Describe about the Supply chain management in Apple Inc. for Direct Organizational Profitability.
In the era of globalization, operational management plays central role in business management and development. It can be defined as the process that involve several elements such as products, process, people, technology to ensure that goods are properly manufactured and reached to the final user. Supply chain management is complex processes that involve several activities such as acquisition, production and delivery of goods and services. Supply chain management facilitates in effective distribution, process, controlling costa and also reduction in lead time; all this have direct impact on organizational profitability.
This paper is written on Apple Inc. with the objective of evaluating its supply chain management function; primary focus has been laid on supply chain planning and control functions of the company. This paper helps in understanding an overall process of supply chain management in the company, its growth and issues that company might face in long run, followed by recommendation.
Apple Inc. is the most profitable publicly traded firm in the global market. Company has achieved this tremendous growth in a decade; it also outperformed Microsoft in terms of market share and profitability. This company was founded in the year 1976 by three of its founders Steve Jobs, Steve Wozniak and Ronald Wayne. It is a technology company that deals in both hardware and software (yoffiee & Kim, 2010).
Different product range includes computers, laptops, mobile phones, music device, OS system etc. There are 110000 employees working with the company and help the brand to reach global market. Financially also, Apple has strong growth with market capitalization of $711 billion; in the year 2015 the brand sold 74.5 million iPhones and had total revenue of 233,715 USD million (Reuters, 2015).
Major competitors of the brand include Microsoft, Google, IBM in software segment and Dell, HP, Acer, Samsung in Software segment (apple.com, 2015).
Supply chain and operation management is regarded functional strategy that aims to integrate structural and infrastructural elements into supply chain process that help in development of overall business strategy. This is a complete function that started from purchase of raw material to product delivery to final users (Ellram & Cooper, 2013). Primary objective of supply chain strategy is to guide management in choosing right mix of structural and infrastructural elements, to set clear dimensions about customer expectations, to align these strategies with business strategy of the company and also ensure development of its core competencies. Four primary factors that impact performance of supply chain system include cost, time, flexibility and quality. Below is a diagrammatic representation of supply chain model in the selected organization; (Boyer & Verma, 2009)
Above diagram shows five core functions in supply chain system of Apple Inc. it include sourcing that deals with raw material from united states, china, Asian countries and Europe; second phase is manufacturing of products that is assembling it in unit in China. Third stage is warehousing of products that is done in California. Fourth stage is distribution of products through different channels such as online, retail store, direct sales force, wholesaler, network carriers etc. However, this is not the end of process as return goods are also part of supply chain system. Each stage has several strategies and sub-stages involved.
Demand forecasting help in planning and managing product demand effectively in the market, it aims to reduce closing stock and reduce overhead expenditure of the company. Demand in Apple Inc. is forecasted with the help of past sales analysis, followed by new statistical models.
It is crucial to establish coordination between supply chain decision, operations and functioning of other departments. Aggregative planning can be defined as process executed by top management of the company on monthly or timely basis to review supply, demand and its impact on organizational financial position. This is a decision making phase that aims to ensure that all tactical plans of the business are in aligned to its support functions. This step also help in preparing an operating plan and decide upon allocation of resources, people, capacity, material, time in the most efficient manner to reach organizational objectives. Aggregative planning stage of the company deals with three stage, i.e. Pre-Launch, Launch and quarterly review (Farahani, Rezapour, & Kardar, 2011). Apple Inc. has efficient supply chain system, its supply chain planning starts with research and development phase that involve designing of new concepts, products and their testing. After designing, pre-launch phase that aims to build up inventories in relation to expected demand. At this stage forecasting of demand take place for the next two quarter and also deal with backlog stock of the company. Launch stage of the company also involve quarterly reviews, managing inventory level, adjusting demand forecast, demand and product life cycle . This planning phase deals with long term, medium and short term decisions. It includes decision in regards to capacity utilization, workforce management, inventory management etc. (Dugmore, 2005).
This process aims to evaluate and analyze raw material purchase requirements of the firm. Apple Inc. implements direct procurement system, which is a production focused approach, it include all parts of finished products, different raw material their components etc. There is supplier network of 785 suppliers in the company, suppliers are selected after proper scrutiny and analysis and recorded in supplier Information Database such as key information, material description, key advantage, product description etc. Procurement process is conducted using online bidding system, it help in fostering ethical and fair practices (Kachru, 2009). All the materials from global market are procured and collected in China and actual assembling starts and final product is built.
