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 APPLE’S SUPPLY CHAIN 
STRATEGIC AND TACTICAL TOOLS FOR E-BUSINESS 
_________________________________________________________ 
Graduate programme: MSc in Business Administration and E-business at CBS 
Course: Strategic and Tactical Tools For E-Business 
Type of assignment: Case 
Lecturer: Qiqi Jiang 
Group number: 19 
Group members: Jakob Groth – 2802942195, Jens Pedersen – 2907922807, Lauritz Zappon Søe – 1207922761 
Date: December 1st 2017 
Number of Pages: 8 
Number of characters: 17.749 1 

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Question one: Review Apple’s supply chain for its IPhone. What differences set it apart from competitors? 
Procurement process 
Apple products contain key components, which often was sourced throughout few key suppliers. Due to high demand on Apple’s IPhone products key components were often out of stock at the supplier. Apple faced the supply issue with a new procurement strategy. Apple purchased key supplier’s production capacity in advanced and invested in key supplier’s capital equipment. The new strategy made Apple able to stay ahead of sudden spikes and overwhelming demand. Apples procurement team had a program to forecast spikes and monitor overall demand of IPhones in 150 days ahead. The forecast prediction made it possible for buyers in Apple to chance orders or purchasing more production time at key suppliers (Mark, 2014). 
The case refers to Apples supply chain as a ‘closed eco-system’ (Mark, 2014). By controlling suppliers and placing large orders, is Apple in a position with high bargain power towards their suppliers. Which mean they can negotiate large discount and control a flexible manufacturing if there comes a shift in demand. By having a closed corporation and placing large orders, the case is arguing that Apples competitors often have to wait for their products. Apple invented a new supply chain strategy which the electronic industry wasn’t used to. The industry preferred to negotiate the lowest price and volume (Mark, 2014). 
Product assembly 
The product assembly for IPhone 5 is based in China at a subcontractor, Foxconn. Apple paid 8-dollar pr. Iphone (Mark, 2014). Several operations for IPhones assembly was labor-intensive, due to complex operations and high control standards. Operations that the subcontractor could not handle, which mean that Foxconn must hire intensively in high demands and assembly periods. The case is arguing that a key task for suppliers and subcontractors were coordinating and hiring of contemporary workers (Mark, 2014). 
Outbound logistics 
At Job’s return to Apple he looked at the supply chain and innovates the chain to speed up the processes. He looked closely at the shipment, were most competitors tend to use shipment Apple started to use air-fright (Mark, 2014). In 2001 Apple changes their out-bound logistics 2 

by shipping their products direct from their suppliers to their consumers. Apple found out that it was cheaper this way, and faster delivery to retail-stores, online stores etc. It was essentially for Apple to have their product in stock when they needed it, according to their demand forecast. 
Service 
The reverse supply chain mostly covering return-claims, warranty claims and reuse program. Apple digitalize the process, which made the process more cost efficiency and gained a higher level of customer service experience. Apple made it possible to type in unit and personnel data for the defect product. Within half a day would the customer receive and answer from Apple how to handle the defection. Within 48 hours the customer would receive a box to ship the product. By calling the number indicated on the box, the job will be assign to a delivery company, which will come be the customer’s house or office to pick up the defect product. By digitalize and streamlined the reverse supply chain, Apple gained further customer satisfaction and lowered cost for employees at call centers and support services (Mark, 2014). 
Sales 
Apple had in (2014) – 442 retail stores in 16 countries (Mark, 2014). Their online store was available in 39 countries. The stores were located at high activity points and streets or quality shopping malls (Mark, 2014). By locating stores in ‘high traffic’ areas made it possible for Apple to attach new costumers and ensure ‘high-quality buying expirations’. Apples stores is not only a place to buy Apple products is also a place to experience the Apple brand. By owning their retail stores, Apple designed their stores to enhance products and marketing by simplicity. Apple employed well skilled personnel, which could pervade costumers with training in their products, third-party software or simply provide product advice. By owning their owned stores, Apple could monitor and provide data to their demand forecast model on a daily basis. Apple sold nearly 70% of their products direct to consumers or business’ (Mark, 2014). 3 

