Abstract
Apple Inc. is a leading multinational company in the development, and sale of consumer devices such as, personal computers, peripherals, software, and smartphones. Based on an analysis of the case study, the main problem of the firm is the management of its international operations and supply chain. Notably, it is established that the venture’s reliance on a just-in-time supply chain exposes it to a potential backlog in production. The report has applied the ERP system and operational flexibility to minimize the entity’s exposure to the identified problem. The proposed solutions are expected to help Apple reduce its spending on the supply chain, prevent production backlogs, and enhance its corporate image among consumers, and other members of the public.
Background Information
The current case study focuses on a problem in the management of international operations supply chain from a business article in Ivey Publishing. The article, Apple Inc: Managing a Global Supply Chain, by Johnson and Mark (2014), provides an insight into Apple’s iPhone’s supply chain, including product development, procurement, assembly, logistics, and retail experience. The article also highlights some key areas from which Apple derives its competitive advantage, such as maintaining total control of its supply chain.
Company Background
Apple Inc. is a leading multinational company in the development, and sale of consumer devices such as personal computers, peripherals, software, and smartphones. The company, whose headquarter is located in Cupertino, California, United States, generates significant revenue from its diverse product portfolio that falls in the category of stars, cash cows, dogs, and question marks. iPhone, Apple’s star product, ranks at the top in terms of net sales and unit sales, recording $91,279 in sales by 2013 (Johnson and Mark 20). Apart from its market leadership, the corporation is also ranked as the world’s largest venture by market capitalization with its stock price topping to $524.47 by February 2014 (Johnson and Mark 1). Based on market analysis, Apple has had significant success both commercially and in the stock market due to its ability to generate a robust pipeline of advanced products within its product portfolio and enhance consumer experience.
Apart from Apple’s overall industrial success, the corporation has interesting internal and external facts that distinguish it from its competitors and enhances its competitiveness in the industry. For instance, Apple invests heavily in its supply chain compared to any other venture in the sector, recording an investment of $10.5 billion in new technology at the end of 2013 (Johnson and Mark 9). It is worth noting that the entity’s investment goes beyond developing a close relationship with suppliers. It extends to offers to pay for machinery, such as assembly robots and milling equipment, used by suppliers, a practice that is rare among its rivals (Johnson and Mark 5). This tactic enables Apple to secure its supply chain by ensuring a continued supply of components required in the assembly of electronics at the lowest price, and quickest way possible.
Furthermore, the organization invests heavily to ensure that it minimizes outsourcing its production to third-party providers, a practice that is not typical for other market participants. For instance, Johnson and Mark observe that Apple spends massively in ensuring that its internal designers work near suppliers and manufacturers (4). Apple achieves this is by financing transport and hotel accommodations to ensure that the designers work closely with other entities in the supply chain. By doing so, the corporation improves its industrial processes and facilitate the mass production of devices after the development of prototypes.
Problem Description
Despite Apple maintaining control of its entire supply chain internally and using it as a competitive advantage, the organization faces a few external issues that are likely to affect its operations in the long-run. The main problem of the firm is how to manage its global supply chain. Notably, Apple utilizes a just-in-time supply chain strategy that poses a significant threat of creating a backlog in production. A just-in-time supply chain management technique uses the philosophy of waste reduction, whereby Apple sources a specific volume of components from its suppliers and manufacturers when the demand arises. While the strategy is ideal in reducing inventory holding costs and ensuring timely integration of new and advanced components into the consumer devices, it poses a significant risk of creating delays in the supply chain in instances when disruptions occur in the supplier network. For example, Johnson and Mark observe that Apple’s reliance on a just-in-time supply chain caused a significant impact on the venture’s inventory projections in 2013 after component delayed from its suppliers (7). The 2013 event signifies the adversities and problems associated with Apple’s global supply chain management technique.
Apart from creating backlogs in production, the problem of global supply chain management also exposes Apple to ethical issues that have the potential to taint its public image and affect its consumer network in terms of purchases and revenue. Notably, due to its heavy reliance on a just-in-time supply chain, Apple is forced to adopt an aggressive schedule to meet demand, as was the case of iPhone 5 (Johnson and Mark 3). One of the activities in such schedules includes, requiring its suppliers to employ thousands of staff to work within tight shifts to meet the sudden rise in orders. After a decline in orders, workers are retrenched, a practice that has, in the past, elicited negative comments from the public who claimed that such methods of termination of work were unfair treatment (Johnson and Mark 3). While suppliers bear the hiring and firing burden, any adverse outcomes associated with the practice are transmitted through Apple’s supply chain, which eventually disrupts its industrial performance.
IOSCM Concepts/ Tools that can be Applied
The problem of management of the global supply chain experienced by Apple can be solved through various international operations supply chain management (IOSCM) tools such as, the enterprise resource planning (ERP) system. Scholars define ERP as “an integrated information system that incorporates enterprises internal function working processes, standardizes internal data processing procedures, and combines the operational data generated by different functions” (Chumbalkar et al 2899). Therefore, the ERP helps ventures to streamline their workflows by managing the procurement of raw materials and the supply of finished goods.
