What Other Scm Issues Have They Had? Why Are They Now Considering Bringing Back Some Manufacturing Back to Us?

Research Apple. What other SCM issues have they had? Why are they now considering bringing back some manufacturing back to US?

Apple is a classic case for supply chain.  When  Tim Cook joined apple in 1998,  Apple was losing money and their supply chain process was in  complete shambles.  The company held $500 million of inventory, which was about 2 months coverage, much more than those of the other technology companies.  Cook realized that Apple's supply chain was too complex to handle. So he reduced number of key suppliers, from 100 down to 24. Cook also asked vendors to consider the price discount, and relocate closer to Apple's factory. He then he reduced number of warehouses from 19 to 9 and slashed inventory level from 2 months to 1 month. By September of 1998, inventory level was down to 6 days.  Cook   reduced the manufacturing cycle time, from 4 months down to 2 months. Within the first 2 years, Tim Cook simplified Apple' supply chain a significantly. This generated the huge cost savings and improved service drastically.  

 One of the ways in which Cook revolutionized Apple’s supply chain was by virtually eliminating stockpiled inventory. This is important because every product that is stuck in a warehouse costs Apple money instead of making them money. Cook has called inventory “fundamentally evil,” and likened the way a computer maker should handle inventory as being similar to the way a milkman should deliver milk, “as straight from the cow as possible.” By closing down warehouses, slashing inventory and getting products into consumer’s hands as directly from the manufacturing factories as possible, Cook has been integral in making Apple the most profitable tech company in the world.
Tim Cook also convinced Apple to steer away from manufacturing its own components, and instead partner with external manufacturers like Foxconn.
Unsurprisingly, IT research firm Gartner ranks Apple Supply Chain as the best supply chain in the world for 3 years in a row. However, that golden reputation that Apple had once upon a time is slowly eroding now with recent supply chain fiascos.

APPLE’S RECENT SUPPLY CHAIN ISSUES

Recent times has seen Apple hit a different sort of supply chain issue: They cannot seem to make enough products to satisfy customer demands.  

With the IPad Mini retina display and smart watch, Apple has hit some supply chain snags.  The main reason Apple has been struggling with its supply chain is because it is trying to create revolutionary brand new products.  Developing a new retina display with touch panel for the IPad hit a few challenges before they could efficiently produce it. Also, upon going into production with the IPhone 6, Apple realized that the backlight display panel wasn’t bright enough, they took it back to the drawing board and redesigned the product to make sure it’s slimmer. The supply chain took a hit by 2 months and had to work hard to cope with demand.  They are still catching up. This lead to Apple shares falling eight cents short of earnings expectations of $8.75 a share for the quarter ending September 29. 

Another interesting problem to note is that for the IPad Mini displays.  It is strange but Apple has put itself in a bad position with just having one supplier, very uncharacteristic of Cook. Their relationship with Samsung has deteriorated significantly with lawsuit gymnastics, and they’re down to one supplier : Sharp , who cannot make enough display panels to satisfy the customer demand.

A worthy note to mention here is  the  IPhone 4’s  ‘ Antenna gate ‘ issue and then  the  IPhone 6 ‘ Bendgate ‘ issue whereby the phone can actually bend and eventually break. Apple is certainly losing it’s glow compared to it’s king of supply chain days.  They may need to stop production at Foxconn and review product design, this of course can invariably cost them millions in supply chain snags.

Apple also centralized their manufacturing with Foxxconn, which causes a great deal of these headaches. Foxxconn monopolizes Apple product manufacturing, and they cannot produce enough products to satisfy the market demand.   The IPhone 6 is only satisfying 50-60%  of customers demand compared to the 85% satisfied of the IPhone 5.   Not to help matters, the complex design of it’s products, the 4.7 inch IPhone 6 has a QA pass rate of 85%, whilst it’s larger companion the 5.5 inch IPhone hovers around 50-60%.  This is the higher margins of failure that Apple is paying for extremely thin screens, which integrates touch sensors technology into one glass layer, causing some fundamental supply chain challenges. The problem   may very well be that Foxxconn lacks the expertise to execute such intricate displays and  Apple has sacrificed efficiency for design.   

 Another interesting note that is cherry on top , manifested from their posh design ethos,  Apple uses  rare raw materials in their products, , Apple has moved aggressively to secure adequate supplies of key components such as flash memory and Sapphire glass – in some cases snapping up the world’s supply. At such times, availability trumps exclusivity, which also cripples production.

APPLE BRINGING BACK MANUFACTURING TO USA

Apple has announced plans to invest more than $100 million next year to bring some production back to the US.

The reason big companies such as Apple and even GE are planning on bringing home manufacturing is because they are beginning to realize that coordination cost in setting up manufacturing and managing businesses in China is extensive. With labor cost rising in China, it is starting to make sense to just manufacture locally instead. Also of note, many countries, including the US government, refuse to convert to Apple products because they are manufactured in China. With prices rising in China, and material prices decreasing in US, it seems to make sense to manufacture locally. With manufacturing locally, time to market also improves greatly. Instead of waiting 4-5 weeks for something to ship from China, products can now be made available in days.

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