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Apple Supply Chain

Essay by   •  May 25, 2016  •  Case Study  •  2,829 Words (12 Pages)  •  4,118 Views

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LSE ID: 201564845

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Using the Apple case study, answer all four of the question below.

1. Review Apple's supply chain for its IPhone product. What differences set it apart from its competitors?

2. What are Apple's key advantages in how it manages its supply chain operations? Support your analyses with case facts.

3. What are the future challenges Apple faces and what are the implications for its supply chain?

4. As Jessica Grant, what recommendations would you make to the VP (Philip Duchene) and why?

ESSAY STRUCTURE: Introduction, 1st Paragraph replies to 1st Question,  2nd Paragraph replies to 2nd Question, 3rd Paragraph replies to 3rd Question, 4th Paragraph replies to 4th Question, Conclusion.

 “Increasingly competition is not between companies but rather between networks with the prize going to the company that has built the best network” Kotler (2004).

The firm’s strategy is determined by resources and capabilities (Grant, 2001) and in order to penetrate the market, a company must be able to align innovations in both its capabilities and its competencies (Smith, 2008). According to Porter (1980) the right alignment of capabilities involves one of two strategies for compete in an industry: offer the same products at a lower cost or offer products not easily replicable by competitors (Porter, 2008). Either aim is achievable with a strong network in which the capability to manage the supply chain (SC) is critical to improving organizational performance and to protecting the competitive advantage.  This essay analyses parts of Apple’s strategy in order to understand the company strategic totality (Mitzenberg,1998) and its position within the industry in order to defend its competitive advantage (Porter, 2008). We focus our attention on the Apple’s SC, the differences between this SC and its competitors, on SC key success factors and on the future challenges that Apple has to face. In conclusion we recommend some actions to BXE Capital in order to increase the efficacy of Apple’s SC and ensure a sustainable competitive advantage.

Considering the success of Apple it is important to analyze the SC for its most successful product, the iPhone, to understand the differences between the company and its competitors. These differences are central to the deployment of Apple’s core competences (Willman, 2014). Furthermore, according to Porter (1980), the differences in customers, suppliers, substitutes, potential entrants, and rivals can become the basis for strategies to achieve superior levels of performances.  

Firstly, Apple controls strategically its entire SC internally in relation to its subcontractors (e.g., Foxconn). The designers at Apple are constantly present in the supplier’s factories to effectively translate prototypes into mass production. Consequently, Apple’s devices are available in a limited number of configurations (Mark, 2014), allowing its SC to be more agile. The Apple’s capabilities and organizational processes are integrated because capabilities determine processes to be carried out (Day, 1994). This enables Apple’ s integrated SC to follow the one-year life cycle of the iPhone.  As it is a perishable product (Porter, 2008) the iPhone needs both a flexible SC and processes to outperform its time to market. Furthermore, by internally controlling its SC, Apple outperforms the competition on dimension, through the maximization of SC relations rather than price (Porter, 2008). It can be said that this Apple’s capability is its most distinctive and the source of competitive advantage (Day, 1994).

Secondly Apple’s competitors have separate R&D departments and accountability for each product segment, whereas Apple is highly integrated with a centralized R&D department, accounting processes and information system (Mark, 2014). This integration maximizes the flow of information and innovations along the SC and is strategically coupled with the iPhone’s life cycle. Furthermore, Apple invest hugely in R&D, which is common practice for the technology industry. According to Porter (2008) this represents a strategic choice on Apple’s part in order to scare potential or actual new entrants. In other words, Apple makes it more costly to its rivals to compete in the industry.

Thirdly, Apple has a reverse logistic system to allow consumers to communicate with the company about any defect of its devices directly on its website. Within half a day, Apple sends the customer an email indicating whether the product is under warranty and providing instructions about how it should be returned; shortly after, it sends the customer a box and a label to return the iPhone. In this way Apple has improved customer satisfaction, reduced the numbers of calls to technical support, alongside eliminating   customer errors in the processing of returns (Mark, 2014). This strategic choice on the one hand allows Apple to increase the customer satisfaction and reduce errors on the other hand Apple has expanded its support services to customer, which in turn increases the barriers to new entrants and competitors (e.g. Samsung) in the industry (Porter, 2008).

The dynamic capabilities are the firm’s ability to integrate, shape and redesign internal and external competences to compete in rapidly changing environments (Teece, 1997).  Having the capability to create an advantage managing a global and changing SC is clearly an Apple’s dynamic capability. Apple’s products contain key components which are often supplied by a single manufacturer. As different mobile companies used the same components, this commonly led to the situation where the supplier was out of stock. To address this issue Apple purchased the supplier production in advance, ensuring the supply of key parts. Furthermore, it developed a programme to buy equipment for suppliers to ensure supply and achieve cost targets (Mark, 2014). Apple’s relationship with suppliers mixes competition and cooperation, which is a dynamic that is explained within the framework of Game Theory (Willman, 2014). Apple’s relationship with its suppliers allows the company to receive price reductions and, overall, discourages other industry players from buying the production in advance (Porter, 2008). Often competitors had to wait long time for components and this affected their performances. For example, an order from Apple to a common supplier created many stock problems for Samsung resulting in the cancellation of an order worth $ 10 billion (Mark, 2014).

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