APPLE LOGISTICS AND SUPPLY CHAIN
Executive Summary
This report provided a detailed analysis of the current situation on Apple Computer’s logistics and supply chain. Included also are the diverse problems/issues within their SC, which includes supplier relationships, outsourcing activities and lack of compliance to social responsibility rules. A number of recommendations have been presented to help in resolving these issues. The report recommended that Apple needs to improve their relationships with their suppliers, ensure effective management of their suppliers’ behaviors, build own factory and streamline their outsourcing activities. Enhancing supplier relationships has been stated as the key recommendation that Apple should focus on. The implementation procedure for this solution has also been availed.
Introduction
Apple Computer is an American-based multinational company whose headquarters are located in California. The company designs, develops and trades on personal computers, computer software and consumer electronics. This analysis will focus on how the company has been managing their supply chain and logistics, determining the various problems and their solutions. Supply chain management (SCM) involves practices utilized in effectively integrating suppliers, producers and retailers in ensuring products are manufactured and distributed under the right quantity, right place and with timeliness. Primarily, SCM’s main objective to reduce the production and operational costs and avail services levels that are satisfactory to consumers (Susini 2004). This report, thus, will be assessing Apple’s supply chain and logistics, including the present situation and problems, plus how technology can help in solving the problems.
Situational Analysis
Apple’s pursuit for an impressive flow of supply chain and purchasing activities facilitated the company’s turnaround in the management of their supply chain. The initiative has improved the management of product demand, channel distribution, inventory investment plus the supply chain relationships (Maja & Matevz 2013). Through this, Apple minimized their product line by about 50%, daily production adjustment, sales were forecasted on weekly basis rather than on monthly basis, and they depended on suppliers in the management of their inventories in relation to standards components and parts. The majority of present day practices at Apple were developed under the leadership of Tim Cook, who responsibly implemented the measures, which facilitate the efficient and smooth flow of operations at Apple today. In matters involving the shipping of iPhones to markets such as the US, the company uses FedEx in transporting their precious cargo. The cost for this transportation is approximately $242000 US dollars and accommodates 450000 iPhones. The company relies on internal forecast to determine the number of iPhones required to be produced on the basis of regional demand fluctuations, or even adjust the handsets allocation. Although the company has always remained ahead even on the tiniest details to ensure things run smoothly, their supply chain and logistics management has not been without challenges. For example, the company’s most recent product launch placed massive challenges on the company’s supply chain.
The supply chain teams apparently face tough challenges (Susini 2004). Previous market introductions for new products used a phased product-available launch. However, the present plan demand for simultaneous inventory availability of 5C and 5S inventory across all the main geographies and countries. Consequently, the company has been experiencing a production ramp-up problems or issues associated with the 5S fingerprint scanner plus its new casing and the larger display. Previously, newly launched iPhones would sell out rather fast such the supply chain would be forced to rally in order to produce sufficient inventory available to supply during the holiday period. SC teams that are in support of the innovative 5S are further overwhelmed with the preparations for introducing/launching other potential new products. The company’s new products inclusive of iPhone 5, Apple Map and new iPad have been associated with the labor and environmental issues particularly found within their suppliers’ facilities. Apple Incorporation makes pre-payments to certain suppliers in order to get strategic raw materials.
The company buys raw materials from diverse sources and ships them to the assembling plant within China. The assembler then ships the products directly to the consumers through Fedex and UPS for people who purchase form the Apple’s Online Store. In relation to other distribution channels like direct sales, retail stores plus other distributors, the Company store their products at the Elk Grove, CA because this is where their call centers and central warehouses are located and from where products are supplied. On completion of a product’s lifecycle, consumers send the products back to the closest Apple Store or offer them to recycling facilities. Apple highly relies on the management of their supplier relationship to facilitate successful supply chain operations. For this reason, the company has been promoting this relationship through engaging suppliers in the new product development, supplier performance evaluation/improvement and close communication. Apple has developed a closed ecosystem through they exert control over almost all areas of supply chain process ranging from design to the retail store. As a result, the company generates huge discounts on parts, airfreight and manufacturing capacity (Apple Incorporation 2011).
