
Apple's Supply Chain Secret - Cadsby
http://www.businessweek.com/magazine/apples-supplychain-secret-hoard-lasers-11032011.html
======
binarray2000
OK...I cheer to so many things Apple does regarding operations. But when I
read

Apple [..] sometimes doesn't pay until as long as 90 days after it uses a part
[...]

I think only "lame". With $80B and 40% margin, company with that reputation...

Manufacturing is hard. And very expensive. Organize processes, buy machines
and raw materials, pay the labor. And then comes Apple and gives itself a loan
(basically, it's a loan) from a manufacturer.

No, sorry. It's lame.

PS - Just as a perspective: I help part time in a company my father and
brother own (retail and manufacturing company). Even thou other businesses in
the industry and the country do the same thing as Apple, they don't. I'm
disgusted by that practice here...so, why not be disgusted by it when Apple
does it?

~~~
MichaelApproved
Weigh that with times that they pay in advance. It's a case by case bases and
I'm sure they're not late with payments. If they wait as long as 90 days, I
bet it's because that was part of the business agreement they made with the
manufacturer.

~~~
asmithmd1
I would bet that 90 day payment was a one off. You notice NO ONE quoted in the
article was willing to have their name used so it might have been a friend of
a friend story. The suppliers who talked gave details about turning down a $1
Billion pre-payment!

~~~
Tangurena
I disagree for 2 reasons. First, Apple is notorious with NDAs. Second, many
large retailers are quite willing to cancel contracts with any supplier that
gets uppity enough to complain in public. Walmart is so notorious for
cancelling suppliers that most Walmart suppliers will refuse to allow any
company representative speak on the record.

------
padobson
I think Apple's supply chain management is a greater competitive advantage
than their product design.

There are many factors beyond the quality of product that go into a purchasing
decision - things like hype, accessibility, and most importantly, price.

Apple never had much a problem with great design or building hype, but the
real reason for their success over the last 15 years has been their ability to
provide customers better access to their products and to provide them at more
competitive prices.

The iPhone is ( by most accounts ) a superior product to the Blackberry.
However, no one was going to buy an iPhone for $900, and without this
impressive supply chain, Apple wouldn't be able to get the profit margins they
want at $600 ( or $200 subsidized, which is also supply chain management ).

Product is important, and as a culture that builds things, HNers tend to focus
on that ( the green light conversation in these comments being proof of that
), but all the logistics of how a product is delivered are just as important
as the product itself - and maybe more so - in building a successful company.

~~~
bunderbunder
The same ethos provides similar results on the customer service side. For
example, letting users go to the website and schedule a 15-minute window of
time in which Apple calls them is _huge_. Letting users go to the website and
schedule an appointment to go talk to a real live human is _huge_. And making
them walk all the way through a retail outlet full of your products to get
there doesn't hurt, either.

Every other company in their space is still stuck on figuring out how to
distribute tech support resources to customers by asking them to wait on hold
for an hour. That's an hour worth of time doing absolutely nothing productive
that shows up on the 800 number's bill. That's a bunch more call center
hardware to maintain in order to manage the queue of people on hold. That's
less productivity per operator, because customers who are pissed off about
being on hold for an hour are harder to work with, and because dealing with
that for 8 hours a day is an excellent way to lose your own motivation. Let
alone that a bad support experience is a good way to make sure a customer
doesn't become a repeat customer.

~~~
padobson
+1. This should become the standard in customer support. If it's cheaper to
provide in addition to being a better user experience, everyone should be
moving this way.

------
nailer
> Most of Apple’s customers have probably never given that green light a
> second thought

Most, I'm sure. But personally the first time I saw light shining through my
metal laptop, I was amazed, a little delighted, and slightly confused about
how they were doing it (because, as the article mentions, the holes are too
small to see).

~~~
idspispopd
The first time I saw it I pulled out a triplet magnifier to see what was going
on. I've got a few great shots of the laser pattern if anyone is interested.

~~~
idspispopd
Here is a recent shot: <http://i.imgur.com/Rl35X.jpg>

I'm still looking for the old shots (from around 08) which had a few nice
shots of the unlit holes (the holes are much smaller than they appear here.)

------
wallflower
> 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.

When I went to WWDC10, I was struck by the small detail of the conference
security wearing black polos with the Apple logo and "Security" under the
logo. At most conferences, the security is wearing jackets straight out of
action movie central casting (e.g. "SECURITY"). I thought that was a nice
small detail - to attire the rent-a-cops in Apple gear. But, now, reading
this, I think they may have been full time Apple security staff. Security is
paramount.

