Analysis of Apple's Supply Chain: Challenges and Strategic Sourcing

This report provides a comprehensive analysis of Apple's supply chain, examining the challenges the company faces, including competition, dependence on suppliers, shipping issues, and sustainability concerns. It delves into the benefits and limitations of strategic sourcing, such as cost savings and alignment with business targets, while also addressing drawbacks like delayed decision-making and increased operational costs. The report further explores the performance objectives Apple expects its suppliers to meet, emphasizing high-quality raw materials and ethical business behavior. The paper highlights the importance of strategic supply chain management for multinational corporations, particularly in the context of Apple's global operations and market leadership. The analysis covers various aspects, from macroeconomic influences to legal complications, providing a detailed overview of the complexities involved in Apple's supply chain management.

Running head: SUPPLY CHAIN OF APPLE
Supply Chain of Apple
Name of the Student:
Name of the University:
Author Note:

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Table of Contents
Introduction:....................................................................................................................................1
Supply chain challenges Apple Inc faces:.......................................................................................1
Competition from other multinational companies:......................................................................1
Dependence on competitors:........................................................................................................1
Shipping challenges:....................................................................................................................2
Sustainability issues of supplies:.................................................................................................2
Benefits and limitations of sourcing strategies and their application in Apple:..............................3
Advantages:.................................................................................................................................3
Cost savings:............................................................................................................................3
Alignment of sourcing with business targets:..........................................................................4
Limitations of strategic sourcing:................................................................................................5
Delays decision making:..........................................................................................................5
Complicated process adds to the costs of operations:.............................................................5
Performance objectives suppliers of Apple are expected to meet:..................................................6
High quality raw materials:.........................................................................................................6
Ethical business behaviour:.........................................................................................................6
Conclusion:......................................................................................................................................6
References:......................................................................................................................................7

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Introduction:
Supply chain management forms the base of the productivity of multinational companies,
their revenue generation and consequent market leadership. Supply chains have become
empirical to the competitive advantages companies enjoy in the global market. The supply
chains the MNCs maintain also pose certain challenges to their user companies. The assignment
would view the challenges posed by the supply chains through the lenses of Apple, the leader in
the IT industry. The paper would also delve into the importance and hardships the companies
face in strategic sourcing of raw materials and their expectations from the suppliers. The
discussion with proceed on these three topics with Apple as the substratum.
Supply chain challenges Apple Inc faces:
Apple owing to its high-end and diverse product line has to face several challenges while
operating in the global market:
Competition from other multinational companies:
The greatest challenge which Apple faces as far as supply chain in concerned is
competition from other multinational companies. The product line of Apple consists of smart
phones, Mac, music applications and hardwares, Ipads, TV app, smart watches and accessories.
This means the company competes with multinational companies like Samsung and LG in terms
of smart phones and smart watches, Google in terms of TV apps and Microsoft in case of Mac
OS. The company in order to maintain high quality of these products and meet the demands of
the upper class customers, its main customer segments, has to compete with these MNCs to get
best quality hardware and software for its products. Moreover, the main operations of the
company is concentrated in North America while Asian market is experiencing rapid rise in
demand for products like smart phones and smart watches. The suppliers in the Asian market
prefer supplying materials to Asian manufacturers like Samsung and Sony. Hence, it can be
pointed out that Apple faces stiff challenge in gaining the high quality raw materials for its
products.
Dependence on competitors:
The second supply challenge which Apple faces in the global market is its dependence on
competitors like Samsung for raw materials. Samsung is the largest manufacturer of electronic

