BUS FPX 3022 Assessment 2 SCM Case Analysis: Forecasting and Planning

Student Name

Capella University

BUS-FPX3022 Fundamentals of Supply Chain Management

Prof. Name:

Date

Apple Case Study

Business Model

Apple operates as a vertically integrated producer of computer hardware and software, as well as a service provider and retailer (Bajarin, 2011). The company oversees nearly its entire supply chain, managing all phases from research and development (R&D) to manufacturing, distribution, sales, maintenance, and recycling of hardware. For software, Apple is responsible for development, dissemination, updating, and improvement. Physical products are distributed globally with stringent security measures, while digital products are available through Apple’s proprietary storefront. Services are offered remotely and at retail locations, depending on their type and availability.

Although Apple does not own every company involved in its supply chain—contracting with component suppliers and manufacturing facilities and selling products through various third-party retailers—it wields significant influence over contractual terms, quality control, and the overall customer experience. This influence is evident in the declining failure rates of newer devices; for instance, the iPhone X had a failure rate of only 3% in the first quarter of 2018, compared to 22% for the iPhone 6 (O’Dea, 2020). Furthermore, since 2013, Apple has consistently topped the Gartner Supply Chain Top 25 list (Lu, 2020).

SCM Comparison: Amazon

While both Apple and Amazon share characteristics as technology firms, device manufacturers, and digital storefronts, their core business focuses are markedly different. Apple operates only one warehouse in the U.S. (Lu, 2020), whereas Amazon boasts 110 fulfillment centers (FBA Help, 2021). Apple primarily sells its own products, while Amazon functions as a marketplace for its own offerings and millions of products from other vendors. Despite these differences, both companies maintain highly optimized, data-driven supply chains aimed at minimizing fulfillment time, losses, and enhancing profitability.

Profitability also distinguishes the two firms. Apple focuses on high-margin products with premium pricing, which has made it the most profitable company globally, even distributing cash dividends. In contrast, Amazon has prioritized growth over immediate profit, often reporting minimal profits relative to its revenues despite explosive growth in sales and operating cash flow. Molla and Rey (2017) note that it took Amazon 18 years to match Walmart’s market capitalization, but only two additional years to double it. This strategy has enabled Amazon to develop perhaps the most sophisticated supply chain infrastructure in the world.

Transportation Strategy

In 2020, Apple shifted its shipping strategy, enabling the delivery of devices from its retail stores to customers within a 100-mile radius via UPS and FedEx. This marked a significant departure from the company’s traditional reliance on centralized distribution (Solomon, 2020). This approach has the potential to improve delivery times substantially, with same-day delivery now possible for many customers. The change also impacts the air freight industry; previously, Apple’s shipping volume from Asian manufacturing facilities to centralized distribution centers consumed a large portion of available air freight, particularly during peak holiday seasons (Casteren, 2018). Despite rising air freight costs, Apple prefers air transport over ocean freight, given that air deliveries typically take less than a week, aligning with the company’s limited inventory strategy. Ocean freight can extend delivery times beyond a month, making rapid delivery crucial during the holiday quarter.

Challenges and Risk Mitigation

According to Lu (2020), much of Apple’s success is attributed to CEO Tim Cook, who implemented radical changes to the supply chain after taking the helm in 2011. He reduced the number of component suppliers to foster competitive bidding and closed ten of the company’s nineteen warehouses to cut excess inventory, leading to an inventory turnover rate of about ten days by 2018 (Lu, 2020). However, the COVID-19 pandemic exposed vulnerabilities in Apple’s reliance on complex, fast-moving supply chains, particularly regarding just-in-time manufacturing and low inventory levels.

To mitigate these risks, Apple has pivoted to decentralized product distribution, which shortens delivery times and decreases the likelihood of widespread supply chain disruptions. Additionally, the company might consider increasing its inventory of essential production materials, taking a cue from companies like Toyota to bolster resilience (Bernshteyn, 2021). Given Apple’s substantial cash reserves, it has various strategies to mitigate risks, such as exploring mixed-mode distribution that combines air and sea transport to lower shipping costs. In the future, the company may return to a more centralized model, utilizing automated drones for micro-shipments to individual customers.

Economic and Political Factors

Apple’s dependence on manufacturing facilities in China poses a significant long-term risk. Over the past two decades, China has rapidly urbanized, with average wages rising to 2.6 times their 2010 levels (Textor, 2021). Although the Chinese Communist Party (CCP) has made strides to enhance the business environment, its authoritarian governance and human rights violations create considerable political instability. Currently, no alternative market possesses the capacity, infrastructure, expertise, manpower, or raw materials to replace China. Consequently, Apple’s streamlined supply chain could ultimately become a liability. The company has faced challenges due to the disruptions caused by lockdowns and other factors since early 2020, impacting both manufacturing and distribution. To enhance long-term sustainability, Apple should consider investing in local manufacturing and recycling operations. While this could lead to higher consumer prices and lower profitability, it may also foster a more resilient global supply chain that supports national economies and contributes to climate change efforts.

Pricing Promotions

Apple’s promotional pricing strategy diverges from typical practices seen among technology firms, which often offer discounts during the holiday season. Generally, Apple and its authorized resellers refrain from providing promotional discounts on their latest product lines (Farfan, 2019). While they may occasionally offer Black Friday sales, these are not widely advertised in advance. Authorized resellers can discount older models to clear inventory when new devices are launched, but overall, Apple leverages its strong brand reputation to sell products at full price, a strategy that has proven effective.

References

Bajarin, B. (2011, July 1). Why competing with Apple is so difficult. Time. Retrieved October 13, 2021, from https://techland.time.com/2011/07/01/why-competing-with-apple-is-so-difficult/

Bernshteyn, R. (2021, August 26). Today’s businesses need to be agile and flexible, starting with supply chains – sponsor content from Coupa. Harvard Business Review. Retrieved September 19, 2021, from https://hbr.org/sponsored/2021/08/todays-businesses-need-to-be-agile-and-flexible-starting-with-supply-chains

Casteren, J. van. (2018, March 30). How the new iPhone drives up the cost of air freight. My Logistics Magazine. Retrieved October 15, 2021, from http://mylogisticsmagazine.com/air/new-iphone-drives-cost-air-freight/

Farfan, B. (2019, December 5). Does Apple use discounts, deals or promotions to sell Apple products? The Balance Small Business. Retrieved October 15, 2021, from https://www.thebalancesmb.com/apple-deals-promotions-2891801

Lu, C. (2020, April 15). Apple supply chain – the best supply chain in the world. Supply Chain Management. Retrieved October 13, 2021, from https://www.tradegecko.com/blog/supply-chain-management/apple-the-best-supply-chain-in-the-world