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Apple's Supply Chain Secret

344 points by Cadsby 15y ago

endlessvoid94 15y ago
Interesting parallel to walmart.
- hswolff 15y ago
  What's Walmart's supply chain like?
  - jacques_chester 15y ago
    They've often been considered one of the best supply chain operations in the world, and aggressively drive their suppliers to lower prices and increase volume. One classic anecdote is that leading up to a hurricane, Walmart did some data mining and found that poptarts sold like crazy when hurricane watches were declared. Within hours they had dozens of trucks heading to the Florida coast filled with poptarts and they made a lot of money that way. Unless you have a fast, flexible logistics system and the analytical smarts to back it up, you can't exploit changing circumstances like that. Edit. Source of Walmart anecdote is here: http://www.nytimes.com/2004/11/14/business/yourmoney/14wal.html http://www.nytimes.com/2004/11/14/business/yourmoney/14wal.h...
    - DiabloD3 15y ago
      I agree that exploit is the right word here, but probably not for the reason you chose it.
      - mc32 15y ago
        Either opportunistic or exploitive are appropriate -those words are not always negative, to me they also have a descriptive meaning. If they saw a trend and they took steps to fulfill the foreseen demand, it's all good. I'm sure people were happy WalMart had that in stock, rather than think 'this WalMart, they're using this hurricane in an underhanded way to sell me more poptarts'.
      - nknight 15y ago
        There's plenty to dislike about Wal-Mart, but there is absolutely nothing wrong with predicting a sudden shortage of a product in a particular area, and trucking in a bunch. If they'd doubled the price, that would be another matter, but that's not what they did.
        deleted 15y ago
        [deleted]
        nknight 15y ago
        Pop-Tarts are a cheap, readily-accessible, easily-consumed source of calories with a long shelf life that most people will at least tolerate. They're nutritionally incomplete, but they will help keep you alive and functional in the short term. Most people don't stock up on MREs and survival bars, nor even have a clue where to start. Under such circumstances, it's both expected and reasonable that they reach for a familiar, readily-available energy source.
        absentbird 15y ago
        I remember hearing an anecdote many years ago that when food supplies where being dropped over Afghanistan it was the pop-tarts and peanut-butter that were the most popular. I just looked into it and I the only information on their popularity I could find was that they are often sold on black-markets. Source: http://www.foreignpolicy.com/articles/2011/10/10/stuff_we_dont_want_haiti?page=0,0 http://www.foreignpolicy.com/articles/2011/10/10/stuff_we_do...
    - brianbreslin 15y ago
      Funny how quaint the excerpt on data seems now. "Walmart has 460 tb of data, experts suggest Internet has half that."
    - teyc 15y ago
      Bottled water always runs out when there is an impending disaster. And after the Brisbane floods, brooms, shovels and gloves were in short supply.
  - notatoad 15y ago
    ruthless. they handle so much more volume than any other retailer that suppliers are willing to sign anything just to be a part of it. all losses are passed back to the suppliers, which enables wal-mart to take huge risks. the sibling comment to mine references a huge volume of pop-tarts being shipped to florida in preparation for a hurricane. if during mid-shipment the weather changed, wal-mart would call up the supplier, cancel the order, and all the trucks would return the pop tarts to their suppliers at no cost to wal-mart. with pop tarts it isn't such a big deal because they don't spoil, but farmers who supply wal-mart will get shipments of spoiled produce returned to them if wal-mart decides they don't need quite as much volume that week. and they just have to deal with it, because they can make more money getting screwed by wal-mart than they can selling to ethical companies.
    - antoinehersen 15y ago
      If they make more money this way why are they getting screwed?
      - look_lookatme 15y ago
        I'm not a Walmart hater, but as I understand, the company requires their suppliers to open their books for the inventory they sell to Walmart. If the company "makes more money", Walmart will squeeze them to lower their wholesale cost, but that won't necessarily be passed to the consumer. Essentially, if you get in bed with Walmart, you will make the money you want in the short term, but eventually, if you want to keep that money coming in, you will lose control of your pricing. This doesn't even get into exclusivity requirements for products, etc. See Snapper lawn mowers, for some insight to this process. Make a deal with the devil... and you'll end up at the behest of the devil.
        danssig 15y ago
        >the company requires their suppliers to open their books for the inventory they sell to Walmart. They do. And they'll start making demands about how you run your business (e.g. "stop buying this local, you need to buy it from China and here are a list of companies we recommend you use"). You will have lots of sales through Walmart but you have to be careful that they don't destroy your business on a whim. See Dill Pickle Co for an example.
