Apples Supply Chain - Essay Example

Apple’s Supply Chain Question1: Apple’s Supply Chain Apple Inc. is an American Multinational Technology Company which has its headquarters in Cupertino California. It was founded in April 6, 1976 by Steve Jobs, Steve Wozniak, and Ronald Wayne. Supply chain is an arrangement of people, organisation, activities and resources, information associated with the movement of a product or service from supplier to consumer. Supply chain of Apple’s I-Phone was international, holding together a research and development base in the United States with 156 suppliers, assembly operations and retail stores operating in China (Hendericks, Singhal, 2011). Advantages and Disadvantages New Product Development Traditionally, the product lifecycle of a good is a lengthy procedure. It consists of various steps from introduction, maturation, advancement and decline. However, the product development procedure of Apple’s supply chain management has been kept short. The department of the product development of Apple’s I- phone production integrated a large variety of stakeholders, which includes hardware, software and production. It had so happened once that the senior member of the company had joined the production team to assure that the production takes place in volumes. Apple prefers the involvement of internal body in the production cycle rather than inclusion of any third party. This is an important strategy of the company where it can grab the control on the supply chain completely. However, companies like Samsung, invites the third party service provider in their manufacturing department (Wang, Sarkis, 2012). Apple’s supply chain management is under strict surveillance. The production and management of the product is checked at every point by the designers and the authorities. The designers of Apple’s I-Phone work closely with their suppliers so that they can control them. They work with the suppliers and the manufacturers all through the production procedure so that they can have a close look at every minute detail of the goods. On the other hand, some electronics manufacturers deploy the entire industrial process of the supply chain into the hands of the third party service provider like Solectron or Flextronics (Nahmias and Olsen, 2015). One of the distinguishing features of Apple Inc. is that it invests huge sum of money in the creativity and design of its I-phone. They make sure that they have acquired licenses and made acquisitions of technology firms beforehand so that they can use their products in its series of goods and services. They also supervise market research and conducts product-testing to upgrade their products with the aim of achieving higher profit. Quality defects of the items are identified and plans are sketched out to minimize the danger of quality degradation. Apple Inc. stands first when it comes to branding. So to maintain its uniqueness, it spends massively in its Research and Development (Satariano, Burrows, 2011). Since it focuses solely on the innovation of its products, it misses out with increasing the number of features in its devices. Dell has a number of configurations in its devices whereas, Apple Inc. lacks some. However, it has been observed that it is a desperate strategy made by Apple so that its supply chain process gets accumulated (Gattorna, 2003). Apple’s business procedure is very much unified and integrated. It has a centralised R&D and profit and loss accountability system for the whole company. Procurement One of the striking features of the company is its procurement strategy. A single manufacturer is the source of key components of Apple’s products. Since most of the mobile phone firms use similar key parts and components from a famous and sole supplier, their demand increased rapidly resulting in the shortage of a good supplier. To overcome this shortage issue, Apple Inc. procures the capacity of the supplier in advance. This checks the constant flow of its key parts. Its closed ecosystem strategy helps it to settle with large discounts on the main component in the event of high demand. In addition to this, Apple’s procurement program allowed it to purchase capitals and equipments with the aim of exchanging supply assurance and accomplishing its cost targets (Brigham and Ehrhardt, 2005). Apple was investing in capital equipments and it expected a decrease in the manufacturing of materials and cost of the suppliers. It was also expected that the suppliers’ plant inventory would be situated near the assembly plants. However, the cost of carrying parts was borne by the suppliers, as Apple Inc. expanded its payables to almost three months after they were used (Carter, Rogers and Choi, 2015). Unlike Apple, the Electronics Industry follows the traditional procedure. They tried to settle down to the minimum possible combination of volume and price commitments for each order (Rhee, et al., 2010). Sometimes, suppliers avoid taking orders from Apple Inc. as they know that their bargaining strategy reduce their profits. They also get worried that Apple’s emphasis on committed capacity and minimum prices would create a negative impact on sales to other consumers. Product Assembly Huge advantage that Apple Inc. had is in the form of a subcontractor Foxconn in China. It has been observed that the ultimate assembly of the iPhone 5 took place under Foxconn. Even Apple’s component manufacturer Fextronics arranged for additional workers temporarily to fix camera on an item. Though sufficient aid was provided by the Foxconn and Flextronics, Apple’s just-in-time policy of the supply chain management make the suppliers overburdened with responsibility and delays in component had an adverse impact on the projections of Apple’s inventory (Christopher, 2013). Another advantage that Apple Inc. had was that the global suppliers also arranged for cheap engineers in a very short time. This was a very distinctive strategy applied by Apple Inc. which made