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?
Welcome to business in the real world. Try consulting for any Fortune 500 company sometime, and see how long they take to pay you after you invoice them. If 90+ days is the norm for paying small consultancies, it's hard for me to feel too sorry for multi-billion-dollar electronics suppliers.
Well, I AM talking about the real world (note my post scriptum). Also, when you talk about small consultancies and Fortune 500 companies: I have worked for a small consultancy and, later, as a freelancer for German top companies (Deutsche Telekom, Deutsche Post, Munich Re - to name a few) and they all have paid, both that consultancy and me, within a month of which the consultancy/I have sent the invoice. USA is, judging from your comment, different... I see that now.
Aside from being (in my opinion) a bad business practice, it's also lying to the shareholders. You see, that $80 Billion figure would be smaller if they'd pay the manufacturers in a reasonable timeframe.
All I can tell you is that in the US, very long delays before invoices are paid out are absolutely the norm.
I didn't jump in because I particularly care how Apple pays vendors, but because many people on HN are considering freelancing and bootstrapping, and they should know: big companies are never going to pay them on time. Keep cash in the bank.
Your comment about Apple's balance sheet is pretty silly.
Apple has 90 days of non paid supplies on the books (and $80 billion in the bank - "cash and investments" as stated in the article).
If they'd (OK... IDEALLY) pay all of them at once and continue paying supplies as they get delivered, only then would their balance sheet look realistic.
Yeah this is very common and it's one of the reasons why Apple is so good at managing their cash.
By delaying payments Apple can use the cash for other short-term investment opportunities. In Apple's case, their accounts payable is probably in the billions. As an example: If Apple has a $10 billion accounts payable and instead of paying it right away they waited for 3 months and invested that $10 billion on short-term securities with a 10% return, Apple would earn $1 billion in that 3-month period vs. ZERO if they paid their liabilities right away.
If those numbers are true, why does Apple bother making stuff? Their $80 billion in the bank should, according to your figures, make them $8 billion a quarter? Actual reported profit is $6.6 billion, so they must be losing over a billion on production and sales of stuff each quarter.
I'll leave the search for 10% 3-month yield to the parent, but note that the math still works for much smaller yields. Rolling e.g. 12-month US treasuries will yield around .1%, which is roughly $40m annually on the hypothetical $10B. More or less risk free and with excellent margins. This is meaningful even to a company as large as Apple.
No doubt this behavior began before the Fed started their zero interest rate policy. Come to think of it, Apple was in business at the end of the Carter Administration when interest rates hit and exceeded 20% (!!!)....
Having worked as a solo freelancer in the UK my experience was that prompt payment is inversely proportional to the size of the company.
The single man startups I worked for would pay their invoices promptly, while multi-nationals seemed to consider "net 30" to mean they shouldn't even consider paying until 30 days after receipt, and seemed to have a policy that they wouldn't pay until hassled.
We pay pretty much instantaneously too. There's a couple reasons why we're "good" at paying and F500s are "bad" at it (although in MBA terms, we're the ones who suck):
* We don't have a payments/procurements department, so "payment" usually means me, Dave, or our finance person just cutting a check.
* We derive no meaningful benefit from withholding payment (pennies of interest, versus hundreds of dollars of lost cycles).
At giant companies, carefully managing payables probably makes an enormous difference. When you say "operations excellence", stuff like how vendors are paid is one of the first things many people think of.
Tell me about it... sometimes I'm lucky to even have a PO (purchase order) number to put on the invoice, 30 days after I've completed the work with large companies.
The payments department won't even look at the invoice if it's missing that.
Rule number #1 in contracting: factor in the interest costs for N days interest in to your price. Your contracts should factor in an exorbitant penalty (based on time-value of money for YOU, not the market place) for post "net N" days (I'm a big fan of 10% + 1% per additional day). Great video on this:
At this size, I don't really feel like it's an issue. Manufacturers for Apple will all employ financial analysts whose job is to price the 90-day payment terms into their prices. If you're going to pay me tomorrow, I'll quote you $1 a widget. If you're paying in 90-days it's $1.04 a widget.
