Supply Chain Management Apple - Essay Example

?On the Apple I-Phone packaging it s – “Designed in California, USA – Manufactured in China”. Using the Supply Chain Management principles, explain why Apple has decided not to use US-based suppliers preferring instead to outsource to suppliers in Asia. What is Supply Chain Management at Apple? The supply chain is the set of companies that are involved in the creation of a product, from the start-point of production to the very end. Supply Chain Management is the management of this chain, ensuring that, despite the use of many suppliers and manufacturers, the product is still generating a net profit (Blanchard, 2007). AMR research has named the supply chain management at Apple the best in the world (Allen, 2010), which suggests that the entire chain is best optimised in terms of logistics, operations and cost. This success could be due to the increasing amount of supply chain managers reporting to the CEO of a company rather than to the manufacturing department, a trend across businesses (Allen, 2010). It has been suggested that the supply chain for Apple involves ten steps in four different countries, which are Singapore, Taiwan, the US and China. Taiwan provides most of the manufacturing components for an iPhone (Apple’s biggest seller []), with six different elements being produced here – the digital camera modules, international circuitry, industrial connectors, silicon Bluetooth chipset, technology printed circuit boards and stainless metal casings (Lyons, 2010). This encourages us to believe that the supply chain manager believes that Taiwan is the cheapest and most efficient supplier of many of the components for the iPhone and other Apple products. It also means that there is a bottleneck for the supply chain, in that if there were to be any economic issues or disasters in Taiwan, then the supply chain for the iPhone would be severely disrupted and there would be problems in the supply of these products. Essentially, the supply chain manager at Apple feels that the benefits from producing many components in Taiwan (cost and efficiency) outweigh these dangers. China is the location in which all these components come together to be assembled, suggesting that the country has a very cheap labour rate compared with the US, and the shipping costs from this country are low enough for the cost of labour in this country for this to be the most efficient method. All of this information suggests that Apple uses a vertical integration system for their Supply Chain Management (Lyons, 2010). A vertical integration system is one where most of the hardware components of a product are bought from a variety of different manufacturers which are all owned and controlled by the central company – in this case Apple. This helps to avoid any hold-up from trying to integrate many different companies, and it also stops the different pieces of hardware being used by other companies, ensuring that the end product is something completely unique – again, something very important to Apple. The use of a manufacturer owned by the central company also ensures that the data chip, or processor, or other product, can be manufactured exactly according to company specifications, ensuring a greater specificity. This can be a response to the make-buy decision. The make-buy decision The make-buy decision is essentially a choice between outsourcing and manufacturing (Probert, 1997). It has been suggested that the decision is easy, and that a company should outsource any components that are not critical to the product’s success, do not require any specialised design or manufacturing elements, and are not core to the company’s future plans and central products (Burt & Burf, 2009). There are many other ways of making the decision, one of which is known as the contribution-per-constraint module (CPCM) that relies on knowing and analysing the constraints of the component (Gardiner & Blackstone, 2007). In this case, the Supply Chain Management team at Apple have decided that it is best to make many of the components (or at least, buy a company that makes the component) as part of the vertical integration model. If we look back at the model suggested by Burt & Burf (2009), this decision is probably based upon the fact that many components of Apple products are core to their design, are critical to the item success and all require specialised design. This again comes back to the fact that Apple are known for (and sell many units because of) the innovation and uniqueness of the products that it supplies, and would do well to ensure that other companies are not outsourcing the same products to reduce the similarities between Apple products and other competing products. It is this uniqueness that has helped Apple dominate a certain market (Asay, 2010) and in this case, the decision to ‘make’ (technically to outsource to other branches of the Apple company) is critical in maintaining the central ethos of the Apple company. Sourcing strategies and supply chain configurations It has been mentioned above that Apple uses the vertical integration model for the supply chain, a type of supply chain that is considered outmodish by some (Lyons, 2010) but seems to work for Apple, who are continuously winning awards for their supply chain. There are many different supply chain configurations that Apple could have chosen, however, but these all rely on a central model. The first element in a supply chain is the initial supplier, and then the second is any number of secondary suppliers (in this case, many manufacturers owned or part-owned by Apple, mostly in Taiwan). The third element in a supply chain is the manufacturer who