p.p1 and smart phones. Apple manages a global supply

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0px 0.0px 0.0px 0.0px; font: 11.5px ‘Times New Roman’; min-height: 12.0px}Case Study, Mandatory Assignment 1  Case Study, Mandatory Assignment Strategic and Tactical Tools for E-Business, CBUSO1001U.LA_E17 Qiqi Jiang Karolina Kulbyte, 1909914546 Maja ?wiercz, 2903934010 Michalina Duda, 2712933030 Nathalie Hemmen, 2211933502 01 12 2017 Copenhagen Business School, 2017Case Study, Mandatory Assignment 2 Review Apple’s supply chain for its iPhone product. What differences set it apart from competitors? Apple’s Inc.

supply chain for its iPhone product review Apple Inc., one of the world’s biggest companies by market capitalization, had introduced a series of consumer products during the past ten years that had transformed the company into the industry leader. Apple Inc. is well known for its electronic devices such as laptops, portable music players and smart phones.

 Apple manages a global supply chain with creative development and design in the United States, outsourced manufacturing to Asia to where components are sourced from more than 150 suppliers around the world and retail stores some of which were its own Apple-branded stores. Even sourcing manufacturing to third-party service providers, the company always kept the control the entire supply chain internally. This was one of the central keys to Apple’s supply chain success. New product development. Design and engineering was kept in California, where Apple developed its technologies, acquired licenses and made acquisitions of small start-ups, which could be used in Apple’s ecosystem. Apple’s management kept a rather short new product development cycle – for the iPhone lifecycle was close to one year. Apple designers worked in close proximity with suppliers.

Often the designers would spend couple of months living in hotel rooms to be close to suppliers and manufacturers. Procurement. Apple’s kept around 60 per cent as gross margin of each sold iPhone. The demand was usually forecasted 150 days in advance and updates were continually sent to suppliers to allow adjust production schedules (Mark, 2014). Apple products usually consisted of key components, which were often sourced from only one manufacturer.

Apple used to buy single manufacturer’s capacity in advance. In this way the prevented other companies buying core component and ensured that Apple’s products would never be in lack of it. Moreover, this approach allowed Apple to cut the cost due to the large order amounts. Product assembly. Final assembly of the iPhone occurred in China, at Apple’s subcontractor Hon Hai Precision Industry Co., (also known as Foxconn). It would cost Apple – $8 per iPhone (Mark, 2014). Case Study, Mandatory Assignment 3 Couple of iPhone components were labour-intensive based assembly operations with difficult quality control processes.

One of them, was smart phone’s camera, which required to run each module trough a battery of tests before it could be placed into an iPhone. Subcontractors found it difficult to coordinate the temporary labour source used in smart phone assembly and tests. For example, for a group of more than 20 companies with 28 plants in Malaysia that were providing assembly services to Apple’s component suppliers, were receiving orders meant that they had to hire thousands of temporary workers (Mark, 2014).

 Beside the intense labour requirements for components testing and device assembly, another key advantage for Apple was that global suppliers allocated engineers at a scale that Apple would never find locally in US. Apple’s analysts were predicting that it would have taken them almost 9 months to find the same amount of engineers in US. In comparison to this, in China, it took subcontractors 15 days. Logistics. Apple outsourced on intermediate warehouses to delivery companies such as UPS and Fedex, and also had its own warehouses in Elk Grove, California. They had to ensure that all their sales outlets, including online shops, retail stores, direct sales force, wholesalers and retail network, had the product in stock. In addition, Apple introduced reverse logistics system, covering the management of warranty claims, trade-ins and Apple’s recycle and reuse program. Managing reverse logistics parted to Apple’s success, both decreasing costs and increasing customer service and experience(Mark, 2014).