Incidentally, I know a wholesaler [1] in London which sells at almost cost price. It makes most of its profits from sitting on the cash it takes for 60 days, before paying it to suppliers.
My understanding is that this is most of Costco's profit model too: they take merchandise on consignment for say 60 days, sell it all at cost within a week, and then invest the float.
I read in the 90s that Microsoft's suppliers appreciated that MS never went the 'net 30' or 'net 90' route like other Fortune 500 corps and just paid as soon as they got the bill.
It's priced into everyone's models. I worked in the ad industry fo a while where our clients (ad agencies) paid 50% up front and then the rest up to six months later. Meanwhile the artists lived hand to mouth and waned to be paid weekly in checks made out to cash. Meanwhile our hardware was all leased on multi- year terms despite becoming obsolete within 18 months.
Without knowing anything else, 90 days sounds like the amount of time sellers extend credit to Apple (30 and 60 days are also common). Usually such terms come with slight discount for early payment. Good cash management practice requires that they pay on the last day they get a discount or wait until the last day to pay.
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.
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!
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.
Paying late in manufacturing is all over the place, 30 days is considered acceptable, 60 the absolute limit, but paying 90 days late is just something Apple can get away with because of it's size and "occasional ruthlessness".
It's not paying 90 days 'late'. It's completely standard in manufacturing for payments to be agreed as due 30, 60 or 90 days after delivery. 90 days fairly long, but not particularly unusual.
It's also not unusual for companies to pay later than the agreed dates, but no-one has said Apple's doing that.
Apple's bought parts on short term credit since it was Jobs and Wozniak in the garage. Though back then, it was because they were broke until they sold the Apple I's, and now it's because they're flush enough with cash that the time value of money favors the delay.
I never understand why people try to pass judgment on a transaction like this. Their suppliers are real businesses who are capable of modelling their cash flows and deciding whether or not this is profitable. No one ever stops and says, "wait.. it makes business sense to sell to Apple, but this is lame so let's not do it".
I think "no one" is a bit strong there. The article cites one company who walked away from a profitable $1B deal for a dressed up version of "but this is lame"
No, they said something a bit like that in their PR. They walked away because of cold hard decision making, economic forecasts, risk assessment, Apple demanding too high a price for iPhones, etc, nothing fluffy.
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.
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.
+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.
Thinking about them separately is a mistake. Apple is able to execute many of their designs because they can lean on their suppliers & manufacturers. Similarly apple is able to deliver high margins, price iPads at 500 etc because they make design decisions with the supply chain in mind.
The irony was that there was a time when Apple was absolutely HORRIBLE at this. They really only got it fixed after they nearly bankrupted the company.
> 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).
"Most of Apple’s customers have probably never given that green light a second thought"
I did. I used microscopic lens to see how they are made, you will see concentric holes that are microns wide.
I was amazed too, I knew it only could be made by lasers but I was delighted how someone could have that original idea. It is brilliant, and so elegant.
they're talking about the GREEN indicator, on top of the screen (which shows the iSight camera's status), not about sleep indicator (the WHITE, rectangular thing, beside the IR receiver).
The ones on my wireless keyboard are easily visible as individual holes when the light is on from 2 feet away. I don't know if the iSight is different (not having a metal macbook), but they are probably very close to the same.
I din't pull out a microscope, but I did wonder why they didn't implement this for all the lights (battery-level indicators on the side, charging indicators on the power supply connector).
The battery lights display useful information by being visibly off. When you see 7 dots light up, you need to be able to see the 8th dark hole to know it's at 7/8 charge and not 7/7 or 7/10. Similarly for the charging indicator: when it's not charging, you want that to be obvious.
Arguably, knowing that the laptop camera (or the wireless keyboard bluetooth pairing) is not active is not as useful information.