  - kylewpppd 15y ago
    This is anecdotal evidence from them coming to speak at my college, but... Walmart controls almost all of it's logistics. Whereas its competitors use other shipping companies, and have inventory sit in 3rd party warehouses, Walmart builds huge distribution centers that service multiple Walmart stores. The distribution centers mean they can purchase huge levels of inventory at discounted terms. Running their own logistics means that they can break up pallets into smaller shipments appropriate for each store. So stores need less space to carry inventory, and they can purchase and store huge amounts at lower cost per sq. ft. The other thing the logistics does is gives them an advantage in transportation cost. Although (I've heard) the margins in ground transport are slim, running your own ground transport saves money, allowing for lower prices to the consumer. Walmart's size also contributes to their "efficiency". They can buy in larger quantities than their competitors and try to exert downward pressure on suppliers' prices. They can also nab exclusives and put them on the shelves for less than competitors.
    - NegativeK 15y ago
      To toss some info on the cost-cutting logistics pile, a friend of my dad was a buyer for Wal-Mart for a while. According to him, Wal-Mart's corporate relocation assistance consists of a Wal-Mart truck and some random employees from a local store packing and stuffing your possessions in a semi.
      - brc 15y ago
        Brilliant - I love it. If you're going to compete with a lowest-cost strategy, that's just how far you can take it.
      - tptacek 15y ago
        That's neat, if true. The long-haul truck drive is by far the most expensive part of a cross-country move; movers themselves are very cheap.
    - ippisl 15y ago
      Also , by doing logistics for manufacturers and not the other way around, they make logistics for other retailers cost more(because of less scale), which increase the price of the competition.
  - brianbreslin 15y ago
    This article from 2003 is still relevant http://www.fastcompany.com/magazine/77/walmart.html http://www.fastcompany.com/magazine/77/walmart.html
  - Tangurena 15y ago
    Walmart pays faster, but they are just as aggressive at having their hooks into your financials as Apple and pressuring your margins down. If you update or replace your ERP system, your contracts with Walmart require you to integrate the new system with Walmart's. If you weren't paying attention upfront, the required changes can quickly make your ERP implementation explode over-budget.
- jacques_chester 15y ago
  I was thinking the same thing. Aggressive negotiation with suppliers is a feature of monopsonies. Edit: I've thought about it some more. There are parallels but important differences. The main one is products. Apple design the products themselves, have a very limited product range, and are more intimately involved in manufacturing than Walmart is. Walmart has a much more complex supply chain problem. Thousands of products, with a changing mix based on seasons and perishability, taken from far more sources and distributed to far more locations.
  - pluies 15y ago
    For the ones (such as me) who went "mono-what?", a monopsony is the situation where one unique buyer buys from different sellers. It's the opposite of a monopoly, where an unique seller sells to different buyers. http://en.wikipedia.org/wiki/Monopsony http://en.wikipedia.org/wiki/Monopsony Thanks for teaching me something Jacques :)
    - jacques_chester 15y ago
      Je t'en prie.
deleted 15y ago
[deleted]
antics 15y ago
What is argued in this article was argued much earlier this year on Quora. http://www.quora.com/Apple-Inc-2/What-would-be-a-good-use-of-Apples-86-85+-billion-in-cash/answers/612608 http://www.quora.com/Apple-Inc-2/What-would-be-a-good-use-of...
wallflower 15y ago
> When the iPad 2 debuted, the finished devices were packed in plain boxes and Apple employees monitored every handoff point—loading dock, airport, truck depot, and distribution center —to make sure each unit was accounted for. When I went to WWDC10, I was struck by the small detail of the conference security wearing black polos with the Apple logo and "Security" under the logo. At most conferences, the security is wearing jackets straight out of action movie central casting (e.g. "SECURITY"). I thought that was a nice small detail - to attire the rent-a-cops in Apple gear. But, now, reading this, I think they may have been full time Apple security staff. Security is paramount.
- gujk 15y ago
  (Wardrobe, not central casting)
- spleeyah 15y ago
  They do have a full time security department: https://ssl.apple.com/support/security/ https://ssl.apple.com/support/security/ And believe me, they take every aspect of security into account.
- atnan 15y ago
  The security at WWDC are Apple employees, according to the one I asked at WWDC08.
- philwelch 15y ago
  I wonder how much of the threat profile involves corrupt shipping workers and other inside jobs and how much involves grand iPhone heists.
nailer 15y ago