 Retail experience. Apple had 424 own retail stores in 16 different countries worldwide. Combining together with, its online Apple Store, which was available in 39 countries(Mark, 2014). Apple stores were usually located in high traffic, trendy areas in high-end shopping malls. This was a perfect addition to Apple’s brand image as high-end luxury product provider. The retail stores staffs was well trained, experienced and knowledgeable. The personnel would provide advice on products, training for Apple software and also offered a wide selection of third-party hardware, software and accessories Case Study, Mandatory Assignment 4 What differences set it apart from competitors? Based on the Ken Mark’s case from Ivey Publishing, we have identified a couple of major differences between Apple Inc.

and its competitors that allowed Apple Inc. to become an industry leader in consumer devices(Mark, 2014). Short product development cycle. Apple’s product development cycle as one of the key factors setting it apart from its competitors. Apple’s new product development cycle is approximately one year which allowed the company to innovate faster and deliver the products within a year after launching the previous one (Mark, 2014). Cross-department coordination.

Development team coordinates with other departments such as hardware, software, etc, to ensure the product can be built in large volumes (Mark, 2014). Apple is creating an amazing work group, by allowing each member of the department to offer their alternative opinion and insights to a given task. This brings a greater scope of information to the table and allows better and faster problem solving.

 Separating the Design Team from the company while innovating. Together with the Chief Design Officer at Apple the Design Team is being cut off from the main part of the Apple Inc. It is allowing the whole team to focus on the design process, rather than day to day business (Mark, 2014). Focused product line-up. Apple is keeping the product diversification to minimum. With each product available in a limited number of configurations, Apple’s supply chain processes can be streamlined. Apple has very few products compared to its competitors like Dell and Samsung. Predominately, back in 2014 Apple sells just five different products – iPad, iPhone, iPod, Mac and Apple TV.

This allows the company to fine tune their strategy. By having less product options Apple can focus on a few components, provided by a small number of suppliers in their supply chain. Having small number of suppliers allows Apple to focus on building a strong and long-term relationships (Mark, 2014).Case Study, Mandatory Assignment 5 What are Apple’s key advantages in how it manages its supply chain operations? Support your analysis with data from the case Apple controls its entire supply chain internally In contrast to its competitors (for example Samsung1)(Florin, 2013) Apple prefers to control all phases of its products’ manufacturing process.

Other companies usually outsource their entire production to third-party service providers, sometimes they outsource even the management of their supply chain. Although Apple also outsources manufacturing process of its products, its industrial design team works closely with production team to make sure that the parts they make are working properly (Satariano, 2013). They help manufacturers to refine the industrial processes that transform prototypes into mass-produced devices (Simpson, 2013).

It enables Apple to protect their reputation and to ensure that the quality of their products is on high level. Apple buys suppliers’ production capacity in advance Apple’s program allows it to sign agreements with suppliers that provide supply assurance in exchange for receiving capital equipment from Apple. It also sometimes serves as a quasi-bank by providing financing to build factories (Satariano, 2013). It is a remedy for the shortage of key components that might sometimes occur while using the same components as other mobile phone companies and buying them from a single popular supplier. This strategy also enables Apple to negotiate large discounts on components and to have a flexible manufacturing process so that they can adjust production volume to demand quite quickly.

In the case, as an example of such practices, author mentions Apple’s exclusivity agreement with US laser equipment supplier that made machines to cut precision holes. It was signed to secure machines for producing Apple’s products. The second exclusivity agreement mentioned in the case was a deal with GT Advanced Technologies Inc (Satariano, 2013). In exchange Apple made a prepayment of $578 million which GT Advanced Technologies was supposed to give back over 5 years starting in 2015. This agreement limited company’s ability to take additional business.

Such agreements sometimes had material impact on Apple’s competitors. For example, to produce iPad 2 Apple bought so many high-end drills that other companies had to wait for the machines 6 months instead of 6 weeks (Simpson, 2013). When Apple bought DRAM chips, Samsung’s stock price tumbled and it erased $10 billion of Samsung’s market cap (WebProNews, 2012).Case Study, Mandatory Assignment 6 Apple stores in high-traffic locations Those stores help Apple not only with providing better customer experience and promoting its brand but also with monitoring demand on its products, so that Apple can use this information to forecast the demand on a daily basis. In combination with Apple’s flexible suppliers it is a big competitive advantage because the company can eliminate the bullwhip effect to a large extend. Apple uses sales forecast to manage production increase issues. It places material purchase commitments and makes pre-payments when it is needed(Simpson, 2013).