it different from other companies. However, it was becoming difficult for Foxconn to manage an enormous work force and maintain a strict schedule. Hence, Foxconn had to shut down its factories in Taiwan and China in 2012 (Gupta and Jones, 2014). Also, any kind of natural or man-made disaster could stop the supply chain of the firm which would badly affect its supply. Logistics Apple’s uniqueness was visible by the fact that their logistic system is reversed. Managing reverse logistic system accelerated its success rate both at cost level and at customer servicing level. It made easier for the customers to make complain of the defects in their gadgets. The procedure allowed customers to enter information regarding the defect on the company’s website, add the item’s serial number so that the company can identify the details of the purchase. Then, the company would update customers about how the products were undergoing improvements with quick and easy parcel delivery. This feature enhanced customer relationship with the company. The logistics strategy was even expanded to covering the devices in plain boxes so that each unit got accounted for. This procedure involved secrecy to avoid leaks about the new product (Kumar, Teichman and Timpernagel, 2012). None of the competitors of Apple Inc. apply such policies in their production process. Usually, a consumer had to return the defective item with a receipt and item would return back to the store, a refund would be issued; the item would be kept until it could be handed over to the manufacturer. This was a time consuming procedure (Contractor, Kumar and Dhanaraj, 2015). Retail Experience Apple had a huge market spreading across 16 countries in 424 stores. Even online Apple stores were accessible in 39 countries. It operates its own stores in high populated locations in malls and shopping destinations. The stores employed highly skilled personnel who could give advice, training and service. It also monitored sales of the product hour by hour for better forecasting of the production on a regular basis. The company also focused on reselling the sales by merchandising goods, establishing soaring quality Apple fixtures within chosen third party reseller site (Westervelt, 2011). One of the striking features of Apple’s supply chain is it controls the supply of its main components with strict agreements to protect its singularity. Sometimes, it even used to invest to manufacture these exclusive components. Product launches also required a lot of time and a load of tasks needed to be completed before the launch could take place (Hendricks and Singhal, 2011). As a result, workers of the factory work overtime to manufacture the new device and then after the launch to clear out the inventory. This strategy was exclusive to Apple Inc. since it was proposed by Steve Jobs. Amongst all its features, the issues that it faced was that the labours of the company were overburdened and the company’s labour policy were not followed. Labours worked overtime without an increase in their salary (Satariano and Burrows, 2011). Extreme situation arose at Faxconn when the working conditions deteriorated rapidly. Some of the customers showed consciousness towards overburdened workers, thereby affecting the sales of i-Phone ((Gereffi and Lee, 2012). Question 2: Future Challenges Apple’s supply chain management has been claimed number one in the business world. However, there lies a list of future challenges which need to be checked for maintaining and improving success rate. Some of these challenges have been discussed in this report. Since the sales of i-Phone has been increasing along with rising demands, the designer heads are planning to implement artificial mechanisation by using robots in the future. They believe that trying out robots will help them to cut the manufacturing costs. However, human creativity cannot be replaced by artificial technology (Storey, et al., 2006). It is evident from the past that taking the help of robots have created the problem of unemployment in countries like America. This will surely abrupt the smooth functioning of the supply chain (Nahmias and Olsen, 2015). One of the reasons for the successes of supply chain of the company is recruitment of talent from Asian countries. The strategy was also undertaken with the aim of competing with the newly produced mobile phones coming out in the market from China and Taiwan (Contractor, Kumar and Dhanaraj, 2015). While the strategy worked well for the company, but it also invited troubles, which may take a larger form in the future. The problem identified is recent changes in the mobile phone supply chain which are allowing rival firms to enter the market more rapidly. This may exert pressure on Apples’ supply chain in the future (Gattorna, 2003). Apple Inc. is likely to face the challenges relating to the entrance of competitors from Asia. To handle the problem, the company can search ways to increase the swiftness of the supply chain so that it can react more smoothly to market evaluation and so that it can apply correct business techniques from the beginning( Carter, Rogers, Choi, 2015). Though the company has critical plans for every project, it lacks plan B. This may affect business in the long run as it will give chance to other competitors to introduce something which can function better. This plan B can include investing in other technology (Gupta and Jones, 2014). This will also help them to manage some initial hiccups. It is believed by business heads that the introduction of a number of suppliers will increase control over the quality of the process to increase its supply base. However, Apple Inc. is not willing to change its supply chain strategy. Still, it is advisable to bring some refinements which will only provide them the extra edge over advanced technologies and will provide advantage in the business competition (Dekker and Fleischmann, 2004). The focus of the company has been on tackling