Supply Chain ~ The HIDDEN Apple Elixir

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    Posted: 20 March 2012 03:30 AM

    True story:

    Years ago, I ordered a new MacBook Air, model one, day one. There was a few weeks wait between announcement, and release. Given that this was four years ago, a radical design and the giddy excitement was rife in the air….

    ... but to ME, the most exciting thing, was actually *watching live/online* as MY OWN PERSONAL computer, entered manufacturing, left for shipping, then to customs, onto the plane, stopover in Alaska for customs, and to Nashville, Pittsburgh, onto the truck, and to my front door. EVERY STEP being reported back to me LIVE in close to real time!

    It blew my mind. Literally shocked me to the core.

    I told my son, back then, a junior in High School, THIS IS THE FUTURE, this is where money, industries, things, and reputations are going to be made in the future. SUPPLY CHAIN MANAGEMENT. On the strength of that event, we researched what schools were best for SCM, and Penn State is rated #1 in the world for this via their SMEAL BUSINESS SCHOOL, highly competitive and hard to get in for SCM. So, we targeted that, and today, my son is entering his Junior year next fall, with a 3.9 in SCM. All because of Tim Cook, and the SC excellence and experience that I had four years ago.

    Anyway, over on FORTUNE, where Phillip Elmer-Dewitt, ran a story about 3 million iPads in the first weekend, a SCM professional wrote the following in his reply to the story. I believe THIS is a great recap of what doesn’t get the headlines, like the design, features, etc, etc. But the truth be told, Tim Cook, PERSONALLY has turned Steve Jobs’ creative drive, into product on the shelves, or rather, ELIMINATED a lot of the shelves altogether, creating a “Just-in-Time” delivery wonder.

    I have printed this out for my son to give to his class in SCM at PSU, to rally the troops and encourage their studies.


    Alex H, Yesterday 11:38 PM

    One thing that often gets overlooked is Apple’s operational excellence compared to other area’s of the company’s discipline like design, engineering, software development and marketing, etc. I work in the supply chain side of things in a completely different kind of industry and go to Asia (mainly China and Korea) 4~5 times per year, so I can appreciate what’s involved in working with the suppliers there and coordinating the development, manufacturing and delivery of products to the customers all around the world.

    When I observe what Apple is doing purely from the supply chain side of things, I’m in absolute awe of their execution from front to end - especially considering how older products are phased out and new products are inserted into a rather huge pipeline. To me, Apple’s supply chain management is more interesting than their marketing or engineering operations. And I don’t think there is any doubt that Apple manages supply chain better than any other company in the world and that it is the underlying factor in why Apple has been so financially successful.

    To coordinate the production and delivery (in virtual secrecy) of millions of these sophisticated products into the hands of consumers over a weekend is pretty mind-boggling to ponder from a logistics perspective. What Apple is doing makes what I’m doing in the industry that I’m in seem like caveman-primitive in comparison. I wonder how many Apple supply chain employees are based in Asia overseeing the supply chain side of things. It must be in the many hundreds or perhaps well over a thousand. I can’t even imagine.

    A great example of Apple’s innovation in the supply chain side of things is how the products get delivered to the consumers’ doors straight from the factory in Shenzen, China. As Tim Cook famously said, “Inventory is fundamentally evil.” Why have expensive warehouse space and overhead in the US when Apple can ship in volume from the factories and warehouses in China with special shipping deals with the likes of FedEx and UPS to have the products delivered straight to the customers’ doors? Even an HP operations manager said that it was an “Oh, s$*t!” moment when he ordered an iPod and saw it being shipped to his door from China.

    Apple is leveraging its humungous size and scale along with breathtaking speed and proficiency to get the products made in time with the quality that it demands and then delivered in the most cost-effective ways possible to its customers. Apple needs to operate like a little start-up in this industry to stay ahead and Tim Cook and his operations team has somehow figured out how to do so despite its $100+ billion size in a super-fast moving industry. I mean, is anyone really interested in Exxon or Walmart’s operations? They’re like blue whales or elephants while Apple is like a killer whale, a cheetah and a falcon moving at their top speeds.

    Apple’s remarkable logistics and operational excellence often gets overlooked by virtually everyone out there and perhaps that’s a good thing. To most people, it’s just not that interesting and not worth delving into. But this is Apple’s secret (or under-appreciated) weapon and no one in Apple wants to share how they do it. And not enough people would care enough anyway. This weekend’s sales of 3 million iPads in 4 days is a good example of what is possible when a company has its operations act together.

    Having too much of a backlog is akin to leaving money on the table. Having too much inventory is pretty bad too. Tech products are like milk; no one wants to buy sour milk. It seems Apple is getting better and better at forecasting demand and that’s even more bad news for the competition.


    “Even in the worst of times, someone turns a profit. . ” —#162 Ferengi: Rules of Acquisition

  • Posted: 20 March 2012 08:06 AM #1

    I ran a tiny manufacturing operation for a few years, and zero inventory with a few week’s sales backorders is a wonderful state to be in. Everything runs along at maximum efficiency, there are no worries about finished goods inventory, buying the wrong parts or building the wrong configs. As soon as you have inventory, you can’t upgrade the product so readily, you don’t know if you should be pausing manufacture etc.

    Dell used to brag about this. But basically they cheated. They would require suppliers to warehouse inventory in the vicinity of Dell’s facility, and to deliver at a half day’s notice. They would require the supplier not to invoice for (I think) 48 hours, and to collect any unwanted inventory in that time interval so it never entered Dell’s accounting records. On the customer side, this was covered by “we build your configuration to order”. So suppliers took the all hit on inventory costs and falling prices. It made Dell look good, but it wasn’t good for the whole supply chain.