The company often alters the orders at a moment’s notice. In the case author mentions a story when Apple had redesigned iPhone’s screens just weeks before the product would become available. Because of that a foreman of a Chinese factory had to rise 8000 workers, who within 30 minutes started their 12-hours shifts (Charles & Keith, 2012). Apple has global suppliers Global suppliers can provide engineers at a scale that US suppliers cannot meet. In the case, the author gives an example of a situation when Apple needed 8700 industrial engineers. It found them in China in 15 days. Its analysts forecasted that it would take 9 months in US to find so many qualified engineers.

 Apple’s reverse logistics system It includes warranty claims, trade-ins and Apple’s recycle and reuse program. Its reverse logistics system results in fewer calls to its technical support services and in lower likelihood of mistake made by customer (for example by giving a wrong address). So Apple can reduce costs because it needs less employees working in technical support service. The company can also save by avoiding paying shipping companies when the product cannot be delivered because of the mistake made by a customer. The system also affects the time needed to diagnose and return the product. It allows Apple to service its customers quickly and as a result increase customers’ satisfaction. Apple can also earn money on recycling used products and selling refurbished products as “Apple Certified”(Apple Inc.

, 2017).Case Study, Mandatory Assignment 7 What are the challenges that Apple faces in the future, and what are the implications for its supply chain? Partnerships with suppliers The first big challenge for Apple consists in the fact that suppliers show an increasing reluctance to work with Apple. This has multiple reasons.

On one hand, Apple insists on committed capacity, meaning that the supplier must always be ready to produce a certain quantity for Apple. This limits the supplier’s ability to take on additional business because their production capacity on the whole is reduced, even though Apple might not make use of this during a period of time. Additionally, Apple uses its market power to lower prices, resulting in an overall reduction in prices that suppliers can demand from its customers.

Thus, the overall profits of the suppliers are reduced. Suppliers are also under the obligation to keep parts inventory for at least two weeks close to the assembly parts, thereby adding additional costs to the manufacturer. Another factor concerning costs is the fact that suppliers sometimes have to bear the costs to carry parts, because Apple delays its payments to up to three months. The suppliers in question are also required to hand in detailed accounts of the cost of labour, materials and projected profit. These factors affect the suppliers’ willingness to sign a contract with Apple, as their profits are reduced while their workload is increased.

The result of this is that Apple’s negotiating power is reduced and it will become harder for them to find suppliers willing to accept these conditions. The strength of Apple’s supply chain lies in its ability to produce large quantities in a short amount of time. If suppliers don’t agree to accept the conditions to guarantee this process, then this threatens Apple’s whole supply chain, as its ability to adapt to changes and to produce according to schedule is limited. Management and coordination A second challenge for Apple consists in the management of its workforce and schedule. Apple works with a vast number of suppliers and manufacturers, which entices a big amount of workers, while pursuing its goal of maintaining a tight production schedule. This requires very detailed planning as well as a high level of coordination between the different suppliers.

However, these characteristics leave Apple’s supply chain vulnerable, as small delays in one part of the supply chain have a ripple effect on all succeeding steps and impact Apple’s inventory projections. Concerning the workforce, Apple also has to deal with the public pressure regarding the treatment of the workers hired by its suppliers. Public accounts of long overtime hours, insufficient salary and harsh working conditions may force Apple to overthink its just-in-time supply chain, as they might Case Study, Mandatory Assignment 8 have to reduce overtime work and increase the salary of their workers, which reduces their ability to produce large amounts in a short time span and increases their costs. In addition to the public pressure this produces, it may also motivate workers to organize strikes and refuse work, which causes disruptions in the supply chain and delays production. These factors, coupled with the amounting pressure from competitors coming mainly from China and Taiwan might render Apple’s supply chain strategy unsustainable.