The first time I saw that I actually took my laptop apart to see how it was done. It was just one of the simple features that I really enjoyed about my laptop. It just showed an attention to detail that no other manufacturer has yet to follow.
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.
Very reminiscent of the anecdote about an early Mac version: The final design had a tiny hole on the front of the cabinet where the speaker was. Steve went ballistic and in spite of huge time pressure and added expense forced a redesign in favor of a completely concealed speaker.
Same here. Once I figured it out, I wondered why they don't ever use the same technique to expose the Apple logo on the lid of the laptop - so that the lid is perfectly flush/clean when the screen is closed but the Apple logo is shown during use.
...now I know the answer: the lasers are so expensive and in such short supply it would presumably create a bottleneck in the production - esp given the surface area of the logo and thus the amount of holes needed.
Not to mention that, while it would be cool and notable (and maybe worth it for that alone) making the logo invisible when the computer is turned off eliminates a marketing opportunity. The simple Apple logo against a plain backdrop provides a clean advertisement for Apple. Removing the logo removes the distinctiveness of the computer when it is turned off.
Also, I'm not sure how the computer would look without a logo interupting it. I guess almost every other manufacturer comes close to this, but I think an Apple computer would feel wrong with a a view of unbroken alumninum.
>The simple Apple logo against a plain backdrop provides a clean advertisement for Apple.
Exactly. Buying billboards on the most expensive streets in the world is very expensive. Having your customers sitting lined up in a row in coffee shops with their laptop lids with the lighted apple logo pointing outward to the street on these very same streets must be very valuable advertising. I'm constantly amazed when I walk by coffee shops and see the typical 75% apple market share, when just a decade ago they were really a niche player.
"The simple Apple logo against a plain backdrop provides a clean advertisement for Apple. Removing the logo removes the distinctiveness of the computer when it is turned off."
It still took them a while to put them on the right way up. The first few laptops they sold with the Apple logo on the lid, they were oriented so they were "right way up" for the user when the lid was closed. That made them all upside down in all those tech conference shots from the stage...
It could also be a reflection of how laptop usage has changed over time. Maybe a couple of years ago laptops were closed most of the time, hence the decision to put the logo up that way.
In the future, they should create the microholes and keep the logo dimly lit in the orientation that faces the user when they open the laptop. Once the laptop is open, the array of LEDs could change to make the logo oriented the current way.
There is already something similar on one of the numerous android handsets out there where the 4 hardware keys turn 90 degrees when you switch from portrait to landscape mode. Not quite as polished, but similar in concept.
The lit-up logo is Not powered by a special array of LEDs, it's just the screen backlighting shining through a hole.
You can verify that by changing the display brightness, the logo will change brightness accordingly. Or just hold the turned-off laptop in front of a bright light source, the apple-shaped hole wil, be visible through the screen
Those micro-holes are covering a very small surface roughly the size of a LED. The small area is a large reason for their invisibility.
Using them on a much larger area would make them a lot more visible as a whole, even without light. The result would probably look like a vaguely apple-looking smudge. Somehow I don't think it would pass.
Not only that, but it would probably weaken the strength of the lid considerably. Imagine holding your macbook air in a certain way and, when you put it down, finding you've made a thumb-print dent in the lid...
"Each machine typically goes for about $250,000. Apple convinced the seller to sign an exclusivity agreement and has since bought hundreds of them[...]"
That's ~$25 million for just 100 of those lasers. If they bought hundreds of them, that means they paid tens of millions or even over $100 million just for that light effect.
Apple sold 16.8 million Macs just this year, so at $100 million for 400 laser system, Apple could pay them all off entirely in 2011 by adding $5.95 to the cost per Mac.
Note the word "typically". It is likely Apple got a volume discount if they're buying in those quantities, and especially if they're paying up-front to cover the R&D for the modifications they needed.
Actually, I think that the sleep-light on the MacBook Pros came first. The small bar of light that's right next to the IR receiver on the front-right of the body.
That bar is actually a series of those small holes to let the light through. The green light for the metal casing came later IIRC.
