Apples Supply Chain Strategy

Apple has received multiple awards for its supply chain strategy. Recently, for example, Gartner, a US-based research and advisory company, awarded Apple its inaugural Masters award after previously ranking Apple No. 1 on its Top 25 Supply Chains list for the past 5 years. One key aspect of Apples supply chain is its use of multiple suppliers for the same component. The Governance Leadership Centre reviews this aspect of Apples supply chain strategy to examine the role that boards and directors can play in enhancing supply chain management and organizational performance.

Apples Supply Chain Strategy

Apple has an extensive network of third-party suppliers in its supply chain. According to recent research, Apple has 785 suppliers in 31 countries worldwide, 349 of which are based in China. According to Apples 2015 Supplier List, 97% of its supply chain (including procurement, manufacture and assembly) is accounted for by its top 200 suppliers. This would imply that 585 of Apples suppliers account for the remaining 3% of its supply chain, providing it with a significant degree of latent capacity. Apple has a number of exclusive long-term agreements with its key suppliers and uses prepayments to negotiate favorable pricing terms, secure strategic raw materials and guarantee high volumes of production. Apple has also diversified its supply chain to include new manufacturing partners in China and Taiwan. It has also secured multiple suppliers for key components relating to new products such as the Apple Watch. In addition to diversification, Apple invests in customized manufacturing equipment and automated assembly and milling technology. It has also recently announced environmental programs with its Chinese manufacturing partners to offset carbon emissions and utilize more clean energy. Apples strategy of using multiple suppliers for the same component provides it with key advantages over its competitors. Commentators note that this strategy allows it to:

- Mitigate supply chain disruptions and delays, allowing it to maintain gross-margins. - Adjust ordering ratios with existing suppliers, therefore minimizing the risk of third-party issues associated with volume dependency. - Quickly increase production capacity to respond to changes in consumer demand. - Encourage lower supply costs as multiple suppliers compete for its business. - Process large volumes of pre-orders, which it then analyses to create demand forecasts. - Prevent competitors from utilizing the same production capacity through exclusive relationships with suppliers.

Apples Chief Executive Officer, Tim Cook, has been described as a supply chain specialist. He is credited for streamlining inefficient areas of Apples supply chain and using inventory tracking mechanisms to reduce its number of suppliers and warehouses.

According to a recent report from Deloitte, organizations with effectively governed third party relationships can outperform their peers with an additional 4-5% Return on Equity (ROE). There are a number of ways in which companies boards can learn from Apples supply chain model to enhance their supply chain management and organizational performance:

1. Consider the benefits of multiple suppliers for the same component: Boards should encourage management to consider the use of alternative suppliers and whether this may reduce single supplier risks or provide an avenue for improving performance.

2. Measure and evaluate performance: Boards should closely monitor supply chain performance by analyzing financial metrics such as inventory turnover and the cash conversion cycle (CCC). These metrics can be used by boards to evaluate whether management is using the companys financial resources efficiently.

3. Encourage a compliance culture and the use of regular audits: Boards should encourage compliance cultures within their organizations and the use of regular audits. For example, Apple has a strict code of conduct and standards that all its subsidiaries, affiliates and subcontractors are required to abide by. It also produces an annual Supplier Responsibility Progress Report, which outlines the number of audits it has undertaken and provides details on its labor and human rights initiatives, such as repayments to workers for unpaid overtime or due to excessive recruitment fees charged by brokers.

Answer the following questions:

1- One key aspect of Apples supply chain is its use of multiple suppliers for the same component. What are the relevant processes for such aspect and between which supply chain stages they take place? a. Customer order cycle processes, between distributor and retailer

b. Replenishment cycle processes, between supplier and manufacturer c. Manufacturing cycle processes, between manufacturer and distributor d. Procurement cycle processes, between supplier and manufacturer

2- Apple has an extensive network of third-party suppliers in its supply chain. Based on Apples strategy many suppliers may deliver the same components or raw materials. This structure is best known as: a. Supply chain configuration

b. Supply chain design c. Supply network or supply web d. Supply chain strategy

3- Apple has a number of exclusive long-term agreements with its key suppliers and uses prepayments to negotiate favorable pricing terms, secure strategic raw materials and guarantee high volumes of production. Such supply chain strategy helped Apple to: a. Increase its supply chain surplus

b. Increase customer value c. Increase supply chain cost and revenue at the same time d. Improve profitability at individual supply chain stages

4- Securing multiple suppliers for key components relating to new products such as the Apple Watch in addition to the extensive network of third-party suppliers are decisions related to: a. Supply chain operations

b. Supply chain planning c. Supply chain development d. Supply chain strategy

5- Apples supply chain strategy has allowed the company to quickly increase production capacity to respond to changes in consumer demand. These processes fall under the: a. Cycle view

b. Push view c. Pull view d. Supply view

6- Preventing competitors from utilizing the same production capacity through exclusive relationships with suppliers can be considered as: a. Marketing and sales strategy

b. Value chain c. Competitive strategy d. Achieving strategic fit

7- Apples Chief Executive Officer, Tim Cook, has been described as a supply chain specialist. He is credited for streamlining inefficient areas of Apples supply chain, this is a result of: a. Understanding the customer and supply chain uncertainty

b. Understanding the supply chain capabilities c. Achieving strategic fit d. None of the above

8- Which of the following reflects Apples supply chain efficiency: a. Mitigate supply chain disruptions and delays, allowing it to maintain gross-margins

b. Increase production capacity c. Create demand forecasts d. Prevent competitors from utilizing the same production capacity

9- Measure and evaluate the performance of the supply chain which results in maximizing the supply chain surplus is achieved through the: a. Intraoperation Scope

b. Intrafunctional Scope c. Interfunctional Scope d. Intercompany Scope

10- Apples environmental programs with its Chinese manufacturing partners to offset carbon emissions and utilize more clean energy allow the company to overcome the challenges resulting from: a. Increasing Product Variety and Shrinking Life Cycles

b. Globalization and Increasing Uncertainty c. Changing Technology and Business Environment d. The Environment and Sustainability