand pricing and marketing strategy. By 2012, the company’s physical supply chain was relatively similar to other companies in the same industry. As of the case of majority electronics companies, Apple’s manufacturing and assembly is done in a ins South East Asia, mainly in China and shipped to the rest of the world through Europe and American distribution centers. Items are stored in the company’s physical stores in America and Europe until ordered by retailers who the distribute to the end user.
- What are the risk mitigation strategies that Apple utilizes?
It was important for Apple Inc. to have a consistency between customer priorities of supply chain capabilities and competitive advantage strategy. Many companies fail due to lack of strategies that balance between two goals. According to H.A.H. (2018), the company’s products fall under the category of innovative products. Therefore, the company’s CEO decided to change the mission statement to fit the supply chain. Apparently, the current strategy was predominantly responsive instead of being efficient. The strategy was aimed at being flexible to customer demands while the risk of supply shortage or disruption in hedging in inventory and other resources. The company therefore improved the strategy by combining both responsive supply management and hedged supply chains. Moreover, the agility of the company allows it to be responsive to unpredictable, changing and diverse customer demands on the front-end while reducing the back-end risks of supply disruptions.
According to Monroe (2017), tech industries such as Apple Inc. experience shorter product cycles these products are outdated very fast. The supply change is cheractorised by many exchanges that occur in the overall process of planning, sourcing, making and product delivery. As the supply chain moves from the product developers, producers to the consumer, several parties need to be aligned through the supply chain. Apple has been able to develop a supply chain management integration.
The company technically uses the traditional supply chain method. According to Montgomeriea & Roscoe (2013) the company distributes its products through a strict control of product information instant responses to new parts and a requirement of two weeks of parts inventory within a mile of assembly plants, mostly in China. Through this, the company is able to ensure that it launches products withouthaving to incure a lot of inventory cost. Having a contingency plan where products can be slightly tweakedor new components used. Through this, the company is in a position to replace any supply when need arises. However, the efficient based supply chain being used by the company is outdated. The model of outsourcing manufacturing was started in 1980s where companies would exploit countries with low labor and material costs. However, after 2008, the volatility index showed a turning point where the world had a global turbulence in stocks, oil, terrorism and political instability. The phenomenon led to change in the supply chain to end-to-end supply chain. This means that a company such as Apple needed to have suppliers in every supplier in the main market to ensure that it is able to limit transport spikes due to damage or cost to infrastructure.
- What improvements or modifications can be learned from Apple for other organizations to cope with the supply chain risks?
While Apple Inc. has been facing supply chain risks, it has strive to remain relevant as well as reaching to clients across the world on time. Apple has improved its supply chain model by providing patents to stores across the world. Since Apple Inc. is a respected brand all over the world, it required to standardize some of its operations. Apple stores being established across the world are required to be of certain standards. Through stores or outlets, the company has been able to reach out to its customers almost one on one. The stores provide an environment where customers can access Apple products and services faster compared to when the company was centralized.
The ability to move quickly in managing supply chains has become an important concept for many companies in the recent years. In the past, supply chain was characterized by forward flow of materials and backward flow of information. With the increase in demand for new retailing practices, the need for companies to become more competitive was a necessity. Companies currently need to be proactive in developing market opportunities to be able to face uncertainties in the market. Nath, Saha, & Esmail (2017) identified the need for companies to be proactive in using global sourcing strategies in production. However, companies using this strategies are faced with the dilemma of how to balance between limitations of off-show production or balancing the costs in the current production. The main challenge is to meet retailers needs on a timely manner. Supply chain improvement initiatives require a company to be able to reduce uncertainties in the supply chain to facilitate a more upstream demand. However, the ability of a company to be able t reduce the uncertainty depends of the nature of the product for instance a product that is highly fashionable, therefore having an intrinsic value. Therefore, it is more imperative for companies to develop strategies that help them meet the supply and demand. The electronics and high-tech industry such as Apple has require such strategies to stay competitive.
