Supply Chain Lessons Learned from Apple’s iPhone 5 Launch
Apple runs one of the most watched supply chains in the world. Since Tim Cook took the reigns as CEO, though, it’s not just talked about in supply chain circles — it’s big news in the technology and main stream press as well.
That’s because Cook made a name for himself first in operations, first as a senior vice president of Worldwide Operations, then as an EVP of Worldwide Sales and Operations.
He’s credited with closing Apple factories and warehouses all over the world, effectively pulling Apple out of manufacturing. He reduced inventory levels and streamlined the supply chain. That lead to an increase in margins for Apple and a promotion to COO for Cook.
Now he sits at the head of the company with the top supply chain in the world, besting Amazon, McDonalds, P&G and yes, even Wal-Mart, according to Gartner’s recent rankings.
So when Apple announced the iPhone 5 on Sept. 12, with plans to ship across the world in nine days, some predicted shortages and other issues, according to ZD Net.
Just two days after the announcement, preorders began. And then on Sept. 21, the iPhone 5 shipped — not just to the U.S., as in previous launches, but in countries around the world.
“Apple Supply Chain Mastery is Key to CEO Tim Cook’s Success,” read a Reuters headline just one day after the release. Cook may not be Steve Jobs when it came to presentation, it noted, but he may be bringing something just as valuable to Apple launches — a “much-touted wizardry at the essential but unglamorous task of managing a supply chain,” Reuters noted.
What makes Cook so effective at the supply chain management? One factor is he tracks data — vast amounts of it, his ability to track vast amount of data and zero in on a critical parameter.
Barclays analyst Ben Reitzes told Reuters: “We are positively surprised regarding the pace of the rollout, since we had expected a bigger impact from component constraints.” (Barclays partners with Apple to offer the Barclays Financing Visa card, which offers a no-interest period for Apple purchases).
But this week, the Apple supply chain cheers turned to questions when news broke that fulfillment for iPhone5 orders have been delayed 3-4 weeks due to supply chain problems. TechCrunch reported that within an hour of the website’s opening for pre-orders, the delayed shipping message appeared.
Information Week reports the problem is actually with one supplier — Sharp, which makes the iPhone display. To make the iPhone as thin as possible, Apple switched to a new technology called in-cell touch panels.
The new screens are difficult to manufacture with high-quality yield results, the article states, and Sharp experienced trouble with making defect-free screens.
As a result, Sharp wasn’t able to offer volume production until the iPhone had already shipped for the launch weekend, the article adds.
This has lead to questions and criticisms about the top supply chain. “How does something like this happen?” asked Justin Wong, a consultant at OPS Rules Management Consultant. He pointed out that Apple should have enough historical data to forecast future demands. Plus, he noted, Apple introduced a massive amount of supply chain complexity when it opted to launch in multiple markets.
“Different markets have different technology requirements for 4G LTE, band frequencies, shipping, manufacturing, and regulatory needs,” Wong wrote. “It’s the logistics equivalent to a bowl of spaghetti. Managing their supply chain complexity is certainly something that Apple can focus on to better handle future releases of the iPhone.”
Wong even succumbed to a bit of speculation, writing there’s a “possibility that Apple is purposefully orchestrating this havoc as part of some genius marketing scheme.”
It seems unlikely that Cook, who built a reputation on supply chain efficiency and effectiveness, would be willing to risk it for a marketing scheme — not to mention risking lower sales on the key launch weekend.
Obviously, there are some hard lessons for Apple and other buyers in this launch. But let’s not forget that Apple adopted a number of best practices to prevent this very thing:
- Apple cut its orders with Samsung, shifting its iPhone display and memory to other suppliers, while keeping other components with Samsung. Officially, the move was about legal issues and pricing, but Apple reportedly also wanted to move away from overlying on individual suppliers.
- In an obvious move to diversify its component suppliers, the display panels were sourced to LG Display, Sharp and Japan Display KK, according to Slashgear.com.
What’s more, there are a number of other factors that demonstrate the Apple supply chain effectiveness, including:
- An international launch, with shipment in the U.S., Australia, Canada, France, Germany, Hong Kong, Japan, Singapore and UK
- A launch schedule plan that bested any other smart phone, according to ZD Net.
- Plans for 240 carriers and 100 countries to offer the iPhone by year end.
- A quick response to the shortage. Apple set up a new reservation system called Personal Pickup that allows consumers to reserve a phone for in-store pick up “the next day,” assuming the phone has one. That basically means you can forgo some of the wait.
No one knows for sure what impact the shortage had on final sales. Certainly that launch weekend is a major window of opportunity for consumer technology.
That said, not everyone blames the supply chain. In a recent piece, writer Erik Sherman theorized that the smart phone market may be over-saturated, in which case, the initial sale of 5 million iPhone 5s might be a good number.
But that doesn’t count an unknown number of online pre-orders, as Piper Jaffray consultant Gene Munster notes. He thinks the final launch tally could be closer to 8 million.
“I wouldn’t bet against it,” Munster told Fast Money.