Apple Inc Inventory Management - Case Study Example

Running Header: Operational Management(Inventory Supply Chain Management) Student’s Name: Instructor’s Name: Course Name & Code: Date of Submission Table of Contents Table of Contents 2 1.0 Introduction 3 2.0 Inventory Management Goals 3 2.1 Production Planning 4 2.2 Resource Requirement Planning 4 3.0 Inventory Management Capabilities 6 4.0 Inventory Management Weaknesses 8 4.1 Suppliers over reliance Risk 8 4.2 Unexpected Demand Challenge 9 4.3 High Automated systems Maintenance 10 5.0 Recommendations 10 5.1 Supplier Appraisal 11 5.2 Stock Classification 11 5.3 Improve the automated system 12 6.0 Implementation Plan 12 7.0 Conclusion 14 Bibliography 15 1.0 Introduction Increased global industries competition has raised the need for organizational strategic competitive advantages development. In particular, the electronics and technology industry is acknowledged as one among the highly competitive yet dynamic global industries. Therefore, organizations in this industry have to balance between sustainable competitive edge developments with flexibility. Consequently, inventory management under supply chain management has emerged as a key area of management interest. This report reviews how Apple Inc. Company, a global market leader in the electronics and technology industry, utilizes its inventory management system to attain increased market performance. In this regard, the report offers a strategic system critical review subsequently developing improvement recommendation. 2.0 Inventory Management Goals An organizational inventory management system is designed as a support system and functionality in the attainment of the overall organizational goals and objectives in a market. In this regard, the inventory systems are developed and designed as supplements to such organizational strategic needs. In the case of the Apple Inc. Company, the organization has a strategic objective of increasing its market performance and influence through increased market innovation and technology advancement. Therefore, the organization designed its inventory management system under its supply chain management structure to facilitate achievement of these objectives. 2.1 Production Planning On one hand, the organizations inventory system management enhances the production of a production plan. A study by Hadaya and Pellerin 1argued that through the presence of an appropriate inventory management systems, organizations can accurately determine products demand, remaining stock and thus establish the production requirements in terms of quantity, quality and speed. Similarly, the Apple Inc. Company inventory management system serves as a guide to the production function as they can establish the existing demand and products selling rates consequently enabling the establishment of sales forecasts. Through such developments, the organization has the ability to develop operational strategies for its production requirements in the short run. 2.2 Resource Requirement Planning Efficient production planning enhances the development and establishment of an appropriate resource requirements plan. Once an organization determines its production rates and quantity needs, they can eventually develop production requirements. This is the case with the Apple Inc. Company inventory management system. The system enables the executive management determine the resources requirements well in advance. As such, the organization develops a resource requirement schedule facilitating efficiency in supplies acquisition to reduce on supplies delivery challenges as well as deficiency of production materials at times of need. On the other hand, the Apple Inc. Company inventory management system facilitates the achievement of the organizational strategic objective in reducing production costs2. The organization acknowledges the existing high market competition in the technology industry. As such, in order to develop a competitive edge over competitors such as Dell and HP, the company resulted to a low cost production strategy. Stout and Bedenis3 argued that through an efficient inventory management system, Apple Company significantly reduced on its production costs. This is achieved through reduced inventory costs as well s the retention of optimum inventory stocks. Through optimum stock levels, organizations reduce on either stock shortages or surplus. As such the organizational products are neither in surplus than required in the market nor in shortage against market demand. On one hand, surplus stock implies high carrying costs that add up to the overall organizational production costs. On the other hand, minimal stock leads to stock outs a condition resulting to failure to meet market demands, customer dissatisfaction and the eventual loss of market competitiveness. On the contrary, the retention of an optimum stock level ensures reduced production costs as well as market supply efficiency. In this regard, the existing Apple Inc. Company inventory management system through its optimum stock level retention enhances the achievement of the organizational cost reduction strategic objective in the highly competitive technology industry4. Finally, the establishment of the organizational inventory management system facilitates the development, growth and retention of organizational relationships with its suppliers, consequently reducing on its eventual supply shortages and challenges risks in the long run. 3.0 Inventory Management Capabilities The Apple Inc. Company has developed an efficient inventory management system in order to establish and achieve the strategic goals as listed above. In this regard, the