Sunday, November 6, 2011

Admiring Apple's Supply Chain

In a recent BusinessWeek article, Adam Satariano shows us a few examples of how the Apple that existed after Jobs returned was able to achieve such outstanding supply-chain performance.

Under Tim Cook – now Apple's CEO – Apple invested big (and early) in production and fulfillment, reaping benefits unavailable to competitors who didn't move fast enough to lock in sufficient access to scarce resources. Although the Jaded Consumer mentioned some examples of this in the past (locking up the world's supply of 1.8" hard drives following the iPod launch, and consuming so much of the LCD supply that competitors at times had to make do with Apple's leftover screens), Adam's article shows more examples of Apple foreseeing supply-chain concerns and acting quickly to solve them.

Among them was Apple's decision following Jobs' return in 1997 to buy – well in advance of the holidays – huge swaths of air shipping capacity. Instead of paying near-retail to air-ship a couple of boxes, Apple bought pallet after pallet of space so that (a) last-minute shoppers could get fulfillment by Christmas, and (b) competitors had no hope of moving material amounts of product in a hurry around the holidays. Fast-forward to 2001: Apple pioneered drop-shipping iPods to customers directly from their Chinese points of assembly. In the words quoted by one of Apple's competitor's supply-chain chief, the realization what Apple could do was "an 'Oh s----' moment[.]"

Sure, people accused Apple of "wasting" resources on air shipment when competitors used surface transit – but Apple got good value for the money: no local warehouse, decreased transit times, lower inventory overhead, and -- crucially for people meeting birthday and holiday deadlines -- quick fulfillment. Paying $50,000,000 in advance for air shipping was a ballsy move in 1997: Apple didn't have an $80,000,000,000 cash pile then.

Logistics isn't just shipping, though. Like Apple's move to absorb the world supply of 1.8" hard drives in the early days of the iPod, and Apple's ongoing activity to ensure it has ample access to flash storage (Apple is the world's largest buyer of flash), Apple's appetite for precision manufacturing tools has made it harder for competitors to buy what they would need to duplicate Apple's accomplishments. Drills. Lasers. Imagine the list growing with advancing technology. Apple's ability to buy forward supplies with multibillion-dollar advance payments simply puts it in a supply-capturing league in which there are just no apparent competitors.

Supply-chain intelligence is at work in other areas of Apple's operations. By observing in real-time the foot-traffic patterns and buying behavior in its worldwide network of retail stores, Apple can spot emerging trends and avoid, say, the next cube debacle (referenced here in connection with dire predictions against the sure-to-flop Apple tablet) – while gaining the market information needed to intervene early to head off retail product shortages that could result in missed sales.

World-class supply-chain management is an example of the sort of excellence Apple has been delivering, that under Tim Cook will continue to be delivered. Supply-chain management wasn't a traditional strength of Apple before Jobs' return, and it wasn't an area of excellence Jobs developed while at NeXT or Pixar. Tim Cook – who left IBM's North American Fulfillment to become Compaq's VP of Corporate Materials for six months before being recruited by Steve Jobs in 1998 – has been reciting to Apple employees that people don't want to buy sour milk for years; supply-chain management is an area in which he believes, and in which he has proven he can deliver. Under Tim Cook as Apple's CEO, the competitive advantage of supply-chain management will not suffer.

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