The green iSight light predates the unibody MacBook Pros. At some point they changed it from a visible hole to small invisible ones. Those laptops still had the sleep-light on the "opening button" in front (this button and the self-hiding magnetic latches were removed on the unibodies).
> 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.
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.'
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.
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.
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):
I was thinking the same thing. Aggressive negotiation with suppliers is a feature of monopsonies.
Edit: I've thought about it some more. There are parallels but important differences.
The main one is products. Apple design the products themselves, have a very limited product range, and are more intimately involved in manufacturing than Walmart is.
Walmart has a much more complex supply chain problem. Thousands of products, with a changing mix based on seasons and perishability, taken from far more sources and distributed to far more locations.
For the ones (such as me) who went "mono-what?", a monopsony is the situation where one unique buyer buys from different sellers. It's the opposite of a monopoly, where an unique seller sells to different buyers.
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.
Either opportunistic or exploitive are appropriate -those words are not always negative, to me they also have a descriptive meaning. If they saw a trend and they took steps to fulfill the foreseen demand, it's all good. I'm sure people were happy WalMart had that in stock, rather than think 'this WalMart, they're using this hurricane in an underhanded way to sell me more poptarts'.
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.
Pop-Tarts are a cheap, readily-accessible, easily-consumed source of calories with a long shelf life that most people will at least tolerate. They're nutritionally incomplete, but they will help keep you alive and functional in the short term.
Most people don't stock up on MREs and survival bars, nor even have a clue where to start. Under such circumstances, it's both expected and reasonable that they reach for a familiar, readily-available energy source.
I remember hearing an anecdote many years ago that when food supplies where being dropped over Afghanistan it was the pop-tarts and peanut-butter that were the most popular.
This is anecdotal evidence from them coming to speak at my college, but... Walmart controls almost all of it's logistics. Whereas its competitors use other shipping companies, and have inventory sit in 3rd party warehouses, Walmart builds huge distribution centers that service multiple Walmart stores.
The distribution centers mean they can purchase huge levels of inventory at discounted terms. Running their own logistics means that they can break up pallets into smaller shipments appropriate for each store. So stores need less space to carry inventory, and they can purchase and store huge amounts at lower cost per sq. ft.
The other thing the logistics does is gives them an advantage in transportation cost. Although (I've heard) the margins in ground transport are slim, running your own ground transport saves money, allowing for lower prices to the consumer.
Walmart's size also contributes to their "efficiency". They can buy in larger quantities than their competitors and try to exert downward pressure on suppliers' prices. They can also nab exclusives and put them on the shelves for less than competitors.
To toss some info on the cost-cutting logistics pile, a friend of my dad was a buyer for Wal-Mart for a while.
According to him, Wal-Mart's corporate relocation assistance consists of a Wal-Mart truck and some random employees from a local store packing and stuffing your possessions in a semi.
My brother worked logistics for a large company that supplied product to WalMart.
Their distribution centers have timeslots for incoming trucks measured in ten-minute increments. You miss your ten-minute window to park the truck, you're locked out until they can find a space to fit you in.
Also , by doing logistics for manufacturers and not the other way around, they make logistics for other retailers cost more(because of less scale), which increase the price of the competition.
ruthless. they handle so much more volume than any other retailer that suppliers are willing to sign anything just to be a part of it. all losses are passed back to the suppliers, which enables wal-mart to take huge risks.
the sibling comment to mine references a huge volume of pop-tarts being shipped to florida in preparation for a hurricane. if during mid-shipment the weather changed, wal-mart would call up the supplier, cancel the order, and all the trucks would return the pop tarts to their suppliers at no cost to wal-mart. with pop tarts it isn't such a big deal because they don't spoil, but farmers who supply wal-mart will get shipments of spoiled produce returned to them if wal-mart decides they don't need quite as much volume that week. and they just have to deal with it, because they can make more money getting screwed by wal-mart than they can selling to ethical companies.
