Supply Chain Management Relationships By Luke Cairns http://i1-news.softpedia-static.com/images/news2/iOS-May-Turn-Apple-TV-into-a-Gaming-Console-2.jpg

Overview of Apple American multinational company. Designs and markets innovative consumer electronics, computer software and personal computers. Products sold worldwide through its retail stores and online stores, as well as wholesalers, retailers and value- added resellers. 357 retail stores worldwide. In 2011: $108.2 billion revenue and $25.9 billion of retained profit. Apple is an American multinational corporation that is committed to delivering the best user experience to its customers through its innovative hardware, software, peripherals, and service. The company’s best-known products include the Macintosh line of computers, the iPod, the iPhone and the iPad.  Apple sells its products worldwide through its retail stores and online stores, as well as through wholesalers, retailers, and value-added resellers. The Company has 357 retail stores worldwide. By operating its own stores the Company is better positioned to ensure a high quality customer buying experience and attract new customers. In 2011 Apple generated 108.2 billion dollars’ worth of revenue with a retained profit of 25.9 billion dollars http://files.shareholder.com/downloads/AAPL/1536680130x0x512287/5a5d7b14-9542-4640-841d-e047ec28bb96/AAPL_10K_FY11_10.26.11.pdf http://mos.futurenet.com/techradar/classifications/gadgets/phones/mobile-phones/iPhone/iphone4_2up_front_side-420-90.jpg

Focused Product Line-up Apple has very few products compared to other large companies e.g. Samsung has hundreds of products. Predominately sells just five different gadgets – iPad, iPhone, iPod, Mac and Apple TV. Focused product line-up allows Apple to fine tune their sourcing strategy. As there are relatively few components, Apple need a small amount of suppliers in their supply chain. Having small number of suppiers allows Apple to focus and build strong long term relationships. Focused Product Lineup Compared with other large companies such as Hewlett-Packard, which sells hundreds of different products, Apple has remarkably few products. Apple predominately sells just five different gadgets -- iPad, iPhone, iPod, Mac and Apple TV. That small handful of products share many components that are common to all the devices. Because it has such a small product line-up, Apple's sourcing strategy can be much more finely tuned than other companies. As there are relatively few components, Apple need a small amount of suppliers in their supply chain. Having few suppliers allows Apple to focus build strong long term relationships. http://files.shareholder.com/downloads/AAPL/1536680130x0x512287/5a5d7b14-9542-4640-841d-e047ec28bb96/AAPL_10K_FY11_10.26.11.pdf

Apple Annual Revenue This graph shows how Sales of Apple's devices have risen rapidly over the past several years, and the company has grown to become one of the world's biggest component purchasers.  By the end of 2011, Wall Street analysts expect Apple will be the second-largest tech company in the United States by revenue, behind only Hewlett-Packard. http://money.cnn.com/galleries/2011/technology/1101/gallery.apple_sales/index.html?iid=EL

Kraljic’s Supply Positioning Components such as the battery and charger units Components such as the iPad screens and the processor chips Low High Supply risk Leverage products Alternative sources of supply available Substitution possible Bottleneck products Monopolistic market Large entry barriers Routine products Large product variety High logistics complexity Labour intensive Strategic products Critical for product’s cost price Dependence on supplier Tough competitive stance by buyer Competitive systems tendering + E-commerce Performance based partnership Secure supply + search for alternatives Buyer Strength Supply’s impact on financial results Looking at Kraljic’s Supply positioning matrix, the majority of apples more important components, such as the iPads touchscreen and the processer chips fit into the Strategic products section of the matrix. Other components such as the battery and charger units may fit into the leverage products section of the matrix.   http://www.economist.com/node/21525685 Number of available suppliers ES4c9: Supply Chain Management – Lecture 11 Relationships

Buyer-Supplier Reciprocity Apple Relationships Power Balance Buyer Dominance Buyer-Supplier Reciprocity Supplier Dominance Arms-length Short-term operational relationship Buyer appropriates most of the value Supplier is non-adversarial Buyer accepts current market price + quality Supplier accepts normal (low) market returns Adversarial commercial relationships Buyer pays whatever is required Supplier appropriates most of the value Collaborative Long-term operational relationships Buyer and supplier share value relatively equally Both agree price and quality trade-offs Both are non-adversarial Buyer is non-adversarial Way of working Foxconn Samsung From this chart I would say that most of the relationships Apple develop with their suppliers tend to be collaborative and highly buyer dominated, with Apple appropriating most of the value. For example Foxconn, Apples supplier who assemble the iPhone, only make a $7 margin compared to Apples $368 per iPhone, however just how much apple spends on software development, R&D, marketing etc is unclear. Relationships that involve some of the more advanced components however, such as the processer chips supplied by Samsung would probably fit into the Collaborative, Buyer-Supplier Reciprocity section of the chart. http://www.economist.com/node/21525685 ES4c9: Supply Chain Management – Lecture 11 Relationships

Apple Buyer Dominance With more then $80 billion in cash and investments Apple are able to commit to very large orders, have a lot of power and bargaining tactics. Low profits and margins for suppliers compared to Apple. Apple’s negotiation tactics sometimes lead to them losing out on suppliers. Large orders limit options for competitors e.g. rivals HTC could not purchase as many screens as they needed. As Apple have more than $80 billion in cash and investments, they are able to commit to large orders, this gives Apple a lot of power and their bargaining tactics tend to exert downward pressure on prices, leading to lower profits and margins for suppliers. However not every supplier gives in, an executive who works with a major parts manufacture claims that the company declined a $1billion payment from Apple that would have required the supplier to commit much of its manufacturing capacity to Apple products. The company did not want to be too dependent on Apple and didn’t want to help it deflate prices. By committing hefty prepayments to suppliers and placing such large orders, Apple limits options the options for its competitors. For example before the release of the iphone 4 in 2010, rivals such as HTC couldn’t buy as many screens as they needed because suppliers were too busy filling Apple orders. http://www.businessweek.com/magazine/apples-supplychain-secret-hoard-lasers-11032011_page_2.html http://bbfun.co.uk/ipodnano%204g.jpg http://www.businessweek.com/magazine/apples-supplychain-secret-hoard-lasers-11032011_page_2.html

Recommendations Do the participants in this supply chain trust each other? Apple is paranoid about leaks from suppliers. Apple has taken lawsuits out against suppliers Samsung related to patent infringement. Apple should reduce their reliance on outsourcing by becoming a vertically integrated company. Less suppliers mean less opportunity of leaks within the supply chain. By addressing the following question from the relationships lecture I am going to make some recommendations. Do the participants in this supply chain trust each other? Apple is so paranoid about leaks from its suppliers, it once shipped products in unmarked tomato boxes so outsiders wouldn't know there were Apple products in them. Apple have to trust suppliers such as Samsung, that supple and are also in direct competition with Apple not to copy their product, this had lead to Apple taking patent and design-related lawsuits to prevent Samsung from selling its Galaxy Tab 10.1 . Apple could reduce theirL reliance on outsourcing and perform many more of its operations inhouse, becoming a vertically integrated company. Apple already has the cash and investments to purchase many of the companys supplying them. By outsourcing less components Apple will reduce the amount of relationships they have and therefore reducing the opportunity for leaks within the supply chain. http://articles.businessinsider.com/2011-11-03/tech/30354101_1_macbook-air-apple-products-tim-cook http://www.zath.co.uk/apple-macbook-pro-review-aluminium-unibody/ http://wlmtips.com/wp-content/uploads/apple_tv.jpg

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