Question two: What are Apple’s key advantages in how it manages its supply chain? Support your analysis with data from the case. 
The case is referring to Apples key advantage by having a global supply chain, is the supply of qualified engineers. The case put an example for a specific product assembly, that would have required about 8.700 industrial engineers. The case arguing that it would have taken about 9 months to acquire 8.700 engineers, in China it took around 15 days. This is a key advantage which make Apples supply chain more flexible than competitors (Mark, 2014). 
Service 
Apple Inc. were the first to rethink their reverse logistics. Apple made it easier for customers to return defect products, by digitalize their processes and minimize consumers effort and time spending on returning defect products. Costumers could return a product through Apples website, instead of handling the product in at an official store, which was common for competitive firms. Costumers should only provide apple with few information, within a half a day, will Apple return with an answer. Apple made their reverse logistics efficient. The case is arguing for, that Apple could provide rapid service by their new reverse logistics. Rapid service increased customer satisfaction, lowered number of service calls to call centers and made is possibly for Apple to send defect products direct to service. The case is arguing that managing a reuse program efficient contributed to Apples success by lowering cost level and by higher costumer’s satisfaction (Mark, 2014). Apple’s reverse logistics is by far a competitive advantage. 
Suppliers 
Apple’s new purchase strategy referred to earlier made is possible to uphold a close relationship with key suppliers. Apple purchased key supplier’s production capacity in advanced and invested in key supplier’s capital equipment. By investing in suppliers and having a close relationship with their suppliers was it possible for Apple engineers to work closely with suppliers, so they could update their manufacturing patterns. Engineers could control global supplier’s due to their power and working relationship. By maintaining close control over suppliers Apple made a “closed eco-system” which gave the organization flexibility, and high bargain power towards suppliers. The case is arguing for Apples remarkable high gross margin on IPhones. Nearly 60% of profit was captured by Apple. Apples procurement strategy put a lot of pressure on supplier’s shoulders, and let Apple keep 4 

a high profit. The case is showing that Apple led suppliers be responsible for the cost of carry parts, manufacturing labor and delays for competitors in high demand periods. In exhibit 9 it shows that Apple have a return on assets (ROA) that exceeds 22 percent. ROA shows that Apples managers are extremely efficient to generate earnings by their investments. For every single dollar Apple Invest they generate a profit for 22 percent. Apples procurement strategy is a key advantage and a key holder to their high ROA, but how long will they have this power towards their suppliers? 
Demand forecast and sales 
Apples retail stores is located on high-activity spots. Apple stores is not only for shopping, educated employees teach in third-party software and guide you through the Apple culture (Mark, 2014). Nearly 70 percent of all sales goes directly from Apple to consumers, which made them able to forecast demand more precise (Mark, 2014). Demand forecast control all Apples key suppliers and is vital to Apples success in periods of high demand. Apple stores are design to give the customer the Apple culture and explore the Apple brand, is not only for sales. By having their own sales distribution and lower third-party channels Apple can give customers a greater experience and forecast their demand on a higher level than competitors. Apples Sales distribution is a key advantage and a vital brick in the Apple procurement system. 
Research and Development 
Apples IPhone product lifecycle was close to a year, this means that the Apple R needs to be streamlined and their pipeline with new products should be high. Apple preferred to control their whole supply chain internally, this means that the product development team needs to coordinate with a wide range of stakeholders. The case is referring to designers and engineers sleeping months on hotel rooms close to suppliers to help them translate prototype to mass production products (Mark, 2014). 
Apple, compared to competitors had a streamlined R and was highly integrated with centralized R, which was accountable for the whole organization. Dell and other competitors has separate R functions and separate cost and profit sections for each product (Mark, 2014). Apple was spending 2,4 billion on R in 2011, 3,4 billion in 2013 and 4,5 billion in 2014 (Mark, 2014). By controlling, centralizing and investing heavily in R Apple had a key advantage in their R which only getting their new IPhones to be selling more, see exhibit 3. 5 

Question 3: What are the challenges that Apple faces in the future, and what are the implications for its supply chain? 
Apple faces a wide array of challenges in the future that could have implications for the company’s supply chain. There are the unforeseen challenges like natural disasters or cyber-attacks, which could have a sizable impact on the company and how it makes sure to meet demand of products. Also, there are the rising costs of raw materials used in production and maybe even the possibility of there being a limited supply of some rare raw materials, which could have an impact on Apple’s supply chain. 
These challenges described above are just a few examples of the many challenges that Apple could be facing in the future. We’ve chosen to focus on two challenges that we see as especially important to Apple and its supply chain, which are also mentioned in the case. The first is that the high demands that Apple is currently setting for suppliers may become an obstacle in coming years. The second challenge we will elaborate upon is how more attention to the company’s full supply chain may lead to image problems for the Apple in the future, if not dealt with in a proper manner. 
At the moment, when Apple signs an agreement with a new supplier, the demands that this new supplier is facing are quite substantial. Some suppliers may even now only have one client as Apple could have received an exclusivity agreement. Even though there is no doubt that the supplier most likely will enjoy profits, because of high order volumes by Apple, there could also be some downsides for the supplier. The supplier e.g. has to provide detailed breakdowns of suppliers manufacturing labor, materials as well as the supplier’s projected profits (Mark, 2014, p. 5). This could seem invasive for businesses as it also diminishes their future negotiating power with Apple. Furthermore, the supplier is also expected to keep two weeks assembly materials near the factory and Apple can wait by paying supplier up until 90 days after the parts are used in production (Mark, 2014, p. 5). 
We do consider these harsh supplier terms as a possible challenge for Apple in the future as suppliers may fear for their own long-term business survival not being able to take on other clients and develop their business outside the scope of Apple. 6 