This is a crucial step to operation management, there are eighteen assembling units of Apple Inc. these units are responsible for completing 94 percent of production process. These assemblies are managed by two hundred suppliers. Different facilities are responsible for different tasks, for example Foxconn in China is responsible for production of iPhone, iPod, Mac, iPad and even accessories; however Mac computers are assembled at Cork. Apple has included innovation as key factor in its supply chain system, designing is a key stage that is managed with the help of Apple’s New Product Process system that is supervised by global supply managers. Weekly meetings are organized between design team, production department and marketing to discuss product review. There is implementation of trickle down strategy that aim to launch a new product every year.
Inventory can be defined as all items that help in executing production process, working progress, supporting activities and customer services. Apple practice obsessive control over inventory to ensure proper manufacturing, low pile of stock, primary objective is to reduce cost, lead time and enhance profitability (Bozarth, 2008). Inventory process of Apple Inc. includes purchase of raw materials from various parties and then assembling it in China and then storing and distributing through US. Cook the COO of the company changed manufacturing system of the company to contract manufacturing and implemented distribution with the view that inventory is evil. There was very quick depreciation in Apple due to nature of product, technological advancement occurring every now and then there is almost 2 percent value loss in inventory every week.
Company reduced its number of component suppliers from 100 to 24 only, with the objective to reduce warehouse and make suppliers compete within themselves. In the year 2013, company has 153 suppliers, low number helped in building strong supplier relationship, building long term contracts and enough demand for them. Inventory turnover and days in inventory are key factors to evaluate the time taken to sell inventory and replace it with new stock. In the year 2011, Apple sold its complete inventory of iPod with zero stock and minimum wastage. In the year 2014, Apple had $2.1 billion inventory, which include $1.6 billion of finished goods and $525 million of components. Majority of company inventory are taken to the retail stores, for online orders inventory are shipped from China, therefore does not take possession and warehouse much stock, which help in gaining competitive advantage in market.
After assembling of products, its supply chain system focuses on distribution of products to final customer. Packaging is also done in innovative manner with the use of reusable material, it has made it packaging slim and robust to ensure minimum wastage and also transport large number of products at one time. It has company owned distribution network and products are sold through various channels such as wholesaler, retailers, e-commerce, own retail outlets. The inventory turnaround period is 5.3 days. Products are transported through airway only that helps in quick product delivery. This company secured its air space through pre-booking, which also helps in availing adequate space for moving company product and it also cause hindrance for competitors in their transportation due to low availability of air space.
Intense planning and control is required to ensure adequate production across supply chain without any increase or decrease in requirements. This require adequate planning in regards to material, activities in production, vendor management, role of distribution requirement planning in proper production plan. Master scheduling can be defined as a strategy used to manage customer demand and services by enhancing stability and reducing stock level. Proper implementation of master scheduling helps in enhancing success and satisfaction at all levels of supply chain. Another is material requirement planning that help in planning production schedule from beginning to end (Chary, 2009). It is kept simple using Kanban and broadcast. Apple has smallest inventory time among all technological company; it is five days inventory therefore 74.1 turns in a year. For managing scheduling both automation and manual processing strategy is implemented. Automation and technology help in planning proper schedule for production process whereas manual scheduling is used for planning at retail stores.
Apple Inc. opts for a global manufacturing and production strategy from international market, it sell standardized products all over market therefore no major customization is done. It helps the brand in gaining competitive advantage in the market and also achieves low cost of production. Company conducts its product planning and designing in USA whereas assembling is done in China due to availability of labor and space; it also offers huge flexibility for increasing and decreasing total supply. In terms of supplier management there were 745 suppliers from thirty one countries; large numbers of suppliers are form China. Ninety percent of production task is managed by top 200 suppliers. Each supplier is selected after proper analysis and exclusive agreement is signed on basis of terms, price and other clause. However, recently Apple Inc. changed its vendor management strategy, instead of dividing the risk among various suppliers, company tried to reduce its supplier’s number so that they can offer them adequate orders and business. However, managing large pool of supplier help in managing demand surge, production schedule change in less time.