the issue of financial crisis. However, it has not taken into account the elasticity of the consumers’ demands. Fluctuating consumer demand puts burden over supply of items. So, precautions have to be taken beforehand to fight in the crisis hours (Monczka, et al., 2008). Along with this, there is another problem of increasing consumer expectations. Since Apple is considered to be the number one brand in the manufacturing of i-Phones, hence, people expect a lot from the company. To meet such expectations, the company has to keep its focus intact on the improvement of quality and it has to conduct market surveys regularly in order to extract a perfect picture of the consumers’ wants. So, precautions have to be taken beforehand to fight in the crisis hours (Stadtler, 2014). Another drawback of Apples’ supply chain is the non availability of any risk management plan. For that, proper forecasting is essential so that the company can prepare itself for the future crisis (Ellram and Cooper, 2014). The functional meetings that are supposed to take place with their operations team, before any decision making, don’t take place often. This may create miscommunications in the future as it negatively affects the sales and marketing procedures. Statistics reveal that 23% problems may occur when sales and marketing operations do not collide with other operations of the supply chain management. This may also lead to divergent between data and decision making (Hugos, 2011). Less data are collected and applied than the requirements. So, the challenge here lies in the better collection and application of data about the customer needs and hence the cost involved. In such cases, role of the management plays a crucial role (Rhee, et al., 2010).The prices of the commodities are volatile. This needs to be checked by the company. So, preparations have to be made to cope up with the changing prices. For that, investment has to be in production assets which may not be vitally low cost (Brigham and Ehrhardt, 2005). Questions have been raised on the viability of supply chain management plans in terms of sustainability. It is becoming evident that the supply chains which are not sustainable create a negative impact on the profitability and reputation of the company. As a result, the supply chain management is gathering attention from various organisations like Carbon Disclosure Project (CDP) and Global Reporting Initiatives (GRI) for gaining focus on the sustainability of supply chain (Gereffi, Lee, 2012). These organisations try to implement the sustainability appropriation guidelines that expect suppliers to act on the guidelines. However, the guidelines itself possess faults. The guidelines are not flexible and same guidelines are applied on all the suppliers. They mainly concentrate on the environmental, labour and human rights laws, etc. There’s little scope for the suppliers of Apple to improve its performance under these guidelines. This gives birth to a situation in which neither the supplier nor the buyer can enhance the sustainability performance (Wisner, Tan and Leong, 2015). Given this framework, Apple Inc. cannot forecast the sustainability risks. To mitigate the problem, Apple Inc. can open windows for the suppliers to work towards a sustainable supply chain by adopting methods of decreased environmental impression of the suppliers by implementing environment friendly techniques to produce sustainable products. The company doesn’t put effort to invest on educating suppliers on sustainable methods of production which are also cost effective. They can also award the best performing supplier and can increase the awareness among other suppliers (Dekker and Fleischmann, 2004). Issues like changes in climate, use of natural resources have gained a lot of attention all around the world but it still has not caught the attention of the giant companies like Apple Inc. Another blunder that the company makes is that they consider environmental matter to be an essential issue which needs to be tackle in the future. Since it is allowed that about 60% of carbon footprint can come from the upstream supply chain, Apple Inc. has to take up economically viable steps that address environmental challenges in the near future and can prepare it for the changing environmental forecasts (Kumar, Teichman and Timpernagel, 2012). It seems that Apple’s supply chain management has not taken the sustainability criteria seriously. As quoted by Ma Jun, director of the Institute of Public and Environmental Affairs (IPE), information technology industries release bulk amount of pollution that consists of heavy metals and toxics and Apple Inc. is not an exception (Hofmann, et al., 2013). Theoretically, Apple’s supply chain management is supposed to follow the suppliers’ code of conduct prepared by the Electronics Industry Code of Conduct, transparent reporting, etc. but according to Chinese NGOs, these are not practised in real life. As mentioned earlier, Apple Inc. makes it a point to maintain secrecy of the items, but transparency is very important as far as sustainability is concerned. However, from the view point of social responsibility, managing transparency is crucial that Apple will have to implement quickly (Bell, Chad and Griffis, 2015). As data reveals, Apple’s Chinese supply Chain Management is under scrutiny as there has been reports of deteriorating performance in environmental and human health. Apple has also missed to provide any explanation. There has also been a case where Apple Inc. was slapped with the charges of water contamination, discharge of toxins, and disposition of hazardous metals. The report published by Westervelt (2011) showed that there were suicides of workers of Apple in the country. Though these issues were temporarily suppressed, but in the long run these issues may take up a larger form and hence, may impose larger threats on the business of Apple Inc. 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