Answer the following questions in detail. Write at least one para for each question (4 marks) Define and explain the indicators that have been used in measuring and comparing supply chain performance?How does each of these indicators apply in case of Apple and Amazon? In other words, how does each company manage each indicator?Based on performance along these indicators which supply chain seems to be more difficult to manage? Provide justification for your answer?What is the main reason for the success of supply chain of Apple? Write a few factors?
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Is Apple Supply Chain Really the No. 1? A Case Study
Everything about Apple Inc is the talk of the town, for example, the new Ipad, Iphone, Apple Map or
even the environmental and labor issues at its suppliers’ facilities. Surprisingly, IT research
firm Gartner ranks Apple Supply Chain as the best supply chain in the world for 5 years in a row.
Without a doubt, Apple Inc is the world leader in Innovation, Branding and Software Ecosystem. But,
is Apple’s Supply Chain really the number 1? This case study will show you the analysis of Apple
Supply Chain core processes, challenging issues and complexities of its operations.
1) Apple’s Supply Chain Model
Information about Apple Supply Chain is a bit here, there and everywhere, it’s tough to find the actual
case study. To the best of my knowledge, many business schools still use the case study “Apple
Computer’s Supplier Hubs: A Tale of Three Cities” from Stanford University (1996). To get a closer
look at the modern day supply chain at Apple Inc, this case study utilizes content analysis technique.
Annual Report (SEC Filing) is analyzed and a simplified supply chain model is constructed as below,
Supply Chain Planning at Apple Inc
Supply Chain Planning at Apple Inc is the classic example of New Product Development Process
(NPD). It’s the integration of R&D, Marketing and various function under supply chain management.
From the above graphic, Apple Inc accelerates the new product introduction by acquiring the licensing
and 3rd party businesses. The whole process looks very similar to that of other industries. Interesting
point is that Apple Inc has to make the pre-payments to some suppliers to secure the strategic raw
Supply Chain Model of Apple Inc
Supply Chain Map is the way to express a large system from the points of origin to points of
consumption in simple to understand manner. Information from the annual report is also used to
produce the Apple Supply Chain Map.
Apple Inc purchases raw materials from various sources then get them shipped to an assembling plant
in China. From there, assembler will ship products directly to consumers (via UPS/Fedex) for those
who buy from the Apple’s Online Store. For other distribution channels such as retail stores, direct
sales and other distributors, Apple Inc will keep products at Elk Grove, California (where central
warehouse and call center are located) and supply products from there. At the end of product’s life,
customer can send products back to the nearest Apple Stores or dedicated recycling facilities.
2) Apple’s Supply Chain Challenges
What does it feel like to be “Apple Inc”? One journalist indicated that the life of Apple Inc is fairly
easy by utilizing its negotiation power. Believe me, Apple Supply Chain has very the high risks. There
are many challenges to overcome, for example,
– Global economy could affect the Company.
– Some re-sellers may also distribute products from the competing manufacturers.
– Inventories can become obsolete or exceed the anticipated demand.
– Some components are currently obtained from the single or limited sources.
– Some custom components are not common to the rest of the industries.
– Ability to obtain components in sufficient quantities is important.
– Supply chain disruption such as the natural and man-made disasters can be serious.
– Company depends on logistical services provided by outsourcing partners.
– Company also relies on its partners to adhere to supplier code of conduct.
The above information is also from annual report. As you can see, most of the risks are on the supply
3) How Complex is Apple’s Supply Chain?
Some people in blogosphere said that Apple Supply Chain is not that complicated. So this section
will explain some characteristics of Apple Supply Chain through various metrics and compare them
with Amazon Supply Chain.
Inventory Turnover is a traditional financial measure to determine how efficient company uses its
financial resources to create sales, the higher number is the better. Supply chain professionals also
use this metric in inventory management function. Generally accepted calculation is [Cost of Goods
Sold / Average Inventory]
Inventory Turnover of Amazon vs Apple Inc
The above picture shows that the inventory turnover of Amazon and Apple is 10 and 59 respectively
(cost of goods sold of digital content/downloadable products are excluded). From the face value,
Apple seems to be more efficient. Anyway, there is a reason for this. Apple Inc is now a marketing
company with no manufacturing facility but Amazon is a distributor of general merchandise. It’s
pretty natural that Amazon has to keep more stocks then the inventory turnover is much lower.
Number of Key Suppliers
Supply chain management is about relationship between trading partners. Working closely with
strategic suppliers will bring competitive advantage to the firm.
Number of Key Vendors Amazon vs Apple
Apple recently said that they have about 156 key vendors across the globe. This amount of suppliers
is quite manageable. Amazon has about 3 million suppliers in total. Top 5% of this is 300,000
suppliers, way more than that of Apple Inc.
Number of Warehouse Facilities
In the United States, transportation cost is the big portion of total logistics cost. Then, good
management of related function is essential.
Number of Warehouse Facilities Amazon vs Apple
Apple inc has the central warehouse in California but Amazon has approximately 28 warehouses from
coast to coast. What Apple has to do is to synchronize data between the central warehouse and its own
246 stores + customers. With appropriate level of the automation, this kind of operations can be done
For Amazon, thing is more complicated than that. Amazon is known to employ many PhD graduates
in operations research/industrial engineering. The reason is that Amazon’s distribution environment
must be mathematically solved through the optimization method. Typically, they have to determine
how many facilities they should have, where serves which market, items/quantity stored in each
location, how to manage transportation between warehouse-to-warehouse and warehouse to customers
in order to minimize cost and increase service level.
Number of Items (Stock Keeping Unit)
Stock Keeping Unit aka SKU is another indication of supply chain complexity. One model of phone
but different software inside is considered a different item/SKU.
Number of SKUs Amazon vs Apple
Amazon has about 519 million items on its catalog. About 135 million items are physical products.
For Apple, they have about 26,000 items (rough estimate, subject to change). The point is that, if you
have to make a demand forecast, which one will more difficult for you, 135 million items or 26k items.
Product Life Cycle
Put it simple way, the product life cycle is how long you can sell products (the longer is the better).
Product Life Cycle Amazon vs Apple
From the rough estimate, Amazon has some seasonal products such as summer ware. They can only
sell it for 3 months max. The life of Apple’s key products are way more than 12 months. It goes without
saying that the demand forecast of seasonal, short life cycle products is very very difficult to estimate.
As you may notice, based on the example characteristics, Amazon’s Supply Chain is far more
complicated than that of Apple Inc.
Answer the following questions in detail. Write at least one para for each question (4
1. Define and explain the indicators that have been used in measuring and comparing supply
2. How does each of these indicators apply in case of Apple and Amazon? In other words, how
does each company manage each indicator?
3. Based on performance along these indicators which supply chain seems to be more difficult
to manage? Provide justification for your answer?
4. What is the main reason for the success of supply chain of Apple? Write a few factors?
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