The ERP system is appropriate to the problem since it provides a permanent solution to the potential backlog in production in Apple Inc. Notably, the system comprises various functions such as, demand forecasting that can help firms identify the volume of goods required, and disseminate the information across the supply chain to ensure that raw materials are delivered on a timely basis to facilitate production. The convenience and efficiency created by the system are essential to Apple’s operations, as the venture faces considerable disruption to the supply chain due to its heavy reliance on a just-in-time supply chain.
Apart from an ERP system, operational flexibility for minimizing operating exposure is also an alternative IOSCM concept that can be used to handle the identified supply chain management problem in Apple. Notably, the concept involves the proper management of the company’s sourcing to prevent any adversities associated with changes in prices of key production inputs. As identified in the case scenario, Apple has in the past experienced significant component delays due to a decline in output among one of its suppliers, which was caused by high production costs, and debt servicing obligations (Johnson and Mark 7). Operational flexibility can help Apple minimize such exposures to price changes experienced by its suppliers, prevent delays in component delivery, and ensure that it meets customer demand as it arises.
Application of IOSCM Concepts/ Tools
The ERP system can be applied in Apple’s operations to counter the issue of a backlog that is likely to emerge in its supply chain management. Notably, the application of the system would involve the acquisition and installation of software that contains different modules, such as, inventory management, demand forecasting, and manufacturing. Using the inventory management module, Apple can determine when its consumer devices are likely to go out of stock and re-order components from its global suppliers to meet current demand while avoiding delays in the distribution of goods to end-users.
Similarly, the demand forecasting module can be essential in handling the issue of a backlog in the company’s supply chain. Notably, having a system that automatically calculates the estimated future demand can help Apple structure its just-in-time supply chain to meet demand efficiently, without the need to adopt an aggressive schedule and spend heavily on labor to meet a spike in consumer orders. For instance, if Apple launches a new iPhone model, the ERP system can efficiently generate a demand forecast for the phone through data gathered from consumers’ purchasing history and other metrics of estimating future purchases. In turn, the demand forecast for the product can be utilized to notify suppliers about the trend in purchases, expected units of sale within a specified period, and required components and designs for each device, for them to begin massive production. This way, Apple can maintain consistency in product development and supply while ensuring that the assembled products do not become obsolete.
Apart from the demand forecasting module, the manufacturing function in an ERP system can be used to counter the issue of a backlog in Apple’s just-in-time supply chain. Notably, the manufacturing module works similarly to the inventory management function, whereby the system generates the optimum re-ordering point for raw materials required in the production of end-products. In this scenario, the manufacturing function can be used to establish the level of inventory that triggers the need to replenish the volume of production components in Apple’s stock. This way, the company can determine the ideal time to re-order production components required for further assembly of consumer devices without necessitating the use of an aggressive production schedule.
Furthermore, the concept of operational flexibility for minimizing operating exposure can also be integrated into Apple’s global supply chain management to mitigate the problem of production backlog. As identified in the case study, high costs are among factors that drive suppliers to fall behind their schedules in availing of the required components (Johnson and Mark 7). Some of these high costs may be driven by an increase in prices of key inputs necessary in the development of products, and fluctuation in the exchange rates which may make international sourcing relatively expensive. Operational flexibility can help Apple minimize operating exposure to some of these prices and behind schedule risks by maintaining a flexible level of inventory during the production cycle. Notably, Apple can ensure that it has sufficient stock of specific components required in the production of iPhones for a substantial duration, to avoid delays that may be caused by exchange rate risks. Operational flexibility would help Apple minimize the chances of backlogs as the company will have sufficient raw materials to facilitate production regardless of changes in the foreign exchange market.
Expected Results
Among the most significant results of the implementation of ERP would be a reduction in the amount of money that Apple invests in its supply chain. As is evident from the case study, the organization, through its suppliers, spend heavily on temporary workers who are hired to meet sudden spikes in orders. By implementing an ERP system, Apple would efficiently determine its demand forecast, and the re-ordering point, allowing suppliers to maintain production schedules that are cost-efficient and responsive to demand. Besides, Apple could invest savings from the supply chain in new product development to enhance its product portfolio and boost its source of revenue.
In addition, the adoption of the ERP system and operational flexibility would lower the probability of the organization experiencing a backlog in production. Notably, analysis of Apple’s just-in-time supply chain reveals that the venture faces the threat of production backlog in instances of disruption in its supply chain, especially when suppliers’ output falls behind schedule following an increase in costs of key inputs. With an ERP system in place, Apple could estimate the volume of inventory components required to meet production within a given period, thus avoid the accumulation of unassembled devices during a disruption in the supply chain. Besides, with an ERP system in place, Apple can source vital components from alternative global suppliers in its network to meet present demand in instances where one of its manufacturers falls behind schedule.