~~~
spleeyah
They do have a full time security department:
<https://ssl.apple.com/support/security/>

And believe me, they take every aspect of security into account.

------
yassim
Seems to me to be an extension of the 'People who are really serious about
software should make their own hardware.'.

Say 'People who are really serious about making and selling a product should
make their own production, supply and store chains' or 'People who are serious
about their product should take ownership of all stages of that product.'

------
antics
What is argued in this article was argued much earlier this year on Quora.

[http://www.quora.com/Apple-Inc-2/What-would-be-a-good-use-
of...](http://www.quora.com/Apple-Inc-2/What-would-be-a-good-use-of-
Apples-86-85+-billion-in-cash/answers/612608)

------
irrationalfab
This is a great proof of the strategic advantages of totally controlling your
operations. In the start you are at disadvantage, but if you manage to gain
steam you end up with a competitive advantage that is almost unfair.

In Apples case this strong position is not only visible in the supply chain
management but it is clearly present in all their stack. Another example is
their supremacy in software.

I think that this is one of the great lessons from Steve Jobs, takin your time
to control and develop everything internally it is feasible competitive
approach.

~~~
ippisl
Apple do a nice combination of controlling operation, with open(relatively)
ecosystem.

They use the rapid response of a huge open ecosystem of software developers,
while still having a lot of control.They do it this way because in software ,
time to market is very important.

For the hardware part, which normally changes less often(slower phone buying
cycle,phones are integrated and not modular like PC's, relatively long time
before new electronic components become mass market) and time to market is
less important(relative to software) , they use a closed ecosystem, in order
to extract most of the profit.

------
fredoliveira
I _very highly_ recommend listening to a couple of episodes of Critical path
if you care about Apple's supply chain strategy. I was amazed at the level of
detail in which this was discussed (and going through this article I couldn't
help but think that part of the information in it is due to the analysis on
that podcast):

<http://5by5.tv/criticalpath/10> and <http://5by5.tv/criticalpath/11>

------
endlessvoid94
Interesting parallel to walmart.

~~~
hswolff
What's Walmart's supply chain like?

~~~
jacques_chester
They've often been considered one of the best supply chain operations in the
world, and aggressively drive their suppliers to lower prices and increase
volume.

One classic anecdote is that leading up to a hurricane, Walmart did some data
mining and found that poptarts sold like crazy when hurricane watches were
declared. Within hours they had dozens of trucks heading to the Florida coast
filled with poptarts and they made a lot of money that way.

Unless you have a fast, flexible logistics system and the analytical smarts to
back it up, you can't exploit changing circumstances like that.

Edit. Source of Walmart anecdote is here:
[http://www.nytimes.com/2004/11/14/business/yourmoney/14wal.h...](http://www.nytimes.com/2004/11/14/business/yourmoney/14wal.html)

~~~
DiabloD3
I agree that exploit is the right word here, but probably not for the reason
you chose it.

~~~
nknight
There's plenty to dislike about Wal-Mart, but there is absolutely nothing
wrong with predicting a sudden shortage of a product in a particular area, and
trucking in a bunch.

If they'd doubled the price, that would be another matter, but that's not what
they did.

------
bravura
"This operational edge is what enables Apple to handle massive product
launches without having to maintain large, profit-sapping inventories."

Could someone explain what that means more specifically? That they don't have
to have a large stock?

Doesn't this controvert the earlier statement: "Because of its volume ...
Apple gets big discounts on parts, manufacturing capacity, and air freight."

~~~
wisty
Nope. Apple agrees to buy 1 to 5 million ipod screens from a supplier, at a
$10 per screen (totally made-up figure). They say they want boxes of 100,000
units, delivered within 1 week of whenever they feel like asking for them. So
Apple doesn't need a warehouse, they get their supplier to pay for that.

