Apple's Suicide Factory Outsourcing - Case Study Example

?Introduction Apple Inc. was established in 1976 in Cupertino, California. Apple Inc. is a multinational company, which designs, makes and sells widerange of electronic items and computer software. The products which are produced and sold by the company include; Macintosh personal computers, Apple TV, iPads, iPods and iPhones. Furthermore, Apple Inc. design and develop various software. The software is Mac Os X, Mac Os X Lion and iLife software package. It also produces and sells electronic accessories such as portable digital music players, storage devices, speakers, printers and headphones. Other services produced and sold by the company include third-party application software and digital as well as networking solutions. The company has outsourced most of its manufacturing to China, Singapore, and Taiwan to reduce cost of production and concentrate in its core business of developing high end software. Apple Inc. has a wide spread global distribution network terminals in every continent. Company’s products are sold through online stores, retail stores, direct sales force and dealers. There are three hundred and thirty two Apple Inc. stores in the United States of America, United Kingdom, France, Australia, Canada, China, Japan, Italy, Germany, The Netherlands, Switzerland and Spain. The supply chain management at Apple Inc Supply chain management involves setting up of objectives, designing and implementing strategies to achieve the objectives as well as monitoring and evaluating all the processes and activities. The activities in the supply chain include but not limited to material sourcing and procurement, conversion of raw materials, collaboration between the company and channel partners; transportation of raw materials from producers to factory and transportation of finished products from the factory to the consumers. An effective supply chain achieves high sales and profits. Apple Inc. is company to reckon. This is because it has the most reliable and profitable supply chain. The supply chain meets customers’ needs on time. Furthermore, in its manufacturing process it delays competitors’ products from reaching the market. Goldman (2011) revealed that competitors of the company are being delayed from manufacturing their products because Apple Inc. contracted the world largest suppliers, who give Apple Inc. products a priority. This makes the company confident in its supply. The type of Apple’s Inc. supply chain is the dominant company. The company practice vertical integration in its manufacturing process, which enables the company to outsource several of its components. However, the company controls the software, hardware and processors. Apple Inc. uses it large size and vast resources to obtain deals with component producers and makes sure that the company’s component are made available to the company at all times. Furthermore, in its supply chain, Apple Inc. sells few products. However, it sells many other common parts to all its gadgets. This makes Apple Inc. supply chain the most perfected. In Singapore, Samsung makes central processing units, video processing chips while Infineon makes baseband communication gadgets. In Taiwan, there are six companies. Foxconn International manufactures internal circuitry; Primax Electronics makes digital camera modules; Umicron Technology produces printed circuit boards; Entery Industrial makes connectors; Cambridge Silicon makes Bluetooth chipsets, and Catcher Technology makes stainless metal casings. Figure 1: Apple’s Supply Chain Map Apple Supply Chain Singapore Taiwan United States China Source: Abilla (2007) In the United States of America, Broadcomm produces touch screen controllers and Marvell manufactures 802.11 specific parts. Apple Shenzhen in China assembles all hardware, package the readymade and store products as they await dispatch to various global markets. Make-buy decisions at Apple Inc The company outsources about 70 percent of its hardware components to other companies. There are a number of factors that dictate whether Apple Inc. purchases services or products from suppliers or not. One of the most important factors is cost of production. The company is conscious of its cost of production. This is because high cost of production dilutes value in the supply chain. Therefore, the company decided to contract companies in Asia because labour rate in Asia is lower than in Western nations. The company outsource products from Samsung and Infineon in Singapore, Foxconn International, Primax Electronics, Umicron Technology, Entery Industrial, Catcher Technology and Cambridge Silicon in Taiwan; and Foxcomm and Apple Shenzhen in China. Apple’s iPad and iPhone are made by largest electronic components maker Foxcomm. Foxcomm is building a new production plant in Chengdu, a location where workers are many and wage rate is lower. In China, the workers are paid about $0.51 per hour. It is predicted that if the products are made by Americans, low –end iPad that sells for $499 could have been sold at $14970 (Gewirtz 2010). Furthermore, the decision of Apple Inc. to close Bangalore plant was driven by cost factor. According to New Word City (2010), when Cook (Chief operating officer) took over the management of company’s operations, he advised the company to shut down all factories and warehouses around the world and outsource part of its manufacturing process to contract suppliers. Consequently, inventory cost reduced significantly. This enabled the company to attain 36.3 percent gross profit margin, which was double than that of its competitor Dell. The second factor why the company decided to outsource some of its products is to improve the turnaround time. There are many customers of Apple Inc. products and a single