Core idea of just in time theme is to make products available whenever company needs it, it aims at minimum use of every resources and managing it effectively. It aims to manage effective lead time, reduce cost and wastage form operational process. It is a part of Kanban system in which small cards are attached to carts, mentioning amount to be manufactured, allowed raw material to be withdrawn and also requirements (Nigel & Lewis, 2009). This strategy helps in dramatic reduction of material inventories, work in progress and finished inventory without any compromise on quality. Apple has implemented Just in time Global economy that aims to remove unnecessary steps, reduce waiting time. This tailor made strategy of the company helped in manufacturing of iPod from 90 days to 90 hours (Chaudhuri & Chakraborty, 2008). It is an integration of lean manufacturing JIT and supply chain management that lead to reduction in cost and time.
It aims to evaluate information flow in the organization, it include various functions such as physical flow of a product, recording and managing information regarding inventory, codifying decision rules and recording and report performance. There are three key activities in a supply chain information system, it include customer relationship management, internal supply chain management and supplier relationship management. Information system software’s are used by organization to conduct different tasks such as strategic decision making, tactical planning and routine decision making. Different information systems adopted by Apple Inc. are discussed below.
Transaction processing system is used for operation level recording of daily information; it uses smart phone credit card readers and mobile transaction processing system (Lambert, 2015).
Another tool is management information system, that is used by middle level managers of the company, it is a decision support software that is used for past and present sales and data analysis
It include enterprise resource planning helps in integrating various departmental functions together, it helps in recording different data and strengthen the decision making process. Different software used by the company help in integrating information from various sources without any supplication of data to ensure proper coordination with suppliers, customers, distribution network and external environment.
Another is decision support system is another computer based system that allow users to analyze, evaluate information to make decision. It is being used for non-routine decisions that are taken as strategic actions, to identify long term business trends.
Preorder technique is used by the brand, therefore customer order processing system is also implemented, this brand also implement cookies, Pixel tags and web Beacons to target customer segment.
Use of executive support system for to help senior management in decision making, analytics and data evaluation and report.
To remain competitive in the market, Apple Inc. focuses heavily on implementing green supply chain system and operational activities. It aims to address concerns towards climate change, gas emission, waste etc. Apple Inc. tries to implement strategies that will help the brand in striking balance between production strategies with environmental concern (www.greenbiz.com, 2015). To address these issue different projects on renewable projects, solar projects, wildlife preservation initiative has been taken by the brand. It aims to implement 100 percent green supply chain. Company has started its initiative in China with implementation of 200 megawatts of solar projects that will help in offset energy needs in the company; it is also planning to implement 2 gigawatts of clean energy production (Kumara, Teichmana, & Timpernagela, 2012). In the year 2015, Apple Inc. managed to control 13,800 metric tons of carbon emissions through its energy efficiency program. It also provided support to its suppliers by providing clean energy program to support its supplier to make a shift towards power sources in China (Hower, 2015).
Despite of being number one company in the market, strong technology and innovative culture, Apple Inc. encounters few supply chain challenges, it include supply constraints in launching new product every year, there is need for new material every time might lead to cloud slow and delay in manufacturing. Company also encountered sustainability issues during year 2012, in regards to unsafe working environment in China manufacturing unit (www.marketwatch.com, 2012), this impacted brand image adversely, but Apple Inc. took strict action and implemented green supply chain with strict governance to ensure highly sustainable supply chain system (Williams, 2014). In the year 2016, second quarter sales of the company fall from 61.2 million to 51.2 million iPhone, shows concern towards market condition and need to re-plan its forecasting and also sustainability issues.
Conclusion
Supply chain management has become a key function that impact processing of overall operation and distribution system, it has strong impact on customer management, product delivery and customer service. Apple Inc. aims to build a robust supply chain system by including technology, sustainability and innovation. It uses effective global strategic approach to manage supply chain; huge supplier network is built from various markets to diversified market risk and ensure continuous production. Products parts and raw materials are purchased from global market, assembled in China. There is minimum inventory and storing is done by the company to ensure low inventory cost, just in time, lean manufacturing and Kanban is used to ensure smooth production with minimum waste and lead time. Technology plays significant role in success of this brand; it uses various DSS, ERP, customer management software to ensure proper ordering, processing, decision making at middle and senior management, routine tasks etc. Apple effective strategic approach helped in building best supply chain and operation system in technology industry.
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