Part of the success of Apple and one of the sources of its competitive advantage that enables it to manage the competitive forces within the industry where it operates is its renowned supply chain strategy centered on achieving efficiencies in costs and time while also supplementing the different facets of its business strategy.
Elements of the Supply Chain Strategy of Apple
1. Close Collaboration with Outsourced Manufacturers
Apple does not have in-house manufacturing capabilities. It designs products and other hardware components and outsources manufacturing requirements from other firms. This keeps production costs low while allowing the company to focus on research and development. However, to ensure its intended outcome and product quality, it maintains a close working relationship with these outsourced manufacturers.
Its close collaboration with its partners has been demonstrated in the seamless integration across its hardware components, as well as between hardware components and software applications. Products such as the Mac, iPhone, and iPad are known for having superior performance because their hardware components are optimized to run Apple-developed operating systems and software applications from other software developers.
Collaboration also enables the company to map out its entire production timeline. Note that the company releases newer models of some of its devices on pre-determined dates and within dedicated periods. It needs to coordinate with its outsourced manufacturers to ensure that raw material procurement, newer manufacturing capabilities or requirements, production timetables, and product releases and shipments remain on time.
2. Maintaining Fast and Efficient Inventory Movements
Another element of the supply chain strategy of Apple is an adherence to the notion that inventory can depreciate. Production inputs can age because of technological developments and evolving production requirements. Outputs become outdated due to the need to push newer products as part of following predefined production timelines. Unused and unsold items in the inventory become liabilities rather than assets.
The company utilizes two principles in its inventory management strategy. The first is a just-in-time inventory system. This involves refraining from keeping large stockpiles on hand by ordering and producing enough inventory in consideration of current production requirements and projected market demand. The system helps minimize waste and reduce the risks and costs associated with excess inventory becoming obsolete.
Apple also uses the proprietary Advanced Global Inventory Platform system to track and manage inventory across its supply chain. This system is a specialized enterprise resource management platform that helps the company optimize production, manage and record procurement activities, coordinate suppliers and production requirements, reduce lead times, improve forecasting accuracy, and track the volume of production inputs and outputs.
Part of maintaining fast and efficient inventory movements is to operate a limited number of warehouses to prevent overstocking. The company has also limited the number of suppliers to force them to compete for its business while ensuring optimal collaboration and transaction. Outputs are follow its distribution strategy. They are either shipped to warehouses before shipping to storefronts or shipped from factories directly to consumers who ordered online.
3. Lowering and Managing the Bargaining Power of Suppliers
The bargaining power of suppliers is a critical competitive force that can affect the competitive position of Apple. A high bargaining power can increase the costs incurred from procurement activities and production while also either affecting the prices of production outputs or reducing profit margins. Too much dependence on suppliers can also influence the production timeline of the company or even its entire value chain.
Nevertheless, to manage the bargaining power of its suppliers, the company reduces dependence on several component suppliers while also keeping their numbers low to force them to compete for its business. Diversification gives it options while limitation allows it to assert its authority. The company also guarantees high transaction volumes while negotiating favorable prices through long-term agreements and prepayments with its key suppliers.
It is also important to note that Apple has invested in some of its suppliers and acquired other companies to secure its supply chain. The company has built production facilities in countries like Taiwan while also purchasing customized manufacturing equipment and automated assembly and milling technology. These initiatives are part of an attempt to maximize some of the benefits of both vertical integration and horizontal integration.
4. Sustainability Initiatives and Environmental Strategy
Another important element of the supply chain strategy of Apple is a specific focus on sustainability to capitalize on the benefits of corporate social responsibility and recognize the importance of protecting the environment. The company has a dedicated environmental strategy that includes key sustainability initiatives aimed at supporting current and future production requirements while conserving the environment and promoting its brand.
For example, to improve access to production inputs, the Apple Recycling Program is a global operation that revolves around operating facilities and providing administrative support needed to recover recyclable materials and process recycled materials. The company recovers and processes materials from discarded products and packaging. These include aluminum, cobalt, copper, gold, lithium, paper, plastic, rare earth elements, and zinc, among others.
The company has also become intentional when it comes to product design and other production considerations. For example, to support its recycling initiative, it has made its products more recyclable than before. It has also improved the reparability of its products to increase their lifespans or allow product refurbishing. The company has also improved the durability of products such as the iPhone and Apple Watch to reduce replacements.
Apple has fundamentally redesigned its production process in consideration of the following: sourcing recycled and renewable materials, efficient use of these materials, improving product longevity by designing long-lasting products, and enhancing product end-of-life services. These initiatives are intended to maintain and advance further the sustainability of its supply chain while lessening its exposure to environmental and supply risks.