assembles the product, in this case the Foxconn Apple plants in China (Chamberlin, 2011). The two final steps include two different types of buyer, one being any number of companies that are interested in selling the product for product, and the final step involving the actual consumer. Here we see five steps in any supply chain, although these may be split into many others and involve several different companies, all of which need to be managed as part of a successful supply chain (Lafontaine & Slade, 2007) Strategic sourcing is an element of the supply chain and involves a continuous re-evaluation of many different elements of the supply chain, including who else is offering the component and if this supplier is cheaper, the current markets, the current company spend and many other elements (Mentzer, 2001). All of these activities are analysed to ensure that the company is turning as much profit as possible for the product in question (Blanchard, 2007). Strategic sourcing also involves making the make-buy decision outlined above. Strategic supplier selection As mentioned above, the selection of suppliers for each of the important components can be a length and difficult process, and is one that needs evaluating on a constant basis to keep up with the market and demand (Blanchard, 2007). The basic steps of strategic supplier selection are as follows: Assess the current suppliers of the components and how much this is costing the company overall, Assess all the possible suppliers of the components, and identify which ones could be strategically used in production, Assess how much the production would cost with the integration of these new suppliers, including the cost of switching to a new company, Develop a sourcing strategy and decide how any new additions to the supply chain will be integrated into the existing model including any transportation issues, Negotiate with any new suppliers to see if they can be better integrated into the model, and Implement the new model and track the results (Mentzer, 2001). In the case of Apple, the decisions made generally extend to buying or selling any new companies that manufacture products that could lower the cost of the iPhone (or iPad, or iPod, etc.) and would ensure that the uniqueness of the product is kept intact and manufacturing details are still kept secret. Aligning supply with corporate strategy As previously mentioned, past supply chain managers used to report to the manufacturing division of the company, although new trends show increasingly these managers are now reporting to the CEO, managing director or head of the company (Burt & Burf, 2009). This is an important new move which allows the supply chain to be fully aligned with the corporate strategy, something which is instrumental in ensuring the success of the product and the company (Mentzer, 2001). To apply this to the case of Apple, the main corporate strategy is to be continually producing the best and most innovative products in the technology market, including smartphones, mp3 players, tablet computers, laptops and desktop computers. In all of these areas, Apple dominates certain markets because of the external appeal of the products (aesthetics) and the new features which are only seen on Apple products. The supply here has been perfectly aligned with these elements of the corporate strategy, because the fact that Apple owns many of the companies that supply components of the products means that no other companies can offer exactly the same features, ensuring that Apple stay ahead of the market, or at least apart from other areas of the market (Beaumont, 2011). Conclusion It is evident from all the different elements of the supply chain outlined above that Apple has managed to maximise the efficiency and the profit from their supply chain, as well as managing to maintain creative integrity and a unique product range within the industry. It is evident that the Supply Chain Management team for Apple has analysed all the different options and they are well deserving of their ‘best supply chain’ title. Works Cited Allen, A., Apple’s supply chain judged best in world again | Official CIPS Magazine – Supply Management. Available at: http://www.supplymanagement.com/news/2010/apples-supply-chain-judged-best-in-world-again/ [Accessed June 22, 2011]. Asay, M., 2010. Apple Doesn’t Target Markets. It Targets People — Tech News and Analysis. Available at: http://gigaom.com/2010/08/26/apple-doesnt-target-markets-it-targets-people/ [Accessed June 22, 2011]. Beaumont, C., Apple reasserts itself as market leader with iPod event. The Telegraph. Available at: http://www.telegraph.co.uk/technology/apple/6166340/Apple-reasserts-itself-as-market-leader-with-iPod-event.html [Accessed June 22, 2011]. Blanchard, D., 2007. Supply chain management: best practices, John Wiley and Sons. Burt & Burf, D.N., 2009. World Class Supply Management: The Key to Supply Chain Management, McGraw-Hill Education. Chamberlin, G., 2011. Apple’s Chinese workers treated “inhumanely, like machines” | Technology | The Observer. Available at: http://www.guardian.co.uk/technology/2011/apr/30/apple-chinese-workers-treated-inhumanely [Accessed June 22, 2011]. Lafontaine, F. & Slade, M., 2007. Vertical Integration and Firm Boundaries: The Evidence. Journal of Economic Literature, 45(3), pp.629-685. Lyons, D., 2010. Going Vertical. Newsweek. Mentzer, J.T., 2001. Supply chain management, SAGE. Probert, D., 1997. Developing a make or buy strategy for manufacturing business, IET. Watson, K.J., Blackstone, J.H. & Gardiner, S.C., 2007. The evolution of a management philosophy: The theory of constraints. Journal of Operations Management, 25(2), pp.387-402. Read More