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components like chips and batteries used in the electronic gadgets like smart phones. The
company also supplies Apple with various components for its high end devices. Thus, Apple
becomes dependence on its toughest competitor, Samsung for components for its products
(samsung.com, 2018). This would give Samsung the power to control the product strategies and
business operations of Apple indirectly. This heavy dependence on competitors is a big threat
because it can pose serious threats to its productivity. For example, Apple often enters into legal
disputes with its competitors and suppliers like Samsung over product features (usatoday.com,
2018). These disputes breach the relationship between the two companies which ultimately
hampers the productivity of Apple since is former is dependent on the latter companies for the
components for its parts.
Shipping challenges:
Apple faces shipping challenges in its supply chain owing to macroeconomic influences
over which the company has no control. Apple acquires components from selected number of
suppliers spread all over the world. The company has also spread its supply and manufacturing
operations into Asian nations like China to tap the market’s growing profitability. The company
is increasing depending on these overseas units for its supply of parts and manufacturing of its
finished products. The differences in laws pertaining of crucial areas like manufacturing,
shipping and labour in these countries pose serious threats to the productivity of the company.
For example, it often takes months to get clearance to ship supply of components from China to
the US manufacturing facilities. Again, riots and other political disturbances in the foreign
markets from where Apple sources its supply of components pose serious threats to its
continuous supply of raw materials and production of finished goods (firstpost.com, 2018). This
shows that shipping challenges stemming of political and other macro economical influences
pose serious supply challenge to Apple.
Sustainability issues of supplies:
As pointed above, Apple is dependent on a limited number of suppliers for its supply of
components. The suppliers of the company are spread all over the globe like Taiwan
Semiconductor Manufacturing Company manufactures the processors for Apple. Again, it
obtains a large proportion of its components from local suppliers like China. These supplying
companies are themselves coming under pressure like cost cutting and enforcement of

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sustainable production of parts. The governments of supplying countries like China today
necessitate these companies to pay environmental taxes which add to their cost of production of
parts they supply to Apple (xinhuanet.com, 2018). Thus, Apple has to acquire supply of raw
materials at high prices which in turn adds to its own cost of production of its finished products.
These financial sustainability issues faced by the suppliers often result them in supplying less
amount of supplies to the company which in turn impacts productivity products (forbes.com,
2018). This fall in productivity results in delayed supply of finished products to the retailers and
distributors, which are already reeling under increased expenditures just like the supplying
companies. Thus, sustainability of the supply chains is one of the biggest challenges Apple faces
while operating in the market. This issue is so serious that it has breached the markets goodwill
of Apple as customers complain due to delay in supply of finished (fortune.com, 2018).
Benefits and limitations of sourcing strategies and their application in Apple:
Strategic sourcing has several advantages and limitations to the companies, especially
MNCs like Apple whose supply chains spreads across continents.
Advantages:
The following are the advantages of strategic sourcing particularly in case of companies
like Apple:
Cost savings:
The strategic sourcing enable companies to curtail their costs of acquiring raw materials
and their overall cost of production. The companies like Apple have to acquire their components
from various countries having different market conditions like tax rates. Thus factors adds to the
cost of acquiring raw materials which adds to the cost of production. These factors impacts the
production of finished products in the company which ultimately culminates in delay in supply
of finished products to customers (bloomberg.com, 2018). This delay in supply of raw materials
often result in loss of customers to its competitors and reduces the revenue generation of the
company. This fall in revenue generation also impacts the capital generation of Apple as show in
its share index below. Strategic management of sourcing of its main components would enable
Apple to plan its sourcing according to the various parameters like costs. For example, Apple can
source components from Europe for its American manufacturing facilities while for the Asian
market it can source components from China or Taiwan (Brindley, 2017). Thus strategic

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sourcing would enable the company to reduce cost of sourcing of raw materials which would in
turn reduce its cost of production, thus increasing its profit margin.
Figure 1. Figure showing stock index of Apple Inc.
(Source: nasdaq.com, 2018)
Alignment of sourcing with business targets:
Strategic sourcing of raw materials would enable Apple to align its sourcing of
components with its business targets. The apex management of company today plan the ordering
of materials as per the demand forecast of finished products. This means they order appropriate
quantity of raw materials using methods like economic order quantity from suppliers which
ensures smooth production (Nia, Far & Niaki, 2014). Moreover, ordering appropriate raw
materials prevents the companies from holding huge amount of inventory. This ensures liquidity
of the current assets of companies which they can channelize to address other business needs.
Again, the companies like Apple do not have to hold immense amount of finished goods which
again ensures liquidity of capital and reduction of warehousing expenses. Apple can as a result
make finished products available to customers which generates huge revenue. This analysis