> Most of Apple’s customers have probably never given that green light a second thought Most, I'm sure. But personally the first time I saw light shining through my metal laptop, I was amazed, a little delighted, and slightly confused about how they were doing it (because, as the article mentions, the holes are too small to see).
- X-Istence 15y ago
  The first time I saw that I actually took my laptop apart to see how it was done. It was just one of the simple features that I really enjoyed about my laptop. It just showed an attention to detail that no other manufacturer has yet to follow.
- dotBen 15y ago
  Same here. Once I figured it out, I wondered why they don't ever use the same technique to expose the Apple logo on the lid of the laptop - so that the lid is perfectly flush/clean when the screen is closed but the Apple logo is shown during use. ...now I know the answer: the lasers are so expensive and in such short supply it would presumably create a bottleneck in the production - esp given the surface area of the logo and thus the amount of holes needed.
  - kgermino 15y ago
    Not to mention that, while it would be cool and notable (and maybe worth it for that alone) making the logo invisible when the computer is turned off eliminates a marketing opportunity. The simple Apple logo against a plain backdrop provides a clean advertisement for Apple. Removing the logo removes the distinctiveness of the computer when it is turned off. Also, I'm not sure how the computer would look without a logo interupting it. I guess almost every other manufacturer comes close to this, but I think an Apple computer would feel wrong with a a view of unbroken alumninum.
    - mistermann 15y ago
      >The simple Apple logo against a plain backdrop provides a clean advertisement for Apple. Exactly. Buying billboards on the most expensive streets in the world is very expensive. Having your customers sitting lined up in a row in coffee shops with their laptop lids with the lighted apple logo pointing outward to the street on these very same streets must be very valuable advertising. I'm constantly amazed when I walk by coffee shops and see the typical 75% apple market share, when just a decade ago they were really a niche player.
datsro 15y ago
They also don't have to pay for storage costs which eats up money for their competitors!
- 2muchcoffeeman 15y ago
  Dell and probably many others had this long before Apple.
yassim 15y ago
Seems to me to be an extension of the 'People who are really serious about software should make their own hardware.'. Say 'People who are really serious about making and selling a product should make their own production, supply and store chains' or 'People who are serious about their product should take ownership of all stages of that product.'
CWIZO 15y ago
And yet we have to wait 2 months to get MBAs here in Slovenia (due to supply shortage) ...
- pchristensen 15y ago
  That sounded like a really quick education, until I realized you were talking about a laptop.
bravura 15y ago
"This operational edge is what enables Apple to handle massive product launches without having to maintain large, profit-sapping inventories." Could someone explain what that means more specifically? That they don't have to have a large stock? Doesn't this controvert the earlier statement: "Because of its volume ... Apple gets big discounts on parts, manufacturing capacity, and air freight."
- wisty 15y ago
  Nope. Apple agrees to buy 1 to 5 million ipod screens from a supplier, at a $10 per screen (totally made-up figure). They say they want boxes of 100,000 units, delivered within 1 week of whenever they feel like asking for them. So Apple doesn't need a warehouse, they get their supplier to pay for that. They also have an identical deal with another supplier, so they can play them off against each other if they need to renegotiate. Most companies would just go with whichever supplier was cheapest, but Apple may find it cheaper (in the long run) to keep the competition going.
  - pork 15y ago
    To answer GP's question, "in stock" is a buffer between manufacturing and consumer. Apple has an algorithm to keep that buffer small but flowing.
  - philwelch 15y ago
    The other thing is just how many units Apple ships. They have to go with multiple suppliers at times just to have enough parts in the first place. You're talking about a company that buys a significant proportion of the world's NAND flash production a year ahead of time.
  - MichaelApproved 15y ago
    "So Apple doesn't need a warehouse, they get their supplier to pay for that." That wouldn't make things cheaper since the cost of storage would simply be passed on to Apple by the manufacturer. The point being made is the supply chain has everything built just-in-time with minimal storage needs across the board. Both Apple and the manufacturer wouldn't be storing much of anything. Everything is built in time to ship.
swombat 15y ago
> According to Martin, the logistics executive, Cook uses a catchphrase to hammer home the need for efficiency: “Nobody wants to buy sour milk.” That's a bit of a floppy ending for an otherwise excellent article.
irrationalfab 15y ago
