Challenges and Recommendations for Apple's Supply Chain Strategy

This report examines the challenges that Apple faces in its current supply chain strategy and provides recommendations to improve it. The report highlights the risks involved in the overall supply chain and how the leading supply chain risk is that Apple does not have an agile approach. The report also discusses the principles of push and pull strategies, just in time logistics, and supply chain risks.

Running Head: SUPPLY CHAIN 1
Apple Supply Chain
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Executive Summary
This report examines the challenges that Apple faces in its current supply chain strategy. The
objective resonates with the need for improving the supply chain architecture by addressing the
trends of outsourcing and its dangers. The risks involved in the overall supply chain are aligned
to the lack of Apple to spend enough time with suppliers so that it can completely comprehend
the cost structure. The report will highlight how the leading supply chain risk is that Apple does
not have an agile approach, which makes the cost of production to be high hence affecting the
performance of the product in the highly competitive technology innovation companies.
Introduction and Background
Apple emerges among the most successful innovation companies in the world based on
profitability and market capitalization. In terms of the supply chain, Apple has succeeded. The
success is due to the company's supply chain management. As a result, the company has more
than 30,000 suppliers all over the world (Jayaram, Tans, and Nachiappan, 2010). The agility of
Apple's supply chain is lacking, and it can only be made secure by combining supply chain
models that are responsive, which allows the company to respond to the diverse, changing sand
unpredictable customer demands and minimize the back end risks of disruption in the supply
chain process.
Literature Review
Push and Pull Strategies
According to Puchkova, Le Romancer, and McFarlane (2016), push strategies include
showrooms, tradeshows, and getting retailers to stock the products, and this creates the supply
chain that facilitates distribution. On the other hand, pull strategies help in motivating customers
in order to actively seek out given products in the event the manufacturer has a strong brand

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(Steinfield, Markus, and Wigand, 2011). Today, Apple's strategy is mainly push strategy based
on its focus on maintaining communication between the product and the buyer. The evidence of
push strategy is in several advertisements and marketing promotions. In principle, Gou et al.,
(2016) indicate that the push strategy in Apple's supply chain draws its strength hinged on the
ongoing speculation of the customer demands. Therefore, the company tries to push as many
products in the market as possible.
The principles of push strategy management demonstrates the model of helping the organization
to undertake supply chain initiatives that allow the segmentation of customers based on the
service needs to adapt to the operational efficiencies and segments' profitability (Puchkova, Le
Romancer, and McFarlane, 2016). The supply chain leads to the logistics models of agility
operating at strategic, operational, and tactical levels.
Just in Time Logistics
Just in Time (JIT), management is a principle that aims at improving the performance of
manufacturing companies by ensuring a reduction in waste of resources. In this case, resources
include both raw materials and time. JIT ensures that suppliers supply only the right amount of
raw products for producing a certain amount of products and that the manufacturer produces the
intended products within a specific time. In other words, JIT ensures that producers manufacture
products with the minimum amount of resources possible without compromising on quality,
production time, as well as quantity (Lai and Cheng, 2016). For Apple to achieve JIT, it should
focus on maximum cooperation between the management and the workforce. The cooperation
ensures that customer meets their needs as it regards to the products’ quality. Simple systems are
easy to use as well as ensure that problems can easily be detected hence why it is a part of the

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JIT continuous improvement (Lacomme, Prodhon, and Vigo, 2016). JIT recognizes that Apple
meets the need to reduce wastes when there are overproduction and time wastage.
Supply Chain Risks
While Apple has succeeded in operating lean and progressively more global supply chains,
potential risks of interruption have increased exponentially from internal and external factors.
There are various sources of these risks, such as the erratic market forces that affect market
demand, supply, and prices. The model has necessitated the company to maintain supply chains
more flexible and integrate interruption risk management into all facets of its supply chain
operations (Sherman, 2013). Disruptions in the global supply chains as a result of risks have
become the main focus in private and public matters. Supply chain risks involve any danger of
disruption to the smooth functioning of the supply chain (Brindley, 2017; Heckmann, Comes,
and Nickel, 2017).
Recommendations
In order to address the supply chain risks associated with disruption, Apple should integrate both
push and pull strategies. These decisions define the technological and infrastructural dimensions
that guide the levels of forecasting and estimates of sales. The principles of the supply chain
make it imperative for organizations to assess the influence the corporate strategy has on the
models and frameworks, increasing the efficiencies of facilities (Arzu Akyuz and Erman Erkan,
2010).
Apple should decentralize its warehouses. It does not make any supply chain sense for Apple's
products to be shipped to California only to be redistributed to various locations in the world.
Therefore, the logistics flow needs to be agile such that the supply chain decentralizes the