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shows that the strategic sourcing enables MNCs like Apple align their sourcing of materials with
their business targets like high revenue generation (ft.com, 2018).
Limitations of strategic sourcing:
Strategic sourcing of raw materials and components have following limitations:
Delays decision making:
Strategic sourcing requires companies align their acquisition of raw materials with their
business decisions like demand forecast of finished goods which delays decision making. MNCs
like Apple have tall organisational structure which delays decision making. For example, the
organisational structure of Apple shows that the company has no specific person delegated to
supervise sourcing of raw materials from specific markets at the apex level, which is the main
criterion of strategic sourcing (apple.com, 2018). This delays decision-making regarding
sourcing of components which results in loss of productivity and business opportunities. These
loss of business opportunities add to losses of the companies. Thus, strategic sourcing apparently
aligns sourcing raw materials and reduces costs but in reality tall structure and delay in decisions
making adds to business losses to the company.
Complicated process adds to the costs of operations:
Strategic sourcing involves multiplicity of documentation, legal complications and results
in surges in the costs of operations. Multinational companies align their sourcing of raw
materials from different markets to the business strategies formed by the apex management. This
requires the apex management to gain information about the market conditions in various
countries like China and Taiwan (Stadtler, 2015). This prolongs the time required to source raw
materials from these countries which delays actual sourcing of components, delays productivity
and results in business losses. Moreover, if raw materials are sourced by the headquarters of
Apple in the US from sourcing countries like China and Spain, it would involve legal
complications and increase in costs due to involvement of two countries (the US and the raw
materials supplying country) as well. However, if the branch offices do the sourcing, it would
save legal complications, reduce multiplicity of documents and save costs. For example, if the
European subsidiaries of Apple sources raw materials from the European markets, they would be
able to avail rebate due to the EU rates between the European nations. Thus, sourcing of raw by

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headquarters using strategic sourcing increases the complications and costs to acquire the raw
materials (Seidel et al., 2015).
Performance objectives suppliers of Apple are expected to meet:
Multinational companies expect their suppliers to meet the following objectives while
operating in the markets and provide them with raw materials:
High quality raw materials:
The multinational companies expect their suppliers to provide them with high quality raw
materials. For example, Apple expects suppliers of its components to provide it with high quality
electronic goods components and software. One of the product strategies of Apple is to produce
limited number of high quality products to upper class customers and maintain leadership in the
market. This means that the company needs to source high quality components from its
suppliers. The company requires its suppliers to provide it with high quality components in
conformity with its central quality standards (Chan, Pun & Selden, 2016).
Ethical business behaviour:
The suppliers are expected to aim to operate in ethical manner while operating in the
market. The suppliers are expected to abstain from using unethical means like discrimination
among their employees on basis of gender and use of child labour while operating in the market
(apple.com, 2018).
Conclusion:
One can sum up from the discussion that strategic management of supply chains bear
great importance to companies. However, global supply chains cannot be controlled efficiently
from the headquarters of the companies alone. The companies must delegate power to their
branch offices to take decisions regarding supply chain management. The aim of the companies
while controlling their supply chain management should be sourcing of quality raw materials to
enable production of high quality finished products which are able to meet the expectations of
the customers. The companies should ensure that they control their supply to ensure maintaining
just the correct amount of stock of raw materials and finished goods. They must also ensure that
their suppliers not only supply them with high quality materials but also operate ethically in the

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market. The companies like Apple must impose ethical obligations on their suppliers to enforce
ethical business conduct.

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