These competitors produce at a fast rate and very low price, thus exercising additional pressure on Apple to improve and speed up its supply chain and development process. Demand Forecast Another challenge for Apple derives from the difficulty of adequately forecasting demand through their complex supply chain. This is a very important factor for Apple, as a miscalculation in their demand forecast may result in shipping delays and product shortages which negatively impacts their customer satisfaction as well as their brand image. As their products get more complex and require more specialised technology parts, their supply chain is only going to expand in order to include the suppliers of these parts. This increases the complexity of their supply chain and makes a higher and improved level of coordination necessary. This higher level of coordination might imply that Apple can’t sustain its just-in-time supply chain, as this is not adaptable to such a degree of complexity. Furthermore, a more complex supply chain is more vulnerable to delays and even small delays can prove to be expensive as more suppliers and manufacturers are affected by them.

 All of these challenges that Apple faces threaten their supply chain structure that is at the core of their market advantage, as in order to master these challenges, Apple might be forced to make alterations to its supply chain as it exists at this point. Case Study, Mandatory Assignment 9 As Jessica Grant, what recommendations would you make to the company’s vice-president, Phillip Duchene, and why? Jessica Grant was working as a financial analyst for an exit company called BXE Capital. In 2014 as a part of her work task she was reviewing her U.S. equity mandate with the company vice president. She reviewed Apple’s supply chain due to the reason of identifying if the company should keep Apple as one of the key funding in their portfolio. Based on previous sections of this paper we would recommend keeping Apple as one of the BXE Capital key funding.

 Our recommendation is based on the following competitive advantages of Apple’s supply chain. Strong control over the supply chain Even though Apple outsources some crucial parts of it’s supply chain (for example manufacturing) the company still holds strong influence over the suppliers thanks to signing the exclusivity agreements with them. Furthermore, Apple constantly audits its contractors which allows them to early discover potential threats, such as labor abuses and preserve a good company reputation. Good worldwide reputation of Apple’s supply chain Apple’s supply chain was ranked the best supply chain in couple consecutive years from 2010 to 2013. Keeping a key holding with good reputation and strong position in the industry would likely contribute to the BXE Capital’s portfolio.

It is less risky to invest in a strong market player rather than investing in a small unstable enterprises. Reverse logistics system Apple as one of the first on the market introduces a reverse logistics systems to its customers. By this they improved the customer satisfaction and increase their loyalty to the Apple brand. The whole process was set up it a way that would reduce the human error possibility almost to zero and improve the return system by speeding up the process of item diagnosis and its return to the customer. Having the proper packaging send to the customer increased a possibility to sell the refurbished product.Case Study, Mandatory Assignment 10 References Apple Inc. (2017).

Certified Refurbished – Apple (CA). Retrieved November 28, 2017, from https://www.apple.com/ca/shop/browse/home/specialdeals Charles, D., & Keith, B. (2012). How the U.S.

Lost Out on iPhone Work. Retrieved November 28, 2017, from http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=1=all Florin. (2013).

Samsung sees advantages in outsourcing smartphone production. 10 million Galaxy Trend Duos units already made. Retrieved from http://www.unwiredview.com/2013/11/13/samsung-sees-advantages-in-outsourcing-smartphone-production-10-million-galaxy-trend-duos-units-already-made/ Mark, K. (2014).

Apple inc.: Managing a global supply chain, 1–21. Satariano, A. (2013). Apple’s $10.5 B on Robots to Lasers Shores up Supply Chain.

Bloomberg. Simpson, C. (2013). An iPhone Tester Caught in Apple’s Supply Chain.

Bloomberg. WebProNews. (2012). Samsung Market Value Drops $10 Billion On Apple News. Retrieved November 28, 2017, from https://www.webpronews.com/samsung-market-value-drops-10-billion-on-apple-news-2012-05/

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