Supply chain disruption, Apple, and the importance of ops

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Beyond his trusted relationship with Steve Jobs, there’s a reason former Chief Operations Officer Tim Cook became CEO. That reason has its roots in early Apple history, should inform any company doing business globally, and is of particular significance now as cultural and economic changes impact the global supply chain.

Why you should love the supply chain

Please don’t turn off when you see the expression, “supply chain.” Every business leader knows how important and how delicate supply chains have become, particularly during the COVID-19 pandemic.

Supply chain management is critical and can make the difference between a company facing profit or loss – and it can help avoid empty shelves. Apple’s history is festooned with illustrations.

One that’s often discussed occured in 1995, when Apple introduced the first Power Mac — but failed to accurately predict demand. Once it experienced huge demand for these machines, it also failed to ramp up production, which left it with a huge number of orders it couldn’t fulfill. This was at a time when the company was already foundering, and this operational error was one of a series of moments that almost led to the end of the company.

What happened next, of course, is that Apple acquired Next, Steve Jobs returned, and the company set in motion a series of events (including a huge cull of its product line) that led to it becoming one of the world’s biggest and most profitable companies.

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Cook also joined the firm. In 1998.

Those who don’t read history, repeat it

And yet, even with Apple’s success today, we see intimations of how complex supply chain management can be to a company. Take iPhone manufacturing; Apple is now the world’s biggest smartphone vendor accounting for 22% of global shipments, according to Canalys.

The company is churning out hardware — but due to a combination of COVID-19 and growing aspirations among Chinese workers it can’t get the staffers it needs. (That’s a particular challenge given the imminent launch of the 5G iPhone SE.)

The result?

In order to shore up the supply chain, Apple’s manufacturing partners have been forced to offer substantial (c.$1,500) bonuses to potential employees to convince them to sign up for life in the iPhone factories. Foxconn employs a huge number of workers in just one of its factories in Zhengzhou — more than a quarter of a million people work there.

The Big Picture

Want more supply chain challenge? You’ve got it:

Who else recalls Apple’s last fiscal call when it admitted that component supply shortages meant it would be unable to meet demand? Or how transportation challenges meant some components were delayed reaching final assembly, slowing production. How product purchasers may have experienced longer-than-anticipated delays before their shiny Apple products reach them as sickness struck across freight and distribution firms?

All these challenges are genuine. Many companies have experienced them during the last couple of years. Some pre-date COVID-19, with fracturing political relationships and reprisals in the form of raised import/export duties also impacting every international business.

(The effects also hit every consumer in the form of higher prices and limited availability).

There are many more challenges, of course, but at Apple it’s the operations team that must manage all this chaos. And while you can achieve better overall oversight by adopting smart supply chain and infrastructure technologies such as those from the likes of SAP, ThinkIQ, someone(s) need to not just predict possible problems, but also build back-up solutions.

Because while you can’t predict the future, you can plan for it.

And, of course, no company wants to be a back-up solution unless they are getting paid. Even a fail-safe alternative supply system poses fresh problems, not least the need to grease the wheels of industry with cold, hard cash. Or, indeed the wheels of distribution as freight costs rise 400% or more.

But it goes beyond that

The questions that need answers grow even greater during systemic change. What about inventory?

Apple has famously been a proponent of a just-in-time manufacturing model, but to what extent has this been tested? Is its approach to pile up stock, or stick with a model that now seems to be fundamentally less able to cope with crisis-hit supply chains?

Then there are raw materials.

What options exist for hard-to-source rare materials? How can a company the size of Apple (or anyone) at least make solid commitments to avoiding use of, say, conflict minerals? What about the impact of global supply chains on the environment, or even the climate consequences of how these products are made, used and eventually disposed of? Is burying vast quantities of unsold devices in landfills even an acceptable option for any electronics company today? Can we afford built-in obsolescence, and if not, what kind of life should we expect from our devices – five-plus years as we have come to expect from iPhones, iPads and Macs, or more?

To what extent must the need to use recycled materials become central concerns in product design? Apple’s environmental teams now play a part early on in development, so it seems plausible to think every enterprise should do the same.

What future are we building?

What will be the shape of the future supply chain, and how can companies diversify their own chains? What about the political impact of, first, the Trump administration and now the recently framed US Strategic Competition Act?

All these concerns sit within the remit of the operations teams at any company. It is perhaps due to the need to support product innovation with process and supply chain innovation that the operations officer role is becoming increasingly important.

You can already discern this importance. In the smartphone industry, “Smartphone brands are already innovating to make the most of their circumstances, tweaking device specs in response to available materials, approaching emerging chipmakers to secure new sources for ICs, focusing product lines on the best-selling models and staggering new product releases,” said Canalys VP Mobility Nicole Peng.

After all, while it’s easy to point to the aesthetic design improvements inherent in a shiny new iThing or even a shiny new AlmostAniThing, it’s a whole lot harder to source the pieces to consistently pull it together in mass market quantities.

These problems aren’t going to become easier in the next few years. There’s a reason Cook took the hot seat.

Please follow me on Twitter, or join me in the AppleHolic’s bar & grill and Apple Discussions groups on MeWe.

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