This is a great proof of the strategic advantages of totally controlling your operations. In the start you are at disadvantage, but if you manage to gain steam you end up with a competitive advantage that is almost unfair. In Apples case this strong position is not only visible in the supply chain management but it is clearly present in all their stack. Another example is their supremacy in software. I think that this is one of the great lessons from Steve Jobs, takin your time to control and develop everything internally it is feasible competitive approach.
- ippisl 15y ago
  Apple do a nice combination of controlling operation, with open(relatively) ecosystem. They use the rapid response of a huge open ecosystem of software developers, while still having a lot of control.They do it this way because in software , time to market is very important. For the hardware part, which normally changes less often(slower phone buying cycle,phones are integrated and not modular like PC's, relatively long time before new electronic components become mass market) and time to market is less important(relative to software) , they use a closed ecosystem, in order to extract most of the profit.
padobson 15y ago
I think Apple's supply chain management is a greater competitive advantage than their product design. There are many factors beyond the quality of product that go into a purchasing decision - things like hype, accessibility, and most importantly, price. Apple never had much a problem with great design or building hype, but the real reason for their success over the last 15 years has been their ability to provide customers better access to their products and to provide them at more competitive prices. The iPhone is ( by most accounts ) a superior product to the Blackberry. However, no one was going to buy an iPhone for $900, and without this impressive supply chain, Apple wouldn't be able to get the profit margins they want at $600 ( or $200 subsidized, which is also supply chain management ). Product is important, and as a culture that builds things, HNers tend to focus on that ( the green light conversation in these comments being proof of that ), but all the logistics of how a product is delivered are just as important as the product itself - and maybe more so - in building a successful company.
- bunderbunder 15y ago
  The same ethos provides similar results on the customer service side. For example, letting users go to the website and schedule a 15-minute window of time in which Apple calls them is huge. Letting users go to the website and schedule an appointment to go talk to a real live human is huge. And making them walk all the way through a retail outlet full of your products to get there doesn't hurt, either. Every other company in their space is still stuck on figuring out how to distribute tech support resources to customers by asking them to wait on hold for an hour. That's an hour worth of time doing absolutely nothing productive that shows up on the 800 number's bill. That's a bunch more call center hardware to maintain in order to manage the queue of people on hold. That's less productivity per operator, because customers who are pissed off about being on hold for an hour are harder to work with, and because dealing with that for 8 hours a day is an excellent way to lose your own motivation. Let alone that a bad support experience is a good way to make sure a customer doesn't become a repeat customer.
  - padobson 15y ago
    +1. This should become the standard in customer support. If it's cheaper to provide in addition to being a better user experience, everyone should be moving this way.
binarray2000 15y ago
OK...I cheer to so many things Apple does regarding operations. But when I read Apple [..] sometimes doesn't pay until as long as 90 days after it uses a part [...] I think only "lame". With $80B and 40% margin, company with that reputation... Manufacturing is hard. And very expensive. Organize processes, buy machines and raw materials, pay the labor. And then comes Apple and gives itself a loan (basically, it's a loan) from a manufacturer. No, sorry. It's lame. PS - Just as a perspective: I help part time in a company my father and brother own (retail and manufacturing company). Even thou other businesses in the industry and the country do the same thing as Apple, they don't. I'm disgusted by that practice here...so, why not be disgusted by it when Apple does it?
- MichaelApproved 15y ago
  Weigh that with times that they pay in advance. It's a case by case bases and I'm sure they're not late with payments. If they wait as long as 90 days, I bet it's because that was part of the business agreement they made with the manufacturer.
  - tripzilch 15y ago
    Um, no that's not how it goes. Paying late in manufacturing is all over the place, 30 days is considered acceptable, 60 the absolute limit, but paying 90 days late is just something Apple can get away with because of it's size and "occasional ruthlessness".
    - screwt 15y ago
      It's not paying 90 days 'late'. It's completely standard in manufacturing for payments to be agreed as due 30, 60 or 90 days after delivery. 90 days fairly long, but not particularly unusual. It's also not unusual for companies to pay later than the agreed dates, but no-one has said Apple's doing that.
  - asmithmd1 15y ago
    I would bet that 90 day payment was a one off. You notice NO ONE quoted in the article was willing to have their name used so it might have been a friend of a friend story. The suppliers who talked gave details about turning down a $1 Billion pre-payment!