organization developed an electronic inventory management system through which organizational product is tracked in the entire supply Chain. The current Apple Inc. inventory management was introduced by the current company CEO Tim Cook, where he served as the company chief operations officer (COO) under the leadership of the then CEO Steve Jobs. The COO argued that an organizational stock was a declining and depreciating commodity. In his estimates, Mr. Cook argued that under standard storage and inventory handling conditions, an organizations stock deprecated by an average 1-2% value on a weekly basis5. Therefore, he argued that in order for Apple Inc. to reduce on its production costs as well as increase its stock value, an inventory management system was imperative. Therefore, the organization launched an electronic inventory management system that linked the enterprise with its suppliers. S such, organizational orders were launched electronically upon the establishment and attainment of the set re-order levels. Moreover, the system allowed for the monitoring of the placed order processing process. Thus, this reduced on the instances of late deliveries as the organization could expedite on the order processing process to ensure on time delivery6. The Apple Inc. Company inventory management system follows the just in time stock management system. On one hand, the organization reduced o own manufacturing ad instead developed manufacturing contracts. Through these contracts, the organizational investments in its inventory are significantly reduced. Therefore, amount of capital tied on the inventory is subsequently reduced, offering the organization an increased working capital base. Rushton, Croucher and Baker7 stated that a majority of the organizations lacked enough working capital to venture into other investment opportunities. Therefore, Apple’s decision to contract manufactures and reduce on its inventory investments presents the organization with an added market advantage over competitors. This is because the organization can utilize its wide working capital base to market its products as well as invest in other strategic activities such as innovation. In addition, the current inventory system enhances the organizational ability to satisfy its consumer base. A JIT system allows for build to order system. In this regard, products can be designed and availed to the consumers at a low cost. Through the system, the Apple management has the ability to develop products and designs based on the customers design preference. The low stock levels in the market enable production design-n change flexibility with a limited period. Statistics reveals that the organization has one of the lowest stock days in the electronics products industry. In this regard, the organization has a 5 days stock retention against competitors such as Dell with a 10 days stock retention. Retention of low stock days allow for organizational production flexibility. The technology industry is highly competitive with an increased risk of disruptive technology developments. If such drastic technology developments occur, the already developed products risk losing value. Therefore, the organizational minimal stock holding allows for the reduction of such a risk value and prompt flexibility into adopting the production of new technology products within 5 operational days. Therefore, the low stock days under the Apple Inc Company offers the enterprise increased market production flexibility over its competitors8. As such, this serves as the organizational competitive advantage in the highly dynamic technology industry. Further, the Apple Company inventory management system incorporates the development of an IT infrastructure to connect the organizational production department to its external raw materials suppliers as well as its established contract manufacturers. The development and improvement o these systems allow for increased relationships development between these supply partners. Mentzer9 argued that supply chain relationships enhanced quality and on time delivery. Therefore, it can be concluded that the current inventory management system at Apple Inc. Company allows for increased relationships development and subsequently enhancing organizational products quality and on time market deliveries. 4.0 Inventory Management Weaknesses Despite its increased organizational merits, the existing Apple Inc. Company inventory management system exposes the organization to a range of management and operational strategic risks. 4.1 Suppliers over reliance Risk On one hand, the development and adoption of the contract manufacturers’ inventory management approach expose the organizational to external influence. Initially, the production process quality and standards were internally determined by the Apple Inc. management and production function. However, upon the contracting of external manufacturers, the organization lost the quality control ability on its products. Consequently, the organization currently relies on the external manufactures quality management system to verify their products quality. Therefore, if the internal quality of such organizations fails, the organization is exposed to the risk of producing poor quality or defective products. In addition, the organization inventory faces the risk of lack of standardization. This often occurs if the contracted organizations adopt varied production procedures or apply different quality control systems. As a result, this risks the failure of appropriate organizational branding and market positioning marketing strategies adoption10. 