company will not be able to satisfy the market. Therefore, the company outsources its manufacturing processes to specialized vendors to meet the needs of the growing number of customers. This enables the company to use its in-house resources productively by freeing large pool of its core staff to concentrate on core business. Thirdly, the company do not out source its core business because it gives them competitive edge in the market. In essence, Apple does not outsource product development, high-end software development and all its research and development activities as well as the manufacture of 802.11 specific parts. The company also focuses internal resources on its disk operating system and the supporting macro software. The above activities and products are produced in its headquarters at Cupertino, California. The fourth factor is competition. The company has strategically outsourced its manufacturing components to largest electronic producers such as Foxcomm and Samsung to delay the manufacturing process of its rivals. Fifth, the company intends to utilize expertise of other companies. Bennett (2009) attests that Apple Inc. has outsourced all product delivery and activities of order fulfilment to Skyway Logistical Company. The company takes advantage of logistical expertise of Skyway Logistical Company. Sourcing strategies and supply chain configurations Apple Inc. intends to position itself as the best company in the world. Therefore, it has made deliberate efforts to attain this objective. First, the company has set up supplier diversity program. The supplier diversity program was meant to source and procure raw materials, products and services on timely basis. The program was developed with inclusiveness in mind where all suppliers are treated equally and fairly. The program facilitates swift screening and verification of potential suppliers to confirm their strengths and capabilities. All current suppliers and potential are registered with company’s Supplier Information Database (SID). Through SID, procurement professionals scrutinize key information on supplier certification, services or product descriptions, contact information as well as Universal Standard Products and Service Classification codes to ensure that data about them is correct and useful to the company. According to Foehner (2011), Apple Inc. does keen analysis, internal collaboration and intelligence. This is aimed at reducing risks and costs of the procurement process. Furthermore, the company has developed an ethics and codes of conduct, which all suppliers must comply with before being awarded a tender to supply Apple Inc. Strategic supplier selection First, the company targets large manufactures to curtail the manufacturing processes of their competitors. Secondly, the company concentrated outsourcing to few countries. For example, Taiwan supplies major components of the hardware. This is strategic approach by the company to concentrate outsourcing most of its components in one country to ease coordination and reduce transportation costs. However, if there is political, economic or social unrest in Taiwan, Apple may lose it big time (Abilla 2007). Fourth, to ensure that the contracted suppliers meet their obligations to supply products and services, the company bind suppliers through enforceable agreements. The agreements assure the company of supplies for a specific period. For example, in 2005 Apple signed one billion dollar agreement with Samsung to secure iPod’s NAND flash memory. The Korean company focused on iPhone production at the expense at supply to other companies. Aligning supply with corporate strategy Apple inc. has always supplied superior products. The company delivers strong few products and has created an Apple culture. This is done through Apple Inc. stores that are strictly designed for apple products only. The few products that the company has produced can be placed and used in the living room, pockets and offices. Through its stores, Apple Inc. has generated excellent customer loyalty. In addition, the products of apple complement each other. This has enabled the company to have total control over the process of the user. Furthermore, the company educate its users by visiting schools and converting classrooms into display rooms. This enables the company to capture young adult market early ahead of their competitors. The company has been consistent in the utilization of identical basic architecture. This makes the customers aware of the type of products they wish to buy before they purchase them based on previous experience. This makes it easier for customers to adapt new hardware. References Abilla, P. (2007) The Apple iPhone Supply Chain [Online]. Available at: http://www.shmula.com/the-apple-iphone-supply-chain/304/ (Accessed: 31 July 2011). Bennett, A. G. (2009). The Big Book of Marketing. London: McGraw-Hill Professional Foehner, K. (2011) What's Apple's Big Deal?,[Online]. Available at: http://www.scmtimes.com/procurement/3049-what-s-apple-s-big-deal.html?p=2 (Accessed: 31 July 2011). Gewirtz, D. (2010) Is Apple's suicide factory outsourcing to even cheaper Chinese peasants? [Online]. Available at: http://www.zdnet.com/blog/government/is-apples-suicide-factory-outsourcing-to-even-cheaper-chinese-peasants/9537 (Accessed: 31 July 2011). Goldman, D. (2011) How Apple blocks its competition [Online]. Available at: http://money.cnn.com/2011/04/22/technology/apple_supply_chain/index.htm(Accessed: 31 July 2011). Hoffmann, K. (2011) Apple’s Revenue May Grow 50% Through 2012 on Mobile Boom [Online]. Available at: http://www.bloomberg.com/news/2011-03-24/apple-50-sales-growth-may-continue-through-2012-on-mobile-boom.html (Accessed: 31 July 2011). New Word City (2010) How Steve Jobs Saved Apple. New York: New Word City, Inc. Read More