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warehousing in order to reduce the cost of freight and archive the just in time advantages. The
implication is that the company satisfies the needs of customers in real-time, and enhance the
efficiency of the distribution centers.
Besides, Apple supply chain management should incorporate the JIT with a focus on continuous
improvement and elimination of waste. In Apple, the focus is on continuous improvement with
suppliers and production process aiming at ensuring that the production lines are made to be as
effective as possible in order to help reduce waste. Given this, Apple should come up with new
designs that will assist in detecting troubles in the production lines. The essence of this is that
when troubles are detected early, then repairs can be done in time to avoid any form of wastage
(Akcalı and Cetinkaya, 2011). Apple's supply chain fails to adequately address the elements of
JIT to realize the need to reduce wastes.
Apple should return the manufacturing plant to the US because the next generation of technology
needs aligns with the trend of practical and smart approaches in the process of manufacturing
and engineering. To regain this expertise and survive in the innovation world, the manufacturing
plant should be in the US.
The distribution should be done using the most elaborate and efficient transportation systems.
There are various systems that the company uses in managing inventories, such as the automated
reordering system and the point of sales system (Choi and Linton, 2011). However, the company
needs to come up with guidelines to deal with the social and environmental challenges of having
a long supply chain. The approach will help Apple as a company to achieve the business success
that rests on the adequate supply chain model that builds on inventory control. Towards a useful
supply chain model, there is a need for consistency between the priorities a customer has as well

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as various capabilities of the supply chain, as specified by the logistics strategy (Kirkwood,
Slaven & Maltz, 2011). Concerning this, it is plausible to note that the products and production
process of Apple falls into the agile inventory strategy. The objective of this strategy is to
achieve high flexibility and responsiveness to the needs of the customers while at the time,
address the risks of supply chain disruption and shortage.
Justification
Apple's current model of supply chain resonate agility and just in time approaches. Apple (n.d)
outlines that when Tim Cook came on board, he sought to make drastic changes that would
streamline the already complex supply chain process in the company. The observation indicates
that Apple sources for its materials and other components from various suppliers and gets them
shipped to the assembling plants in China. Apple outsources these materials from all over the
world but mainly China, the US, European countries as well as other countries from Asia. In a
nutshell, the manufacturing plant based in China manufactures the finished product, which is
shipped by the company to different warehouses. The shipping is either done directly to
customers using UPS and FedEx, who made orders directly from Apple's online stores. The main
warehouse is in Elk Grove, California. Also, Apple uses a series of distribution approaches that
involve the use of direct stores as well as other networks. After the customers have used the
product and its shelf life has ended, they are allowed to return it to Apple for recycling.
Sourcing
Based on Gartner's ranking index, Apple is ranked high for its supply chain excellence due to its
supply chain sourcing strategy (DeAngelis, 2012). In 2012, Apple recorded a sale of about 120
million phones, 35 million iPods, 60 million iPads, and approximately 15 million macs (Spend
Matters, 2013). None of these products were produced in the US, apart from the essential

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components and materials. In essence, Apple assembled 85 percent of the products in China. The
sourcing of materials from other parts of the world is because of the ability of largescale and
flexible supply chain processes. DeAngelis (2012) portends that one of the well-known suppliers
for Apple is Foxconn.
The underlying factor for the outsourcing of materials is the management of logistics capacities.
There has been an increased demand for Apple, mainly in markets such as India and Africa that
are emerging. According to eSourcing Forum (2011), Apple must expand its supply chain
capacity in order to meet the demands in the markets. With multiple suppliers, Apple has the
capability of sustaining its margins by increasing its bargaining leverage. The strategy
contributes to the supply chain efficiency of reducing the cost of operation and increasing
financial profitability (Spend Matters, 2013).
Manufacturing
Apple's manufacturing approach on a supply chain strategy that is characterized by the logic of
from manufacturing floor to retail stores. According to DeAngelis (2012), manufacturing
capabilities allow Apple to keep up with the rising demand for its products. Almost 85 percent of
all iPhone fare manufactured in a massive manufacturing facility in China. This facility is owned
and operated by Foxconn, which is Apple's manufacturing partner in China. In essence, Foxconn
manufactures iPhones in Zhengzhou, employing approximately 350,000 workers.
Warehousing
After the manufacture of Apple products, they are transported and stored to extensive custom
facilities in China just a few hundred yards away from the manufacturing plant. The custom
operations occur inside the bonded zone, whereby the products can be imported and exported.