4.2 Unexpected Demand Challenge In addition, a review on the current organizational inventory management system implies that the organization has a 5 days stock carrying capability. In this case, organizational stocks must be replenished every 5 days to avoid stock outs in the market. Although this is a positive development towards carrying costs reduction, it is imperative to note that such an approach exposes the organization to an increased risk of stock outs and failure to meet unexpected demands. Harper and Madura11 in a study to review the demerits’ of low stock levels established that organizations employing this inventory approach risked stock outs in the emergence of catastrophic activities that disrupted production process temporarily. Therefore, this report concludes that the adoption f the few days holding capacity exposes the organization to the threat of sock outs. In the event that production is halted for a maximum 5 days, Apple Company stocks would run out creating an eventual products market shortage. This is in contrast to other market competitors such as Dell and HP that have over 10 days stock holding capacities. Therefore, this approach offers the competitors an added advantage over the Apple Inc. Company. Moreover, the current Apple Inc. inventory management system is designed in the assumption that organizational products demand is constant and predictable. Therefore, the organization has minimal buffer stock. Carbaugh12 stated that a buffer stock enables organizations meet unexpected seasonal demands. Therefore, the lack of this buffer stock implies that the organizational capability to meet such unexpected demands is significantly reduced. 4.3 High Automated systems Maintenance Further, the current Apple Inc. inventory management system involves the development of technological links between the organization, its suppliers as well as the contract manufacturers. Therefore, this system requires increased capital investments in the development of a superior and working system. Therefore, despite its ability and merit to reduce working capital and inventory management costs, the initial and maintenance costs for the system are relatively high13. The organization is required to invest in the recruitment and retention of qualified IT human resource in order to ensure the system functionality. This is because a system failure with the current 5 days stock carrying days would result to late deliveries, delayed production and eventually market product shortages, an expensive business activity for any profit oriented organization. 5.0 Recommendations Based on the report analysis of the existing Apple Inc. Company inventory management challenges and weaknesses it is imperative to develop appropriate reorientation strategies to allow for increased inventory management efficiency and he overall achievement of the organizational strategic goals. Therefore, this report develops a series of recommendations trough which the established challenges and weaknesses can be overcome as well as approaches through which the identified capabilities can be reinforced. 5.1 Supplier Appraisal On one hand, this report recommends the establishment of supplier appraisal programs. Supplier appraisal programs entail processes through which organizational suppliers are evaluated for conformance and performance standards. On one hand, the suppliers are required to conform to the organizational needs while on the on the other hand they are require to posses ability to perform and deliver materials as expected and of the required quality. Through supplier appraisal programs, as Millington, Eberhardt and Wilkinson14 argued, organizations attain an increased ability to empower, develop and support their suppliers. In this regard, organizations support their suppliers through both financial and technical support. Through such appraisal strategies, the organization will increase the suppliers’ capability and production potential in the supply chain. Consequently, this enhances the reduction of lead time an imperative aspect in JIT inventory management system success. 5.2 Stock Classification An additional recommendation y this report is the establishment of stock classification approaches. Currently, as the report evidences, the organizational inventory management system is managed on a wholesome basis. This implies that the organization has no stock or inventory preferential treatment whether high value or fast moving. As such, the organizational inventory management system has similar systems for all stock types such as a constant 5 days stock carrying days as well as outsourcing manufacturing activities. This as already established expose the organization to the risk of stock outs as a result of essential stocks mismanagement. Therefore, in order to reduce on the risk occurrence possibility, this report recommends that the organization should classify its stock and consequently develop unique inventory management systems for the diverse stock categories as an approach towards inventory management efficiency. Saxena15 argued that stock classification enhances the adoption of unique invent management system development an imperative component for management efficiency enhancement. Therefore, upon the establishment of the proposed classification recommendation, Apple Inc. will increase its inventory management efficiency levels. 5.3 Improve the automated system Further, this report establishes that the automated inventory management system plays a crucial role in Apple’s inventory management efficiency. In this regard, the report concludes that the organization derives its main inventory management system efficiency and success in its adoption of the automated system linking it with suppliers and contracted manufacturers. Therefore, as a strategic approach in facilitating increased system efficiency, this report recommends that the organization should increase its investment into developing modern and up to date automated inventory systems. 