Apple supply-chain secret

Assignment Help Operation Management

Reference no: EM132277310

OSCM in the News: Apple’s Supply-Chain Secret?

Businessweek (Nov.4-10, 2011) describes the “world of manufacturing, procurement, and logistics ” in which Apple excels.“Apple has built a closed ecosystem where it exerts control over nearly every piece of the supply chain, from design to retail store”, writes the magazine. “The iPhone maker spends lavishly on all stages of the manufacturing process, giving it a huge operations advantage”.

This is a great article which describes the critical role of OSCM in one of world’s most favorite companies. “Operations expertise is as big an asset for Apple as product innovation or marketing”, says the former head of SCM at HP. With its volume –and ruthlessness–Apple gets big discounts on parts, manufacturing, capacity, and air freight. This enables the company to handle massive product launches without maintaining huge inventories, all the while earning 25% profit margins.

As one example of details in the supply chain, Apple bought up all the available holiday air freight space to ensure its new translucent blue iMacs would be widely available before Christmas–paying $50 million to do so. The move handicapped Compaq when it later wanted to book air transport. Apple also decided to fly iPods directly from Chinese factories to consumer homes, allowing the buyer to track the phone’s progress around the world on its web site.

The company recently announced it plans to double capital expenditures on its supply chain to $7.1 billion next year, while committing $2.4 billion in prepayments to key suppliers. The tactic ensures availability and low prices. Because it locked up all available screens to use in its iPhone4 debut last year, competitors like HTC couldn’t buy the screens it needed.

While life as an Apple supplier may be lucrative because of volumes, Apple does squeeze prices to the bone, and may require suppliers to keep 2 weeks of inventory within a mile of Asian assembly plants.

Follow-up questions for the Apple Case

1. Of the four different types of supply chain strategies we have learned, what is the type of supply chain strategy for Apple’s iPhone supply chain? Of the two basic supply chain functions, physical and market mediation, which one is Apple’s strategic focus? Please justify your answers.

2. What is Apple’s choice of transportation mode? Do you agree with their choice? Why? How does Apple’s logistics strategy contribution to the success of Apple?

3. How would you describe the type of product for iphone (functional vs. innovative)? Please explain why.

Reference no: EM132277310

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