Apple’s Secret War Against Samsung is Working

| Analysis

As in warfare, a major element of global economic competition is logistics. Logistics is a subtle behind the scenes operation on which victory hinges, but it seldom gets a lot of attention until it fails.  Guess what Tim Cook is a master of?

pl.noun [ treated as sing. or pl. ]
The detailed coordination of a complex operation involving many people, facilities, or supplies.

I've been thinking in greater detail about how Apple is conducting its war against Samsung. Normally, when we think about competing companies, we tend think think about product feature wars alone. Does this smartphone have a better camera? Does that smartphone have a longer battery life? And so on.

I think the reason we think that way about competing companies is because we have a certain geeky habit, developed over the years, of end user value estimation. The smartphone that has a better feature set has the most value. So we conclude the manufactuter is more capable. That's why we dwell on comparison charts. And, to be sure, Apple does make sure that its iPhone is feature complete and is beautifully made. Of course, Apple competes not only with industrial design but also with the technique of a beautiful and secure iOS that adds even more value to the handsome hardware.

But that's not all there is to Apple's war. There's a less visible, almost secret, part going on.

Logistics and Economic War

When I think about Apple fighting Samsung, I also think about the vast machinery of coordinating supplies, manufacturing, and inventory. During the U.S. Civil War, General Nathan B. Forrest believed that the winner is the one who "gets there firstest with the mostest."  It doesn't matter if Apple's competition has a product with lots of features and it doesn't matter if it has clever TV ads if it can't build first class phones and get them efficiently moved around the world and put on sale.

Carrier considerations are also important. Carriers must perceive that they will benefit from offering the Apple iPhone, and it's Apple's job to court them as valuable business partners. That's why at most every Apple earnings report, we hear about how Apple has entered new geographical markets or engaged additional carriers in a specific market.

Another factor is the scalability of Apple operations. When human beings are primarily responsible for the final hand crafting of an iPhone, there are human limits to fast and how greatly production can grow. Scalability is constrained. That's why Apple is making an investment in robots to assemble its iPhone 6. "Foxconn Bringing in Robots for iPhone 6 Assembly."

Logistics can often overcome sporadic deficiencies or make up for mistakes in specifications of an iPhone made well in advance. For example, Apple suffered a little because Samsung was cashing in on customer demand with Galaxy S5's larger display. However, Apple was able to counter with a slightly less expensive iPhone 5c and get it in front of customers worldwide. That manufacturing capability helped hold the fort until Apple was able to develop the iPhone 6 with, we think, a 4.7-inch display.

Efficient logistics are also what allows Apple to generate significant profits that can, in turn, fuel its war machine, and make a massive investment in, we think, a sapphire display for the iPhone 6.

Finally, as with device features, logistics can also be used as a weapon to destroy an opponent's temporary advantages. Manufacturing and distribution can be used to wield a more competitive price, offer broader, more desirable and available options, or dive into markets that the competition can't compete in.

All this is what Tim Cook mastered when he was the Chief Operating Officer at Apple under Steve Jobs. Nowadays, Mr. Cook is the supreme allied commander, getting to market "the firstest with the mostest" where and when it counts. And Samsung will never admit to how it's being hurt — until it must finally report on earnings.

This aspect of Apple's logistics expertise is an often overlooked part of Apple's success and leads to a dangerous under appreciation of Tim Cook.

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Teaser graphic via Shutterstock.

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Comments

CudaBoy

John’s continuous defending of Apple’s lesser feature set and specs compared to some other phones is just mind boggling. Keep picking on Samsung though, it must mean you are concerned.

Gareth Harris

John,
Remember the apocryphal WWII story about the German intelligence office inspecting and overrun American position and finding a fresh birthday cake?
He knew the war was lost they could not get fuel while Americans were getting birthday cakes from Boston.

Similarly, Apple has the supply chain and vendor agreements reaching out for years due to deep pockets. Others can’t even get parts or materials to compete.

Blissmonkey

“John’s continuous defending of Apple’s lesser feature set and specs compared to some other phones is just mind boggling. Keep picking on Samsung though, it must mean you are concerned.”

This comment couldn’t possibly be more generic, and identical comments proliferate regardless of the content it attempts to criticize.