6.0 Implementation Plan In order to incorporate the proposed organizational inventory management systems improvement recommendations offered in this report, the report offers an implementation plan through which Apple Inc. Company can execute and incorporate them in its existing inventory management system. Under the supplier appraisal recommendation, the report recommends that the organization should develop a supplier’s evaluation list. In the list, it should outline key evaluation aspects with which the suppliers would be gauged against. In order to ensure that the organizational resources remain focused in executing its core business, this report argues that the organization should contract independent verification organizations who conduct the supplier inspection and appraisal programs. Upon their completion of the appraisal process, the organizations should provide two items to the Apple management. One, they should provide a list of suitable current and potential suppliers with whom the organization can partner with. Secondly, they should provide a report on ensures and approaches through which the organization can improve its current supplier base. With respect to the classification of the products, this report recommends that the organization should adopt the ABC inventory classification strategy. As such, the organization should classify its inventory based on their turnover rates. Therefore, products with a high turnover rate should be classified under the A category, average movers B category and the slow movers C category. Moreover, the organization should subsequently use diverse inventory management systems for the diverse inventory classes with JIT most suited for the A category and increased stock days for the C category respectively. Finally, for the development and improvement of the existing automated system, this report argues that the organization should initiate the process with a system audit. The audit process should be geared towards the establishment of weakness areas in which the system fails to conform to modern technology developments. Upon the establishment of these weakness areas, the organizational management should develop a cost benefit analysis on their improvements. If the benefits for any weakness improvement exceed its costs, the organizational management should execute the improvement process. 7.0 Conclusion In summary, this report evaluates the supply chain management operations at Apple Inc. Company. In particular, the report focuses on the organizational inventory management system. In this regard, the report evaluates the organizational inventory management system objectives, its capabilities, and weaknesses. Consequently, the report offers appropriate improvement recommendations and their relevant implementation approaches. With respect to objectives, the report establishes that the organizational inventory management system enhances reduced production costs, increased working capital availability as well as production planning enhancement. On the other hand, a system capabilities evaluation reveals that the organizational system adopts a Just in time (JIT) inventory management system offering it opportunities for stock holding optimization. Further, the report establishes that the system allows for increased supply chain relationships development. However, a weakness analysis establishes that the system risks suppliers’ overreliance as well as poor response to unexpected demand rise. Therefore, the report recommends suppliers appraisal, stock classification and system automation improvements strategies as system reorientation alternatives, while offering their respective implementation plans. Bibliography Apple Inc. Company Profile. Apple Inc. < https://www.apple.com/about/>, 2014, 9 Accessed July 1 2014) Carbaugh, R. J. International economics. CENGAGE Learning, Mason, OH: South-Western, 2013. Hadaya, P. & Pellerin, R., ‘Determinants of Manufacturing Firms' Intent to Use Web-Based Systems to Share Inventory Information with their Key Suppliers’, International Journal of E-Collaboration, vol. 4, issue 2, 2008, pp. 29-54. Harper, J.T. & Madura, J. ‘Sources of hidden value and risk within tracking stock’, Financial Management, vol. 31, issue. 3, 2002, pp. 91-109. Laura, R.K. & Fransoo, J.C. ‘Teaching supply chain management through global projects with global project teams’, Production and Operations Management, vol. 9, issue 1, 2000, pp. 91-104. Mentzer, J. T. Fundamentals of supply chain management: Twelve drivers of competitive advantage. Calif.: SAGE, Thousand Oaks, 2004 Millington, A., Eberhardt, M. & Wilkinson, B. ‘Guanxi and supplier search mechanisms in China’, Human Relations, vol. 59, issue 4, 2006, pp. 505-531. Rushton, A., Croucher, P., & Baker, P. The Handbook of Logistics and Distribution Management. Kogan Page, London, 2010 Saxena, J. P. Warehouse management and inventory control, Vikas Publishing House New Delh, 2003.. Stout, D.E. & Bedenis, G.P., ‘Cost-System Redesign at a Medium-Sized Company: Getting the Right Numbers to Drive Improvements in Business Performance’, Management Accounting Quarterly, vol. 8, issue. 4, 2007, pp. 9-19. Wales, J., & Reaich, N. Business studies AS: The complete companion, Nelson Thornes, OCR. Cheltenham, 2004. Warren, C. S., Reeve, J. M., & Duchac, J. Financial and managerial accounting. South-Western Cengage Learning, Mason, Ohio, 2009 Read More