This paper will use Apple Inc. as a case study to understand the supply chain strategies used, risks in the strategies and which strategies can be use to mitigate the risks. Apple provides a unique supply chain method due to competition, increase in product variety, price erosion, new technologies and fast inventory turnovers. Along with the traditional computing hardware business, Apple Inc. has shown great prospects in production and distribution of its other products such as iPod, iPhones, music players etc. At the same time, the company’s growth of the company has defied analysts’ projections. Furthermore, the success of Apple products in iPhone and iPod has led to development of digital content delivery through its iTunes.
Secondly, the company has heavily invested on its online presence. Customers can buy Apple products from the company’s official website. The website provides customers with easy access to Apple products through the internet. With facilitation of electronic money transfers, customers can purchase products online and the packages sent to their locations anywhere in the world. The website has improved supply chain by providing a flexible method of accessing customers without having to install much infrastructure.
H1: There is a significant risk impact (improvements/disruptions) on the supply chain structure of a high-tech company like Apple.
Apple Inc. has been able to maintain its clients through providing high-end products. The company has prioritized profits over market share. The company has decided to focus on being different through producing unique and attractive products to its customers. Besides the company focusing on customer’s willingness to maintain a premium price, Apple has set up an artificial entry barrier to other competitors. The class set by the company through production of a wider range of tech products gives it the competitive advantage during the supply and demand of the products. The consistent production of quality products gives the company a specified supply chain strategy.
Lastly, since the company introduced content supply management, the company has increased its profitability to hardware devices. The first element of supply chain was the internal production of the software and OS for Apple products. The introduction of 2005OSX that operates on Mac computers and iOS for phones and tablets accounted for the company’s half profits. The 2010 OS X accounted for up to 22 percent of the total company’s gross profits by simply integrating multi-channels. Other content supply chain includes the iTunes that provides entertainment content. The company has so far changed its model of work after introducing internet-based products from iTune, iCloud and Apple Store.
Albertin, Y. C. (2017). Supply Chain Risk management:Understanding and Facing the Main Risks on the Supply Chain. International Logistics Journals, 3.
Arthur, C. (2014, November 14). The desperate struggle at the heart of the brutal Apple supply chain. Retrieved from The Guardian: https://www.theguardian.com/technology/2014/nov/14/sapphire-gt-advanced–brutal-apple-supply-chain
Ferrari, B. (2019). Apple Indeed Assessing Some Movement of Production from China. Supply Chain Strategy , 4.
Grimes, S., & Sun, Y. (2016). China’s evolving role in Apple’s global value chain. NUI Galway, 8.
H.A.H., H. (2018). Apple’s Supply Chain Strategy. Commerce and Management Journals, 2.
Lockamy, A. (2017). An examination of external risk factors in Apple Inc.’s supply chain. Supply Chain Forum: An International Journal, 2.
Lockamy, A. (2017). An examination of external risk factors in Apple Inc.’s supply chain. Supply Chain Forum: An International Journal, 4.
Lokhande, V. (2014). APPLE INC.: MANAGING A GLOBAL SUPPLY CHAIN. Richard Ivey School of Business Foundation, 2.
Lu, C. (2020). Apple Supply Chain – The Best Supply Chain in the World. Supply Chain Journals , 3.
Monroe, R. (2017). Addressing Supply Chain Risks through Agile Strategies. Conference: Southeast DSI (p. 3). North Carolina: Coastal Carolina University.
Montgomeriea, J., & Roscoe, S. (2013). Owning the consumer—Getting to the core of the Apple business model. Elservier Journals, 5.
Nath, A., Saha, P., & Esmail, S. (2017). Transforming Supply Chains in Digital Content Delivery:. Industrial Marketing & E-Commerce Research Group, 4.
Worstall, T. (2014, May 07). Explaining The Economics Of Apple’s Sapphire Supply Chain. Retrieved from Forbes: https://www.forbes.com/sites/timworstall/2014/05/07/explaining-the-economics-of-apples-sapphire-supply-chain/?sh=417ca2075468