tripzilch 15y ago
Interesting article, but this quote is absolutely sickening: > Because of its volume—and its occasional ruthlessness—Apple gets big discounts on parts, manufacturing capacity, and air freight. “Operations expertise is as big an asset for Apple as product innovation or marketing,” says Mike Fawkes, the former supply-chain chief at Hewlett-Packard (HPQ) and now a venture capitalist with VantagePoint Capital Partners. “They’ve taken operational excellence to a level never seen before.” Crediting a company that until very recently employed slave labour with "occasional ruthlessness" and "taking operational excellence to a new level" is just disgusting. There is still no excuse for that. They should be grovelling on the ground begging for forgiveness, not being commended for it!! At least thanks to this article we know how that situation came to being... Just a little harmless "occasional ruthlessness".
- Synaesthesia 15y ago
  Slave labour? Really? Since Apple products are made my Foxconn, which also make products for a number of other manufacturers, aren't they then complicit too? How about Foxconn?
- ceejayoz 15y ago
  I'm pretty sure Foxconn paid their workers the whole time Apple has been involved with them.
CoffeeDregs 15y ago
These kinds of articles were novel 10 years ago when Apple was coming back and was doing so while beating Dell at supply chain optimization and that was, justifiably, a huge story. Ironically, I read them in BusinessWeek back then, too. Now, the ODM/OEMs have become brands and the folks who once were the main participants in Apple's supply chain are now directly competing with Apple. Breathless articles aside, are we really sure that Apple's supply chain is much shorter/faster than those of Lenovo, Dell, HTC, Sony or, holy hell, Samsung? I also have a hard time seeing how $25M worth of lasers is a supply chain innovation; most other manufacturers would probably prefer to make the laptop for $6 (amortization) less. I have a ThinkPad T520 [with Linux] because it's rugged, comfortable (no wrist razor), has a TrackPoint (I know, I know, but I love it) and about $1200-$1500 less than a comparable Macbook Pro. Clearly, the majority of hackers disagree with me, so I'm convinced that 90% of Apple's incredibleness is their marketing (not ads, but understanding how to design and build excellent products which are very well targeted at their audiences).
- kooshball 15y ago
  >Clearly, the majority of hackers disagree with me, so I'm convinced that 90% of Apple's incredibleness is their marketing (not ads, but understanding how to design and build excellent products which are very well targeted at their audiences). That last sentence there doesn't make much sense at all. How is "understanding how to design and build excellent products which are very well targeted at their audiences" part of marketing? That's straight up design and engineering.
- zdw 15y ago
  One minor nitpick - recent unibody Mac's have a slightly rounded, less "wrist razor" front edge on them.
- pinwale 15y ago
  >I also have a hard time seeing how $25M worth of lasers is a supply chain innovation; most other manufacturers would probably prefer to make the laptop for $6 (amortization) less It looks like Apple's supply logistics chain is similar to WalMart's supply chain. WalMart has deep connections with their suppliers, requiring suppliers to hand over financial records, dictating factory processes, and demanding yearly cost reduction. The difference (and it is the major difference) is that Apple focuses their relationships with suppliers on quality of process and availability by locking up supply years ahead of time. WalMart just focuses on cost reduction. The innovation is that Apple willing to pay high upfront costs years in advance to design efficient manufacturing processes so that later it would be able to get both cheaper component rates and a guaranteed supply. Jonathan Ive has said that most of his time is spent designing processes rather than products. Check out this excerpt from the [Objectified](http://en.wikipedia.org/wiki/Objectified http://en.wikipedia.org/wiki/Objectified) documentary: [Youtube](http://www.youtube.com/watch?feature=player_detailpage&v=t0fe800C2CU#t=149s http://www.youtube.com/watch?feature=player_detailpage&v...)
mkramlich 15y ago
Speaking as a contractor, I have a bias/tendency to eventually "fire" any client that takes too long or is too sketchy about paying me. Too much risk on my part. I work, I get paid. With all bullshit set aside, it should only take on OOM of about 1 minute to write a check, put in envelope, put stamp on it, and put in outbound mailbox. Anything longer than that is self-imposed bureaucracy, not physics.
fredoliveira 15y ago
I very highly recommend listening to a couple of episodes of Critical path if you care about Apple's supply chain strategy. I was amazed at the level of detail in which this was discussed (and going through this article I couldn't help but think that part of the information in it is due to the analysis on that podcast): http://5by5.tv/criticalpath/10 http://5by5.tv/criticalpath/10 and http://5by5.tv/criticalpath/11 http://5by5.tv/criticalpath/11

