Several articles this week about laptops, tablet PCs, and smartphones caught my eye. For instance, Samsung Electronics announced it will start selling its Galaxy Tab 10.1N tablet PC, which has been modified to bypass a sales ban in Germany. Secondly, an Apple Insider article reports that according to a new Nielsen survey, Apple’s iPad is the most-wanted gift among U.S. kids ages 6 through 12—with the iPod coming in second place followed quickly by Apple’s iPhone. In fact, according to the article, demand for Apple’s offerings is expected to be so high that the research firm has dubbed the 2011 holiday season “iHoliday.”
The article I was most interested in, however, wasn’t about individual products, but instead, was about operations and supply chain management. While looking around on SupplyChainBrain, I ran across a link that took me to an article running on Businessweek. That article reports that it’s fairly well documented that Apple has built a closed ecosystem where it exerts control over nearly every aspect of its supply chain--from design to retail store. In fact, in that article, Mike Fawkes, former supply-chain chief at Hewlett-Packard, and now a venture capitalist with VantagePoint Capital Partners, says Apple has taken operational excellence to a level never seen before.
That approach begins at the design stage, where Apple’s designers frequently work with suppliers to create new tooling equipment. I’ve heard some complaints before about the company’s decision to focus on a few product lines, and to do little in the way of customization. However, the approach offers a significant advantage, and it certainly is difficult to argue with the results. Indeed, Matthew Davis, who as a supply-chain analyst with Gartner (IT) has ranked Apple as the world’s best supply chain for the last four years, said in the Businessweek article that Apple has a very unified strategy, and every part of their business is aligned around that strategy.
A second of Apple’s strengths is its cash reserves. I’ve posted before, and it’s no secret, that Apple uses its cash and investments to strategic advantage. The company already has said it plans to substantially increase its capital expenditures on its supply chain in the next year, including increasing its prepayments to key suppliers. The tactic ensures availability and low prices for Apple—and sometimes limits the options for everyone else. When manufacturers are busy filling Apple orders for touch screens, for example, there just aren’t enough for other companies.
It’s also worth noting Apple’s approach to introducing new products, a practice which the company has refined over the years. As the Businessweek article notes, factories work overtime to build hundreds of thousands of devices for weeks in advance of the launch. What’s more, to track efficiency and ensure pre-launch secrecy, Apple places electronic monitors in some boxes of parts that allow observers in Cupertino to track them through Chinese factories. According to the article, at least once, the company shipped products in tomato boxes to avoid detection. When the iPad 2 debuted, the finished devices were packed in plain boxes and Apple employees monitored every handoff point—loading dock, airport, truck depot, and distribution center—to make sure each unit was accounted for, the article explains.
The result has also been well documented. Hundreds of customers camp outside in front of Apple’s retail stores to buy new products when they launch. Additionally, they’ll wait for purchased items to be delivered. Another Apple Insider piece notes that more than a month after the iPhone 4S first went on sale, customers are still waiting two to three weeks for their purchase to arrive. And that doesn't seem to slow demand either.
Considering customer demand, a winning supply chain strategy, and enough cash reserve to lock key suppliers in place, it’s no wonder that Apple leads the market and is forecast to continue that dominance in coming years.