August 31, 2016

Procurement lessons from the ‘Apple’ Supply Chain

apple blogIt is that time of the year! Markets are abuzz and looking forward for the release of iPhone 7 in September this year and expecting a next-gen 256 GB version along with the new features in pipeline which  has got the excitement going. Well you may think, it’s the product innovation and technology that can be attributed to Apple’s current market position, but contrarily an exemplary procurement and supply chain factor has contributed equally as much to the brand that Apple today symbolizes.

Furthermore, Gartner has yet again recognized “Apple as a long-term leader defining the very notion of a solution supply chain, blazed new trails with its demand creation capabilities” in its 2016 ‘Top Supply Chain’ results.  Apple has set the gold standard for procurement function and supply chain practices and has key learnings to offer to the industry.

Here’s defining three key areas from the procurement perspective which contribute to the massive success of its supply chain function.

1. Strategic Suppliers

Approximately 154 ‘strategic’ suppliers currently contribute to their 97% of total procurement for materials, manufacturing, and assembly of products worldwide as of 2015. This shows their focus, stronger and exclusive relationships and close control.

2. Supplier Responsibility

Apple Supplier responsibility report 2015 details Apples’ efforts in maintaining ethical supplier practices, conducting audits to check malpractices, maintaining workplace safety standards and likewise. A few quick statistics as highlighted in the report are as follows:

  • 21 un-announced audits & 250 requests closed for environment, safety and labour cases
  • $ 25.6M reimbursed from suppliers to workers for excessive recruitment fees since 2008
  • 97% Supplier compliance with 60-hour working week in 2015, a 5 per cent increase from 2014
  • Since 2008, over 9.25 million workers have been trained to understand local laws, health and safety regulations, and the Apple Code of Conduct
  • 13.8K tonnes of carbon emissions reduced in 2015

Moreover, the technology giant is continually focusing on addressing pressing issues in its supply chain to achieve greater transparency and has seen significant numbers in improvement over the years.

3. Inventory is fundamentally evil

Apple has seen a transformation in the inventory management business function with exemplary results; having cut down the number of suppliers, closing down warehouses, leveraging on JIT techniques, and has maintained the perfect balance of providing a high customer experience and along-side avoiding any inventory losses due to its own product cannibalization. Statistics for quarter end (June) 2016 show:

  • Inventory turnover (Costs of goods sold/ Average Inventory) is 12.77 which represents how many times the current inventory could be sold and replaced in a certain period
  • Days Inventory stands at 7.15 representing how many days would it take for a company to sell off all its inventory
  • Days sales of inventory (DSI) was 4.43

A greater inventory turnover has ensured not only cost savings on manufacturing but also ensured latest technology delivered to the market to ensure and maintain a high customer experience. These supply chain functions give key insights to organizations looking to scale their supply chain functions. Nevertheless, for your own supply chain strategy, bench-marking can help identify: performance improvements, cross-industry best practices, baseline information for goal setting, prioritization, and ongoing performance measurement.

HICX can therefore play a key role in achieving these objectives for your organization through its expertise in the areas of Supplier Life-cycle management including supplier risk, compliance and relationship management and further assist your organization to spearhead business transformation and achieve turnkey success through effective supply chain management and supplier management functions.

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