344 points by Cadsby 15y ago

endlessvoid94 15y ago

Interesting parallel to walmart.

hswolff 15y ago
What's Walmart's supply chain like?
- jacques_chester 15y ago
  They've often been considered one of the best supply chain operations in the world, and aggressively drive their suppliers to lower prices and increase volume. One classic anecdote is that leading up to a hurricane, Walmart did some data mining and found that poptarts sold like crazy when hurricane watches were declared. Within hours they had dozens of trucks heading to the Florida coast filled with poptarts and they made a lot of money that way. Unless you have a fast, flexible logistics system and the analytical smarts to back it up, you can't exploit changing circumstances like that. Edit. Source of Walmart anecdote is here: http://www.nytimes.com/2004/11/14/business/yourmoney/14wal.html http://www.nytimes.com/2004/11/14/business/yourmoney/14wal.h...
  - DiabloD3 15y ago
    I agree that exploit is the right word here, but probably not for the reason you chose it.
    - mc32 15y ago
      Either opportunistic or exploitive are appropriate -those words are not always negative, to me they also have a descriptive meaning. If they saw a trend and they took steps to fulfill the foreseen demand, it's all good. I'm sure people were happy WalMart had that in stock, rather than think 'this WalMart, they're using this hurricane in an underhanded way to sell me more poptarts'.
    - nknight 15y ago
      There's plenty to dislike about Wal-Mart, but there is absolutely nothing wrong with predicting a sudden shortage of a product in a particular area, and trucking in a bunch. If they'd doubled the price, that would be another matter, but that's not what they did.
      - deleted 15y ago
        [deleted]
        nknight 15y ago
        Pop-Tarts are a cheap, readily-accessible, easily-consumed source of calories with a long shelf life that most people will at least tolerate. They're nutritionally incomplete, but they will help keep you alive and functional in the short term. Most people don't stock up on MREs and survival bars, nor even have a clue where to start. Under such circumstances, it's both expected and reasonable that they reach for a familiar, readily-available energy source.
        absentbird 15y ago
        I remember hearing an anecdote many years ago that when food supplies where being dropped over Afghanistan it was the pop-tarts and peanut-butter that were the most popular. I just looked into it and I the only information on their popularity I could find was that they are often sold on black-markets. Source: http://www.foreignpolicy.com/articles/2011/10/10/stuff_we_dont_want_haiti?page=0,0 http://www.foreignpolicy.com/articles/2011/10/10/stuff_we_do...
  - brianbreslin 15y ago
    Funny how quaint the excerpt on data seems now. "Walmart has 460 tb of data, experts suggest Internet has half that."
  - teyc 15y ago
    Bottled water always runs out when there is an impending disaster. And after the Brisbane floods, brooms, shovels and gloves were in short supply.
- notatoad 15y ago
  ruthless. they handle so much more volume than any other retailer that suppliers are willing to sign anything just to be a part of it. all losses are passed back to the suppliers, which enables wal-mart to take huge risks. the sibling comment to mine references a huge volume of pop-tarts being shipped to florida in preparation for a hurricane. if during mid-shipment the weather changed, wal-mart would call up the supplier, cancel the order, and all the trucks would return the pop tarts to their suppliers at no cost to wal-mart. with pop tarts it isn't such a big deal because they don't spoil, but farmers who supply wal-mart will get shipments of spoiled produce returned to them if wal-mart decides they don't need quite as much volume that week. and they just have to deal with it, because they can make more money getting screwed by wal-mart than they can selling to ethical companies.
  - antoinehersen 15y ago
    If they make more money this way why are they getting screwed?
    - look_lookatme 15y ago