Apple’s supply chain has suffered many setbacks especially in relation to the safety and employee treatments among their suppliers. There have been many reports or workers disabled through poisonous substances generating from the components used at work and without protective devices. Pollution cases among their suppliers have been rampant within the surrounding communities and environment (Apple Incorporation 2011). Workers’ dignity and rights have similarly been violated as Apple suppliers give-in to pressure of supplying low-cost components and materials from Apple. Such instances have broken Apple’s promises in respect to being socially responsible across their supply chain. Furthermore, some of Apple’s actions in their manufacturing process breach the environmental protection, labor rights and occupational health laws. The company manufactures a huge number of products every year but without any large-scale factory of their own. All their products’ components are almost exclusively bought from suppliers, with Apple being merely the operator of their brand. Apple Incorporation (2011, p.23) noted that for this reason Apple has been incapacitated to manage their suppliers’ behaviors thereby violating the organization’s commitment to social and environmental responsibilities.
Apple’s SC Model
Figure 1 derived from http://www.supplychainopz.com/
Figure 2 derived from http://www.supplychainopz.com/
Identification of Key Issues and Problems
Supplier Relationships
According to Greis et al (2011, 717), management of supply chain relationships is among the key challenges facing many companies today, especially the supplier relationships. Some companies outsource manufacturing or production with the intention of lowering the production costs. However, pressures to reduce costs plus the extra supply chain complexity can interfere with the quality of the manufactured product (Maja & Matevz 2013). Supplier relationship is increasingly a vital source of an organization’s competitive advantage. Therefore, considering that such relationships are crucial sources of a firm’s competitive advantage, then developing and managing such relationships should be considered very fundamental because it is the foundation for an overall company’s competitiveness. The increased outsourcing and specialization activities used by multinational firms such as Apple have made supplier relationships the focal point for organizational performance, competitiveness and long term success. Moreover, the profit-generating and the competitiveness capacity of a single company are highly based on a company’s ability to manage its suppliers. The relationships are very important because they are the key drivers of the shareholder and customer value (Maja & Matevz 2013). Apple has been facing supplier issues because they rely on outsourcing partners for logistical services. The company similarly depends on their partners to comply with the supplier conduct code.
Non-Compliance to the Social Responsibility Rules
CSR activities are widely conceptualized as a company’s activities and status in relation to their perceived societal obligations. Besides boosting purchase intentions among the customers, CSR activities help in improving company evaluations as well promoting their brand. CSR is increasingly important for a business because it increases advocacy and loyalty behaviors among customers while also shunning negative publicity (Monga et al 2000). Apple has well established labor policy standards, defining the hours of work for their suppliers’ employees. However, about 90% of their suppliers have been violating these rules in their workers’ treatment. For instance, Apple’s partner in supplying key components and for final assembly, Foxconn, has failed in this respect making Apple to have negative public image while also attracting negative media reports due to suicides, labor strife and accidents cases among workers. Labor relations problems and concerns for social responsibility have been on the rise among Apple customers.
Lack of an Individually Owned Factory
Outsourcing all organizational logistics and supply chain activities undoubtedly generates massive benefits for the respective company especially in relation to cost efficiencies. However, such decisions attract diverse challenges that can hinder the effectiveness of a supply chain. Primarily, this approach makes a company lose control of the third party providers (Razzaque & Sheng 1998). A company may also lack some important information or experience failed promises from such providers. All Apple’s manufacturing and assembly processes plus the supply of various components are generated from external sources. The company does not have its own factory where such activities can be conducted. The majority of their main components are derived from Northern Taiwan where they source customized components while also relying on immense factories located within China (Shenzhen) to facilitate the final assembly. This places Apple’s supply chain at a great risk because any kind of natural or man-made disaster in any of such sites can possibly destroy the company’s supply chain completely.
Development and Evaluation of Alternative Solutions
Improve Supplier Relationships
One major way that companies can handle the supplier relationships issues is through adopting vertical integration, which is more beneficial in comparison to the outsourcing strategy in relation to the quality factor of the manufactured product. Apple Computer, therefore, can tackle this challenge through factoring product quality matters when making decisions regarding the supplier choice, rather than basing the choice on costs. The company should opt for a total model of sourcing instead of the traditional or conventional cost-based models. An increasingly comprehensive model for sourcing suppliers would be preferable because it will factor-in costs associated with the management risks associated with the production of poor quality products due to the supply of low-quality components. High costs linked to supply disruption, possible product recall and product liability may illustrate that some low cost suppliers are actually high cost suppliers when the expected costs related to low quality product risks are considered (Greis et al 2011).