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The meaning of this is that Foxconn sells the finished products to Apple, who ships them via
UPS and FedEx directly to consumers that may have ordered the products from the online store.
The basis for this approach is to reduce the number of clutter and save costs (Spend Matters,
2013). Besides, Apple uses its central warehouse in Elk Grove, California, where it stores its
products and ships products to retailers and wholesalers across the world from there.
Distribution
Apple distributes its products mainly using the online store as well as the use of the retail and
wholesale network. According to Spend Matters (2013), this distribution strategy involves
channel companies based on the direct and indirect approach. The distribution strategy of Apple
is the primary driver of its revenue with online stores and retail outlets, contributing significantly
to over $4 billion in revenue. The percentage of profits is more than 30 percent of sales revenue
generated through network carrier distribution. The company has not reduced inventories across
the board, but it has used its information technology capabilities to make sure there are more
inventories for the items that customers are more interested in (Rai et al.,. 2012). The company
also has an extranet through which it links its suppliers. Apple has entered into a collaboration
with several suppliers that allow for automated reordering systems (Sako, 2011). The system
identifies items that are low in stock and automatically communicates with the supplier. Also, the
system has been beneficial to both Apple and the supplier because, in addition to making it easy
for Apple to monitor its stock, the supplier can lower its costs because of the excellent
coordination (Apple, n.d).
Return
After the lifecycle of the Apple product, customers have the opportunity to return the product to
multiple outlets, including in stores, trade them in and return them online. Also, the company is

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making sure that components and finished products are made in such a manner as to maximize
the efficiency of their life cycle (Samson, 2010). The company will require them to use materials
that are environmentally preferable (eSourcing Forum, 2011).
Outcomes and Results of Recommendations
Irrespective of the fact that outsourcing efficiency affects labor reallocation and improves supply
chain efficiencies for Apple, the company faces potential risks. A case in point is the labor
problems that Apple experienced in China. These challenges bordered on poor remunerations
and adverse weather conditions (Sherman, 2013). Based on the understanding of global supply
chain risks, Apple, as a company, needs to consider the possibilities of increasing the
remuneration of its staff in the technical departments in China. The approach would go alongside
improving the working conditions for the same employees. Alternatively, it becomes imperative
for Apple to move its major assembly factors to other countries that are low wages, such as the
Philippines, Vietnam, and some countries in Africa. However, it is critical to note that such a
move has high transaction costs to switch suppliers.
It is critical to note that Apple bases its sourcing strategy on the principle of supply chain
responsibility. The main reason is to achieve risk diversification because Apple seeks to create a
network of multiple suppliers that can be instrumental in facilitating a fast, responsive reaction to
supply chain disruptions. Given this, Apple outsources the materials for its iPad from Pegatron as
part of the initiatives to spread risks.
Over 200 suppliers provide for parts that go into each iPhone. Foxconn follows a final assembly,
testing, and packaging supply chain operation that helps it implement cutting costs measures and
achieve production needs. As a result, there are over 90 production lines inside the

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manufacturing site. These production lines take 400 steps to assembly an iPhone making
Foxconn be able to produce over 50,000 iPhone per day (DeAngelis, 2012). Apple's distribution
centers make sure that the flow of products is very consistent and steady. The company uses
barcoding and computer with the state of the art technology hence making the management of
these centers economical and comfortable. All the employees have direct access to the
information concerning all the products at the center and their inventory levels.
Under Apple's supply chain scenario, sources of risk include product quality where inadequate
control may result in delays, consumer dissatisfaction, and even possible breach of the law
(Strategic Sourceror, 2013). Nonetheless, the main challenge is that Apple cannot implement this
initiative in totality at the moment. These companies will require time for them to phase out
some manufacturing processes and materials. Apple has currently focused on supplier innovation
and thereby reaping from the expansion of the new suppliers.
Also, there is a trend where new suppliers have expressed interest in investing their capital for
purposes of expanding operations and improving production efficiency. Furthermore,
interference in asset productivity replicates throughout the supply chain leading to unbeneficial
and uncompetitive models of business. At times goods may lack significant elements of data like
cost information, constituents of bill materials and, supplier and pricing codes. The approach can
significantly contribute to the transit of goods through several parties, different geographical
locations, and systems before they reach the consumer.

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