I'm not a Walmart hater, but as I understand, the company requires their suppliers to open their books for the inventory they sell to Walmart. If the company "makes more money", Walmart will squeeze them to lower their wholesale cost, but that won't necessarily be passed to the consumer.
Essentially, if you get in bed with Walmart, you will make the money you want in the short term, but eventually, if you want to keep that money coming in, you will lose control of your pricing.
This doesn't even get into exclusivity requirements for products, etc.
See Snapper lawn mowers, for some insight to this process.
Make a deal with the devil... and you'll end up at the behest of the devil.
>the company requires their suppliers to open their books for the inventory they sell to Walmart.
They do. And they'll start making demands about how you run your business (e.g. "stop buying this local, you need to buy it from China and here are a list of companies we recommend you use"). You will have lots of sales through Walmart but you have to be careful that they don't destroy your business on a whim. See Dill Pickle Co for an example.
It's referring to the anecdote of Vlasic, a pickle manufacturer, and it's woes of being a supplier to Wal-Mart. Basically, Wal-Mart negotiated hard with Vlasic to provide gallon(!) jars of pickles at at much lower margins than the company was used to.
That nationwide Wal-Mart "every day low price" cannibalized sales of smaller pickle units at other stores and Vlasic saw it's profits on pickles fall 25%.
In unrelated news, Vlasic filed for bankruptcy a few years later.
The issue quickly becomes a "damned if you do, damned if you don't" issue. If you supply them, they quickly drive your margins to the point where you have to offshore to stay in business. If you don't supply them, you get cut out of the largest retailer in the US and lose that way. Either way, you are screwed.
As I mentioned earlier, if you replace your ERP system (or upgrade it past a certain dollar point), you have to modify it so that Walmart has direct access to the internals. This means that they're placing (and cancelling) orders directly in your system without intervention (if you aren't careful, this can foul up your staffing). This also means that they know your costs, expenses and margins. You aren't going to have any negotiating power when it comes time for them to lower your prices.
In other words, Wal-Mart requires that you use efficient, modern production techniques and they will help you implement them. But if you don't, they will find a competitor who will. Brilliant.
Generally what happens is that the company wants the volume from Walmart, and thinks it will lead to lots of profit, but Walmart ends up making most of the profit, and the company spends a lot of money and then is overextended and can't even stop selling to Walmart without taking a big loss, since there is no replacement volume out there.
But any company making a deal with Walmart should know this by now, so who is really to blame?
Your comment is fiction. Suppliers love walmart because walmart doesn't play those games with them, and walmart pays immediately, not after 90 or more days.
Do a little research next time.
The only people who really hate walmart are unions. Both consumers and suppliers love them. Small businesses have mixed feeling - yes walmart eats some of their business, but having a store near a walmart is great for them.
You make a post this ignorant and then tell others to do research? Amazing. I worked at Walmart head office for years and I can tell you that vendors deal with Walmart because they have no choice. Walmart is a horrible place to do business with and various vendors quit them because of their behavior (e.g. Snapper).
And it's Walmart who hates unions. Their profit depends on exploiting human labor as much as possible, so they don't like anything that gives workers a fairer shake.
I read from the fingers of a farm owner about Wal-Mart regularly doing things like committing to buy all of a farm's output of some crop, setting a pickup date, then being days late and refusing to pay for what spoiled in the crates waiting for the truck that didn't come.
It's not like huge customers for your crop are necessarily easy to get. And Walmart did buy all the non-spoiled output; they probably had the contract well-written to let them get away with what they did.
I certainly don't know for sure, but I've seen several documentaries with convincing footage, and read several forum posts, with corroborating replies from a variety of people, that indicate that WalMart does in fact screw over its suppliers, at least sometimes.
Calling the idea of this "fiction" is a bit disingenuous, imho.
The employees never seem happy to me, and as far as customers go, I think most of them see Wal-Mart like the phone company or Facebook--the offering is too good to refuse, but "happy" doesn't really describe the experience.