Effective Management of Supplier Behaviors
Apple Computer should similarly devise new ways of monitoring and coordinating suppliers to ensure high product quality. To prevent recall cases, the can needs to develop rigorous resting rules plus a certification program to ensure their supply contractors or outsourcing agents comply with the laid out standards. Moreover, some subcontractors could be negligent while other may deliberately violate the supply rules. Although there is no single perfect risk control system, developing satisfactory control mechanisms within Apple to manage the overseas suppliers plus the adoption of efficient supply chain practices will be fundamental (Greis et al 2011).
Further, Apple should aggressively make use of the modern information technologies to facilitate monitoring and coordination of their manufacturing processes to prevent safety and quality issues. Such technologies will play a critical role in availing real-time processes of monitoring throughout the firm’s supply chain globally. Consequently, Apple will be better placed to manage the behaviors of their suppliers especially those located across the world. Similarly, Apple has to invest effort and time to develop principles and standards to govern their suppliers. Greis et al (2011, p.717) recommended that investing in supplier training and education will be a great solution to Apple’s supplier relationships because it will build their abilities and skills to ensure efficient production. Apple can use modern technology to facilitate this by developing and offering computerized training programs on matters concerning quality and safety. The company can also translate standards into a number of languages that are understood by their target audience to ensure clarity and adherence. Apple can also promote their relationships with their suppliers by promoting and offering incentives among suppliers such as the cost-sharing contracts especially for recalls (Greis et al 2011).
Build Own Factory and Streamline their Outsourcing Activities
One of the major problems that have been identified in this analysis involves the threat posed by losing control of their third-party service providers and risks possible in case of a disaster in any of such facilities (Razzaque & Sheng 1998). Apple should start considering the option of building its own factory, an initiative that will increase the control of their supplies flow. Similarly, the company should also expand and diversify their supplier base and third party service providers to ensure they have an escape route in case of any disaster to ensure their supply is not interrupted and that it remains consistent. In addition, Apple can ensure successful outsourcing processes through using contract logistics. Successful outsourcing activities also depend on user-provider relationships plus mutual trust. Apple, therefore, should mandate sporadic reporting by service providers. The company should be willing to offer proprietary information that can enable the third party minimize the total logistics costs while on the other hand, the service providers or suppliers should carry out the role of protecting the users’ sensitive data linked to customers, shipments and products. The application of technology in this solution option is similarly critical. Apple should develop information systems, which will allow the company to make continuous cost and value comparisons.
Recommend Solution and Justification
The best option or alternative solution to promote Apple’s supply chain will be improving their supplier relationships. This is the most ideal solution because from the analysis it appears that all the problems the company is experiencing in their supply chain and logistics management are linked to suppliers. It seems resolving the supplier relationship issues will contribute greatly in promoting the efficiency of the company’s supply chain and the management of their logistics. Improving supplier relationships, moreover, will improve the company’s social responsibility matters that have always been downgraded by the poor relationships between Apple and their suppliers. In the company’s efforts to obtain low production and operation costs as possible, Apple has been placing great pressures on their suppliers to subsidize costs top their preferred levels, which in turn make the supplier violate the social responsibility standards in terms of environmental protection and workers’ rights.
The expected benefits associated with this alternative solution are diverse, which are to the benefit of Apple’s business. This solution will enable Apple to generate a competitive advantage. Good supplier relationships play a critical role in promoting the competitiveness of an organization, which is a great benefit to a business. Moreover, increased competitiveness is a key factor in ensuring business survival in today’s world of business. Improved supplier relationships will also be beneficial to Apple because it will increase customer loyalty and customer base. This is because the good relationships will enable suppliers to concentrate on the quality/safety of products while also motivating them to treat their workers appropriately and promote social responsible behaviors because they will not be under any pressure to deliver low-cost supplies to Apple considering that each party’s interests will be considered. With improved corporate citizenship, Apple’s brand reputation and public image will be enhanced thereby increasing customers’ confidence and loyalty in consuming the company’s products. Additionally, promoting supplier relationships will be a great benefit because it will also boost the performance and efficiency of the company’s supply chain. Under such circumstances, Apple will be in a better position to meet the increased customer demands and ensure their total satisfaction through adequate supply of quality/safe Apple products.