They also have an identical deal with another supplier, so they can play them
off against each other if they need to renegotiate. Most companies would just
go with whichever supplier was cheapest, but Apple may find it cheaper (in the
long run) to keep the competition going.

~~~
pork
To answer GP's question, "in stock" is a buffer between manufacturing and
consumer. Apple has an algorithm to keep that buffer small but flowing.

------
CoffeeDregs
These kinds of articles were novel 10 years ago when Apple was coming back and
was doing so while beating Dell at supply chain optimization and that was,
justifiably, a huge story. Ironically, I read them in BusinessWeek back then,
too.

Now, the ODM/OEMs have become brands and the folks who once were the main
participants in Apple's supply chain are now directly competing with Apple.
Breathless articles aside, are we really sure that Apple's supply chain is
much shorter/faster than those of Lenovo, Dell, HTC, Sony or, holy hell,
Samsung?

I also have a hard time seeing how $25M worth of lasers is a supply chain
innovation; most other manufacturers would probably prefer to make the laptop
for $6 (amortization) less. I have a ThinkPad T520 [with Linux] because it's
rugged, comfortable (no wrist razor), has a TrackPoint (I know, I know, but I
love it) and about $1200-$1500 less than a comparable Macbook Pro. Clearly,
the majority of hackers disagree with me, so I'm convinced that 90% of Apple's
incredibleness is their marketing (not ads, but understanding how to design
and build excellent products which are very well targeted at their audiences).

~~~
pinwale
>I also have a hard time seeing how $25M worth of lasers is a supply chain
innovation; most other manufacturers would probably prefer to make the laptop
for $6 (amortization) less

It looks like Apple's supply logistics chain is similar to WalMart's supply
chain. WalMart has deep connections with their suppliers, requiring suppliers
to hand over financial records, dictating factory processes, and demanding
yearly cost reduction.

The difference (and it is the major difference) is that Apple focuses their
relationships with suppliers on quality of process and availability by locking
up supply years ahead of time. WalMart just focuses on cost reduction.

The innovation is that Apple willing to pay high upfront costs years in
advance to design efficient manufacturing processes so that later it would be
able to get both cheaper component rates and a guaranteed supply. Jonathan Ive
has said that most of his time is spent designing processes rather than
products. Check out this excerpt from the
[Objectified](<http://en.wikipedia.org/wiki/Objectified>) documentary:
[Youtube]([http://www.youtube.com/watch?feature=player_detailpage&v...](http://www.youtube.com/watch?feature=player_detailpage&v=t0fe800C2CU#t=149s))

------
mkramlich
Speaking as a contractor, I have a bias/tendency to eventually "fire" any
client that takes too long or is too sketchy about paying me. Too much risk on
my part. I work, I get paid. With all bullshit set aside, it should only take
on OOM of about 1 minute to write a check, put in envelope, put stamp on it,
and put in outbound mailbox. Anything longer than that is self-imposed
bureaucracy, not physics.

------
CWIZO
And yet we have to wait 2 months to get MBAs here in Slovenia (due to supply
shortage) ...

~~~
pchristensen
That sounded like a really quick education, until I realized you were talking
about a laptop.

------
datsro
They also don't have to pay for storage costs which eats up money for their
competitors!

~~~
2muchcoffeeman
Dell and probably many others had this long before Apple.

------
swombat
_> According to Martin, the logistics executive, Cook uses a catchphrase to
hammer home the need for efficiency: “Nobody wants to buy sour milk.”_

That's a bit of a floppy ending for an otherwise excellent article.

------
tripzilch
Interesting article, but this quote is absolutely sickening:

> Because of its volume—and its occasional ruthlessness—Apple gets big
> discounts on parts, manufacturing capacity, and air freight. “Operations
> expertise is as big an asset for Apple as product innovation or marketing,”
> says Mike Fawkes, the former supply-chain chief at Hewlett-Packard (HPQ) and
> now a venture capitalist with VantagePoint Capital Partners. “They’ve taken
> operational excellence to a level never seen before.”

Crediting a company that until _very recently_ employed slave labour with
"occasional ruthlessness" and "taking operational excellence to a new level"
is just disgusting.

There is still no excuse for that. They should be grovelling on the ground
begging for forgiveness, not being commended for it!!

At least thanks to this article we know how that situation came to being...
Just a little harmless "occasional ruthlessness".

~~~
Synaesthesia
Slave labour? Really? Since Apple products are made my Foxconn, which also
make products for a number of other manufacturers, aren't they then complicit
too? How about Foxconn?