That's the kicker for me with any store. Walmart employees seem dispirited and miserable. Trader joe, target, whole foods, costco, all seem to have pretty happy employees.
Walmart pays faster, but they are just as aggressive at having their hooks into your financials as Apple and pressuring your margins down.
If you update or replace your ERP system, your contracts with Walmart require you to integrate the new system with Walmart's. If you weren't paying attention upfront, the required changes can quickly make your ERP implementation explode over-budget.
Inventories are buffers, in an idealistic scenario(perfectly efficient) we don't need them. I order something, they make it and they give me instantly, no need to store it).
In reality we need them, but Apple have very efficient logistics that make them minimal, compared with other companies, that can't control as much as the supply chain as Apple does, or can't use air planes to send their devices(so their products arrive weeks or months late, infuriating their customers).
This is an oversimplification of course, there is way more about it, like demand-offer time lag problems, any operations research or logistic book will support you if you are interested.
So to simplify even more, Apple doesn't have to maintain "large, profit-sapping inventories" because they can just force their suppliers to do that instead?
No, you just have to work with your suppliers so they can produce at rates that match your anticipated demands. Toyota was one of the first companies to start this process decades ago: http://en.wikipedia.org/wiki/Toyota_Production_System
Some of the inventories translate in to parts and bolts sat in the warehouses of Apple's suppliers.
But more of the inventory reduction comes from precise demand prediction and great control of the whole chain from production to delivery. In short, Apple works with its upstream suppliers to secure the ability to manufacture and transport then dispatch tens of millions of gadgets from scratch(read: silicon and aluminum) in weeks and maintain the quality and price point. So many things could go wrong and Apple would be left with nothing to sell. for example iPad's channel inventory is only 4-6 weeks deep, and that's for the big box retailers, for Apple's own brick and mortar store it's even less. It works for Apple instead of disastrous through unexpected manufacturing difficulties and natural disasters or accidents because of Tim Cook's ironclad control.
As is stated above, they harmonize their supply chain so that no part of it needs much inventory. For good discussions of this technique, read "Chasing the Rabbit" by Steven Spear and "Toyota Production System: Beyond Large-Scale Production" by Taiichi Ohno
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.
The suppliers don't need that much of a warehouse, either. Let's assume that Apple is forecasting that 100,000 iPods per week will meet demand. They go to the supplier, and tell them that they need the screens delivered at 100,100 per week(assuming that a very high .1% of all screens are defective, after the supplier's QA). The supplier gets their factories producing around that number per week, and ships them out immediately. Apple takes them in, and immediately produces iPods with them, where they the go out to retail. This way, neither Apple nor the supplier need to keep more than a week's worth of stock.
The reason that Apple keeps a similar deal with another supplier is if anything goes wrong with the other company. So in the previous example, if in week 5, Fukushima happened, and the first company was unable to keep production up, Apple could go to the other supplier and keep up production, with a very short(maybe a couple of weeks) delay. This is vital, since Apple doesn't maintain that much inventory of new parts.
The other benefit to this setup is that it allows Apple to almost instantly double their supply inputs for new product releases or for the holiday season. If necessary, Apple can use both suppliers to get 200,000 screens per week, then just rent a few warehouses for the temporary storage of new products or the holiday rush inventory.
"So Apple doesn't need a warehouse, they get their supplier to pay for that."
That wouldn't make things cheaper since the cost of storage would simply be passed on to Apple by the manufacturer. The point being made is the supply chain has everything built just-in-time with minimal storage needs across the board.
Both Apple and the manufacturer wouldn't be storing much of anything. Everything is built in time to ship.
The other thing is just how many units Apple ships. They have to go with multiple suppliers at times just to have enough parts in the first place. You're talking about a company that buys a significant proportion of the world's NAND flash production a year ahead of time.
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).
>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...)
>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).
That last sentence there doesn't make much sense at all.
How is "understanding how to design and build excellent products which are very well targeted at their audiences" part of marketing? That's straight up design and engineering.
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.
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".
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?
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?