This seems like a measurement you have to be careful with. It's measuring completed products shipped only, as far as I can tell. So the fact that Apple is selling hot products which can't stay on shelves (alternative: selling products with such high value that customers demand doesn't drop when they have to order them) counts as "good supply chain management" when it's really a reflection of the desirability.
If Apple was, say, sitting on a warehouse of unsold A5's, it wouldn't count against them. And if their battery supplier goofed and they ended up with a million incomplete iPads, they'd still be "selling" all the inventory they had.
The high speed of manufacture and distribution means that if demand goes up or down, Apple could throttle the manufacture of goods to keep the same high inventory turnover regardless of demand flux. Low inventory is desirable financially and JIT (just-in-time manufacturing) can make it possible.
The 5 day inventory turnover would not be sustainable without good supply chain management. This is a strategic advantage for Apple.
No, that's wrong. Apple can't throttle the manufacture of flat panels or batteries or chips because they don't make them. Semiconductor components especially have a month-long trip through the fab (from where the wafer is started until it comes out ready for packing); it's quite literally not possible to get 5-day scale bandwidth out of that process. Likewise cross-ocean transits make that 5-day number impossible to tune for in real time.
I'm not dinging Apple's supply chain management (they are, after all, competing very well on price vs. competing products -- that's the ultimate goal). I'm saying that this number alone isn't very good evidence for or against it. It's a complicated issue not well served by "OMG! Apple sells its inventory every 5 days!!!!"
"Mr. Cook closed Apple’s factories and outsourced all manufacturing to a far-flung network of suppliers in Asia. Inventories decreased to 60 days, then to 30 days, then to the just-in-time model. Mr. Cook virtually lived in airplanes, traveling the world to meet with suppliers and browbeat them into meeting his demands."
http://www.nytimes.com/2011/01/24/technology/24cook.html?pag...
I can't say how long it takes to make every part, but it seems like Apple has leverage with its suppliers. I do agree that looking at the 5 day metric is only part of a picture.
Agree. Another way of looking at it is that It's five days from the time product enters Apple's system until it leaves Apple's system. If the product enters Apple essentially complete (direct from Foxconn?) then they really could turn over that quickly. In my experience, contract manufacturers are quite happy buy everything with their own money then send a single bill when the goods are delivered.
Another example: some online computer shops operate by accepting the customer’s payment then placing and fulfilling the order direct. Do these businesses display a negative number for inventory turnover, in that the sale has been made before the money has been spent on the goods?
I was using "bandwidth" technically, in the signal processing sense. The 5 days is a wavelength, as is (say) the month it takes a chip to get through Samsung's fab. Apple has a knob to control the latter signal, but it's too coarse (by literally an order of magnitude) to modulate the former. Ergo snitzr's supposition that it was Apple's agility and control over the supply chain that is responsible for the 5 day inventory size cannot be right.
Not sure about the individual component scale lag, but in terms of cross-ocean transit, Apple flies pretty much all of its inventory. Minimal packaging isn't just good for the economy, it's good for the bottom line as well.
But this isn't a cash flow statement, thus "This seems like a measurement you have to be careful with". Are there analysis of Apple's financials that show a 5 day mean inventory wait?
Cost of sales: 20.6 billion
Inventories : 1.1 billion
Cost of sales is what they spend to buy the stuff they sell.
20.6/1.1 is about 18, so they have to sell their inventory 18 times in a quarter. A quarter has about 90 days; 90/18 = 5.
It is possible that they force their inventory down a bit at end of quarters to make the figures look better, but I doubt Apple in its current form will find that worthwhile.
That's right. Non-cash increases in working capital assets are deductions from operating cash flow, reflecting the fact that you have to pay cash for the new goods.
Companies can finance by borrowing, either from suppliers (e.g. payables) or lenders, which appears as sources of cash. But if the debt is long-term that cash appears elsewhere on the cash flow statement and so don't counterbalance the use of operating cash.
Why is operating cash important? Investors focus on it because that's how companies make money. Investing cash flow reflects hard-to-repeat asset sales, financing cash flows must be repaid. And it's hard to game operating cash flow without raising flags elsewhere.
But here the financial analysis is more important for its signals of marketing and operational strength.
Apple can't maintain low inventories, especially while growing revenue, without knowing its market pretty well. And low inventories mean it doesn't cost them much to obsolete their own products, and doesn't cost them as much to try products that don't work out. The dollars saved by low inventory don't mean so much relative to the overall enterprise, but they can't keep this metric low without real strength up and down the company.
If Apple was, say, sitting on a warehouse of unsold A5's, it wouldn't count against them. And if their battery supplier goofed and they ended up with a million incomplete iPads, they'd still be "selling" all the inventory they had.