      I'm not a Walmart hater, but as I understand, the company requires their suppliers to open their books for the inventory they sell to Walmart. If the company "makes more money", Walmart will squeeze them to lower their wholesale cost, but that won't necessarily be passed to the consumer. Essentially, if you get in bed with Walmart, you will make the money you want in the short term, but eventually, if you want to keep that money coming in, you will lose control of your pricing. This doesn't even get into exclusivity requirements for products, etc. See Snapper lawn mowers, for some insight to this process. Make a deal with the devil... and you'll end up at the behest of the devil.
      - danssig 15y ago
        >the company requires their suppliers to open their books for the inventory they sell to Walmart. They do. And they'll start making demands about how you run your business (e.g. "stop buying this local, you need to buy it from China and here are a list of companies we recommend you use"). You will have lots of sales through Walmart but you have to be careful that they don't destroy your business on a whim. See Dill Pickle Co for an example.
- kylewpppd 15y ago
  This is anecdotal evidence from them coming to speak at my college, but... Walmart controls almost all of it's logistics. Whereas its competitors use other shipping companies, and have inventory sit in 3rd party warehouses, Walmart builds huge distribution centers that service multiple Walmart stores. The distribution centers mean they can purchase huge levels of inventory at discounted terms. Running their own logistics means that they can break up pallets into smaller shipments appropriate for each store. So stores need less space to carry inventory, and they can purchase and store huge amounts at lower cost per sq. ft. The other thing the logistics does is gives them an advantage in transportation cost. Although (I've heard) the margins in ground transport are slim, running your own ground transport saves money, allowing for lower prices to the consumer. Walmart's size also contributes to their "efficiency". They can buy in larger quantities than their competitors and try to exert downward pressure on suppliers' prices. They can also nab exclusives and put them on the shelves for less than competitors.
  - NegativeK 15y ago
    To toss some info on the cost-cutting logistics pile, a friend of my dad was a buyer for Wal-Mart for a while. According to him, Wal-Mart's corporate relocation assistance consists of a Wal-Mart truck and some random employees from a local store packing and stuffing your possessions in a semi.
    - brc 15y ago
      Brilliant - I love it. If you're going to compete with a lowest-cost strategy, that's just how far you can take it.
    - tptacek 15y ago
      That's neat, if true. The long-haul truck drive is by far the most expensive part of a cross-country move; movers themselves are very cheap.
  - ippisl 15y ago
    Also , by doing logistics for manufacturers and not the other way around, they make logistics for other retailers cost more(because of less scale), which increase the price of the competition.
- brianbreslin 15y ago
  This article from 2003 is still relevant http://www.fastcompany.com/magazine/77/walmart.html http://www.fastcompany.com/magazine/77/walmart.html
- Tangurena 15y ago
  Walmart pays faster, but they are just as aggressive at having their hooks into your financials as Apple and pressuring your margins down. If you update or replace your ERP system, your contracts with Walmart require you to integrate the new system with Walmart's. If you weren't paying attention upfront, the required changes can quickly make your ERP implementation explode over-budget.
jacques_chester 15y ago
I was thinking the same thing. Aggressive negotiation with suppliers is a feature of monopsonies. Edit: I've thought about it some more. There are parallels but important differences. The main one is products. Apple design the products themselves, have a very limited product range, and are more intimately involved in manufacturing than Walmart is. Walmart has a much more complex supply chain problem. Thousands of products, with a changing mix based on seasons and perishability, taken from far more sources and distributed to far more locations.
- pluies 15y ago
  For the ones (such as me) who went "mono-what?", a monopsony is the situation where one unique buyer buys from different sellers. It's the opposite of a monopoly, where an unique seller sells to different buyers. http://en.wikipedia.org/wiki/Monopsony http://en.wikipedia.org/wiki/Monopsony Thanks for teaching me something Jacques :)
  - jacques_chester 15y ago
    Je t'en prie.