CudaBoy

<<Similarly, Apple has the supply chain and vendor agreements reaching out for years due to deep pockets. Others can’t even get parts..>>  Parts and components change so fast you’d have to be psychic to know today what component you’ll need in 10 years so I disagree with your pipeline assessment. It’s about sensors, like NFC and gyroscopes where Apple lags. if Apple is still hiring Nike Fuelband clones; I’d say Apple does NOT have a watch or any health sensor equipped watches, clothes and hats coming soon - but they are dialing it in Fo Sho. Don’t cry for Samsung, they don’t need Apple as they are so Mega diverse, they are their OWN pipeline just like Tesla is, and Apple isn’t. OAN, Whaddaya bet Apple uses Tesla batteries from the mega factory in a few years?

Jim Gramze

Doesn’t Apple have the sapphire market tied up?

jameskatt

As an example of Tim Cook’s Apple Logistic Wizardry, Apple has less than 1 week of unsold inventory.  That is completely amazing for such a large company that sells billions of product each year.

Samsung on the other hand has 6 weeks of unsold inventory.

jameskatt

Samsung’s unsold inventory hurts a lot when the Chinese tigers come after you from the low end and Apple squeezes you from the high end.

Hellow sapphire iPhone 6 - the mother of all upgrades - and all high end upgrades.

Paul Goodwin

NFC and gyroscopes? NFC, the solution looking for a problem, is a good example of how Apple’s thinking just leaves Samsung in their wake. NFC is an almost useless technology. It’s a small potato gimmick put in to sell more phones, and nobody can do anything with it that’s worthwhile. Meanwhile Apple was developing iBeacon, a technology that will actually perform some useful functions.

Cboy. There’s nothing lagging in Apple’s hardware. The 5S is faster and more capable at most everything a smartphone is designed to be. Samsung is being crushed slowly by the overall strength of Apple in every step of the design, development, production and support processes. Look at John’s graphic Logistics bubble. Think of how many arrows there are when you include all of those processes. Samsung wins only three arrows…...copying, stealing, and BS commercials.

And your comment on the supply chain components is wrong. Developing a network of good suppliers is mandatory. It’s not about today’s parts, it’s about a pipeline system that is trained and tuned to Apple’s needs. Not only now, but down the road. Apple is an industry leader in amassing the needed development systems to support their future technologies. They’re at the top of the heap in picking the technologies with the most promise, and likewise in their ability to turn those technologies into useful machines.

Speaking of machines, when you look at the breadth of Apple’s offerings of phones, tablets, laptops, desktops, set top boxes, routers et al, the ad in the software side of Apple, Samsung isn’t even in the same universe. Unless Apple does some serious ball-dropping, the gap will widen even more quickly in the next 2-5 years. We are only at the tip of the 64 bit mobile iceberg. Before long, a new generation of far more powerful applications will be out. It’ll be 1.5 to 2 years after that before you’ll see anything from Samsung rivaling what Apple will have offered 6 months from now.

Paul Goodwin

PS. The WWDC Apple had gives us an inkling of how organized Apple is in developing the software side of the business. They’re creating technologies to enable quicker and less expensive SW development. They just bolted on the turbochargers.

buddhistMonkey

@CudaBoy ((( “John’s continuous defending of Apple’s lesser feature set and specs compared to some other phones is just mind boggling.” )))

Perhaps you can point out this “defense of a lesser feature set,” because I can’t spot it. On the contrary, the implication from the first few paragraphs of this article is that Apple’s products don’t have the most bells, whistles, streamers, or playing cards in the spokes. What they have instead, according to the article, is great industrial design and a world-class supply chain. And that’s true.

((( “Parts and components change so fast you’d have to be psychic to know today what component you’ll need in 10 years so I disagree with your pipeline assessment.” )))

You’re right to a degree, but Apple doesn’t need to project over a ten-year span. A year to eighteen months will do. For example, before the introduction of the iPad, Apple purchased more than a year’s worth of memory and other components for its production, essentially cornering the market for those parts. That’s why it took nearly two years for competitors to challenge the iPad on price, despite having to resort to an inferior build quality for their tablets.

Michael Howard

Good read, and you don’t even touch on the huge change that’s coming with TouchID, iBeacon and payments as a whole. They are simply stepping around everyone else’s quaint little bullet-point-chasing antics.

Macartisan 1

Actually, getting there ‘fustest with the mostest’ is the strategy of the raider, and depends on stealing whatever you need wherever you can find it.

In this analogy, Apple is closer to Grant: overwhelming force, backed by efficient and well-defended supply lines.

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