Implementation
Following the diminishing returns associated with the Apple’s strategic sourcing efforts, the company will undertake an initiative of improving and advancing their supplier relationships, which has increasingly affected their business from a supply chain management perspective. The initiative will involve assessing or examining the company’s supply chain in order to identify the available opportunities that can drive additional savings for the company, improve the quality of their products, and boost innovation while also promoting a top-line business growth. The above analysis has discovered substantial gaps in the company’s management of relations or interactions with their suppliers. In order to close these gaps, Apple will develop a strategic plan that will increase the depth and breadth of collaboration between the company and their suppliers. The transformation project plan will comprise of three key areas comprising of the required resources to execute the plan, the duration the plan will take to be implemented and witness the results while also highlighting the performance measures that will be used in assessing the success or failure of the plan.
Required resources
The implementation of this plan will require human capital and financial resources. The human resources will comprise of a cross-functional task force, which will eventually be transformed into a long term, permanent supply relationship management (SRM) office. This team will be responsible for designing the relevant policies, tools, processes and formulation of job ideas that can promote more collaboration with the suppliers and facilitate systematic management of such relationships. Financial resources will also be needed to facilitate the process in terms of meeting training needs for the SRM office team plus other financial needs.
Timing
The implementation process will take effect within a period of one month, within which the planning process will be taking place. This period will provide adequate time for the responsible team to brainstorm and plan the way forward. After the start of the project, the process will be continuous until the relationships between Apple and their suppliers are fully streamlined. However, even after this accomplishment, the company will be required to have developed a plan for continuous improvement of the relationships through trainings plus an effective communication system between the suppliers and the company. To determine the effectiveness of this plan for final launch, Apple will conduct a pilot with a number of their suppliers for three months to determine its workability.
Performance measures
The success of this solution will be measured based on a number of performance measures including cost savings that will be proven through measurable financial benefits that the company will generate. An increased customer base will also show that customers are becoming increasingly loyal to the company’s brand, and that their confidence and trust in the company’s provision has risen. Positive public and media talk will be a sure proof that the company is doing well, which will contribute greatly towards improving the company’s brand image. This is among the expected outcomes of the improved supplier relationships plan. Similarly, approval of many patents plus launch of new products to the market will illustrate increased innovativeness within the company. It will mean the company is doing well both internally and externally, which is a good sign for the business. If the plan will promote successful revenue improvement plans with the suppliers, demonstrate minimized risks plus streamlined supply negotiations, it will be a good measure to show that the solution is becoming very successful. This is because such negotiations and plans will illustrate that the communication between Apple and their suppliers had become less strained.
Conclusion
The above report has provided a comprehensive analysis of Apple Computer’s supply chain and logistics. The firm’s pursuit for an impressive SC flow plus purchasing activities turned around their supply chain management. Consequently, the efforts helped improve the management of product demand, channel distribution, inventory investment plus the supply chain relationships. However, a number of issues have been evident in their SC in relation to supplier relationships, corporate social responsibility and outsourcing. Improving and streamlining these issues, however, will help the company in enhancing their SCM.
References
Apple Incorporation, 2011, The other side of Apple, IT Industry Investigative Report, vol.1, no.1, pp.1-35.
Greis, N, Marucheck, A, Cai, L, & Mena, C 2011, Product safety and security in the global supply chain: issues, challenges and research opportunities, Journal of Operations Management, vol.29, no.1, pp.707-720.
Maja, M, & Matevz, R 2013, Buyer-supplier relationships and the resource-advantage perspective: an illustrative example of relational and transactional drivers of competitiveness, Journal of Competitiveness, vol.5, no.1, pp.16-38.
Monga, A, Kaikati, A, & Torelli, C 2000, Doing poorly by doing good: corporate social responsibility and brand concepts, International Journal of Research in Marketing, vol.1, no.1, pp. pp.1-57.
Razzaque, M, & Sheng, C 1998, Outsourcing of logistics functions: a literature survey, International Journal of Physical Distribution & Logistics, vol.28, no.2, pp. 89-107.
Susini, J 2004, Supply chain and logistics management, Business Management Journal, vol.2, no.3, pp.1-62.