In today’s world consumers are demanding more and more transparency in the supply chain of companies. An increasing amount of people want to know that the products that they purchase are produced by people paid fair wages, and the environment should not have suffered from the production of the goods. As mentioned in the text, Apple is currently using suppliers, which employ temporary workers, and these suppliers, whom are vital in meeting the demand for products, may cause a problem in the future for Apple. 
When Apple was manufacturing the iPhone 5 at end of 2012, they worked with a supplier called Flextronics to provide some of the components used for the phone. To deal with fluctuations in the orders given by Apple, Flextronics hired temporary factory workers who were flown from developing countries in Southeast Asia to Flextronics’ factory in Malaysia. The temporary workers were paid approx. USD178 a month, and the fee that the temporary worker had paid for the recruiting agency was as much as USD1.000. A decrease in the orders for iPhones, meant that the temporary workers were laid off just 3-4 months after starting assembling iPhone components at the factory in Malaysia. The temporary workers were left without a job, and on top of that with debt to the recruiting agency who initially set them up with the job at Flextronics (Mark, 2014, p. 7) 
This incident caused public outcry, as people thought the temporary workers had been treated unfairly. As the demand grows for more transparency in companies’ supply chain, Apple faces a major challenge here. Cases like this one stated above most definitely caused harm to the image of the brand, but the temporary workers were an essential part of meeting the demand for products at that exact time. In the future Apple’s suppliers will have to come up with a solution to needing these temporary workers for seasonal spikes in orders and not making mass lay-offs, when these temporary workers are no longer needed. This may be solved with introducing more automatization of the assembling of parts, to help decrease the amount of needed temporary workers, when the number of orders rise. 
Question four: As Jessica Grant, what recommendations would you make to the company’s vice-president, Phillip Duchene, and why? 
This question about what can be recommended regarding BXE Capitals investment initiatives in Apple Inc. will be answered by firstly providing the overall recommendation and afterward 7 

breaking the recommendation down into smaller arguments which will support the overall recommendation. 
By working with this case, it is clear that Apple has established a world leading supply chain management, and their efforts to maintaining its current position should be recognized, which indicates that an investment in apple comes with a rather low risk. However, it is also clear that Apple faces some challenges in the future, regarding their supply chain, which was analyzed in question three. If BXE Capital should maintain their investment or even further strengthen their investments in Apple inc., they need to have a rather long-term perspective for the investment, due to the following perspectives: 
Continuously investments in Apple’s supply chain 
At the end of 2013, Apple was intensifying their efforts to further strengthen their supply chain by investing $10.5 billion in new technology. This was primarily due to the great result Apple had delivered at the end of the fiscal year 2013. Apple had reached $171 billion in sales, with a market capitalization of $457 billion. The cash available for internal investment was put into cutting-edge, world-class machinery that is typically used in aerospace and defense industry. These technologies included assembly robots and milling machines, that would secure an even more efficient production. Muthuraman Ramasamy, an analyst with Frost & Sullivan, elaborate: “Apple is increasingly striking exclusive machinery deals outspending peers on the tools that it then places in the factories of its suppliers, many of which are in Asia”. 
The ladder point of Muthuraman Ramasamy indicates that the apple’s initiative to invest billions in their supply chain separates them from their competitors, and will have an even bigger impact in the longer-term. 
More complex product portfolio 
Apple’s initiatives to expand their product portfolio by diversification still needs to produce the next big blockbuster product line, such as current successful product lines like the iPhone, MacBook or Ipad. In the search for that, Apple has ventured into wearables technology by introducing the Apple Watch; they ventured into the intelligent home solutions industry by collaborating with other industry giants and creating the Apple HomeKit. However, these ventures haven’t come with the same success as the iPhone, MacBook or Ipad. So, whether or 8 

not Apple will have success with creating a new strong blockbuster product line will very much be a deciding factor for future investments in apple. 
An alternative investment plan for BXE capital could be to consider Apple’s competitors, e.g., Samsung. Looking at Samsung key financial figures, it shows that they have been experiencing rapid growth by doubling their net sales, gross margin and total shareholders’ equity from FY2009 to FY2013. Therefore, it could be argued that competitors, such as Samsung, are starting to catch up with Apple or at least show the potential for faster growth. If BXE capital wants a more short-term investment plan, it could be argued that they could benefit from splitting capital between Samsung and Apple. 
(Exhibit 10 from the case) 
Taking the elaborated perspectives into consideration, it should be emphasized that from an investment point of view, it comes down to whether BXE capital wants their portfolio to be structured in a short-, or long-term perspectives and what degree of risk they are willing to put into their investments. Because of Apple is arguably from the perspectives of their SCM performance a very low-risk investment opportunity. 9 

BIBLIOGRAPHY 
Mark, Ken (2014). Apple Inc.: Managing A Global Supply Chain. Richard Ivey School of Business Foundation. 

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