Furthermore, the proposed solutions would be expected to enhance Apple’s image among members of the public by minimizing the chances of the venture being involved in unethical issues. Information from the case study reveals that some actions by Apple’s suppliers, such as, massive termination of jobs, has in the past exposed the venture to negative publicity among people who considered such practices as unfair treatment. However, implementation of ERP, and the adoption of operational flexibility would enable the suppliers to manage their workforce better and avoid similar encounters in the future. The ability of Apple’s key suppliers to maintain a positive public image would then be translated to Apple’s operations in the form of positive public image, increased sales, and revenue.
However, it is also expected that the proposed solutions would result in a significant increase in the company’s operational costs. Notably, Apple would have to invest in the acquisition and maintenance of its ERP system. Some of the anticipated expenses would include the cost of purchasing an ERP software and installation of various modules required in supply chain management, payment of wages to IT experts needed in the maintenance of the system, and insurance of the company’s system against cyber threats. Nonetheless, the majority of the associated costs would be a one-time expense; thus, the organization would spend the minimum amount to yield maximum benefit from the system.
Pros of the Suggested Solution
Several benefits would be obtained from the use of an ERP system, among the most significant being promotion of visibility in Apple’s operations. Notably, an ERP system would make it easier for the management to access every vital data that is required to enhance supply chain management, such as, inventory levels and demand forecasts. The visibility created by the ERP system would then enable the administration to develop coherence in workflows, and ensure that supply and production meet demand.
Additionally, an ERP system would help enhance customer service in Apple, which would translate to consumer attraction and retention. This benefit would be derived from the ability of the system to streamline all operations that facilitate efficiency in the production, and distribution of finished goods to end-users. Notably, with the organization being able to manage spikes in demand through the system and prevent backlogs, it would be the most preferred among consumers who value timeliness in product and service delivery.
Apart from visibility and enhanced customer services, the ERP would significantly improve supply chain management and minimize costs involved in the mass-production of consumer devices. For instance, through demand forecasting and inventory management, Apple would be well-equipped with the information required in planning the production schedule of critical components from its suppliers. In doing so, the organization would avoid the additional costs of last-minute hiring of temporary employees to meet increase in demand.
Disadvantages of the ERP System
The most significant disadvantage associated with an ERP system is high costs. Notably, Apple would have to spend massively on the upfront cost of the software. Furthermore, if the organization chooses to utilize a cloud-based solution, it would have to carter for periodic payments for users to access the system, a practice that would impose more financial obligations on the venture. Besides, an ERP system may be more complicated than it sounds in a theoretical context. Therefore, the organization would have to invest in training its employees to ensure that the system is utilized appropriately.
Furthermore, with the ERP system being centrally integrated with the supply chain, Apple would be highly exposed to data security issues. For instance, it would be easier for different people in various departments to have access to the ERP for purposes of procurement, resource planning, and production. While the increased visibility would be essential for the smooth running of the firm, it would also expose the organization to a potential breach of data and attacks from external sources, which could cause possible delays in the venture’s operations.
Conclusion
In summary, Apple faces a potential problem in global supply chain management due to its high reliance on a just-in-time supply chain. Notably, it is argued that the venture’s dependency on a just-in-time supply chain can easily create a backlog in production and other interrelated issues such as, increased spending on the supply chain, as evidenced in the case study. To overcome this issue, Apple could invest in an ERP system to facilitate demand forecast and inventory management, which would, in turn, enable suppliers to plan their production schedule better and ensure timely delivery of key manufacturing components. Also, Apple could adopt operational flexibility to help minimize its exposure to production delays in instances where a supplier’s output falls behind schedule. Analysis of the case study reveals that, if the proposed IOSM tools, and concepts are adopted, Apple would be better positioned to reduce its spending of the supply chain. Furthermore, the IOSM tools would help prevent production backlogs, and enhance the venture’s corporate image among consumers and other members of the public.
Information from the case study sheds light on the numerous differences between domestic, and global operation supply chain management. For instance, global supply chain management involves the distribution of goods across a firm’s global network. An example in Apple’s case is the distribution of raw materials from worldwide suppliers to the company’s assembly points, and dispatch of finished products to the global network of consumers through its online and brick, and mortar stores. On the other hand, domestic supply chain management involves the supply of raw materials, and the distribution of end products within the same country. From the case analysis, Apple is mainly involved in global supply chain management, as its suppliers and consumers are located in different parts of the world.
Works Cited
Chumbalkar, Neha, et al. “Benefits of ERP System and its Use in Supply Chain Management.” International Journal of Innovative Research in Science, Engineering and Technology, vol. 7, no. 3, 2018, pp.2898-2904.
Johnson, Fraser, and Mark, Ken. “Apple Inc: Managing a Global Supply Chain.” Ivey Publishing, 2014.
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