deleted 15y ago

[deleted]

antics 15y ago

What is argued in this article was argued much earlier this year on Quora. http://www.quora.com/Apple-Inc-2/What-would-be-a-good-use-of-Apples-86-85+-billion-in-cash/answers/612608 http://www.quora.com/Apple-Inc-2/What-would-be-a-good-use-of...

wallflower 15y ago

> When the iPad 2 debuted, the finished devices were packed in plain boxes and Apple employees monitored every handoff point—loading dock, airport, truck depot, and distribution center —to make sure each unit was accounted for. When I went to WWDC10, I was struck by the small detail of the conference security wearing black polos with the Apple logo and "Security" under the logo. At most conferences, the security is wearing jackets straight out of action movie central casting (e.g. "SECURITY"). I thought that was a nice small detail - to attire the rent-a-cops in Apple gear. But, now, reading this, I think they may have been full time Apple security staff. Security is paramount.

gujk 15y ago
(Wardrobe, not central casting)
spleeyah 15y ago
They do have a full time security department: https://ssl.apple.com/support/security/ https://ssl.apple.com/support/security/ And believe me, they take every aspect of security into account.
atnan 15y ago
The security at WWDC are Apple employees, according to the one I asked at WWDC08.
philwelch 15y ago
I wonder how much of the threat profile involves corrupt shipping workers and other inside jobs and how much involves grand iPhone heists.

nailer 15y ago

> Most of Apple’s customers have probably never given that green light a second thought Most, I'm sure. But personally the first time I saw light shining through my metal laptop, I was amazed, a little delighted, and slightly confused about how they were doing it (because, as the article mentions, the holes are too small to see).

X-Istence 15y ago
The first time I saw that I actually took my laptop apart to see how it was done. It was just one of the simple features that I really enjoyed about my laptop. It just showed an attention to detail that no other manufacturer has yet to follow.
dotBen 15y ago
Same here. Once I figured it out, I wondered why they don't ever use the same technique to expose the Apple logo on the lid of the laptop - so that the lid is perfectly flush/clean when the screen is closed but the Apple logo is shown during use. ...now I know the answer: the lasers are so expensive and in such short supply it would presumably create a bottleneck in the production - esp given the surface area of the logo and thus the amount of holes needed.
- kgermino 15y ago
  Not to mention that, while it would be cool and notable (and maybe worth it for that alone) making the logo invisible when the computer is turned off eliminates a marketing opportunity. The simple Apple logo against a plain backdrop provides a clean advertisement for Apple. Removing the logo removes the distinctiveness of the computer when it is turned off. Also, I'm not sure how the computer would look without a logo interupting it. I guess almost every other manufacturer comes close to this, but I think an Apple computer would feel wrong with a a view of unbroken alumninum.
  - mistermann 15y ago
    >The simple Apple logo against a plain backdrop provides a clean advertisement for Apple. Exactly. Buying billboards on the most expensive streets in the world is very expensive. Having your customers sitting lined up in a row in coffee shops with their laptop lids with the lighted apple logo pointing outward to the street on these very same streets must be very valuable advertising. I'm constantly amazed when I walk by coffee shops and see the typical 75% apple market share, when just a decade ago they were really a niche player.

datsro 15y ago

They also don't have to pay for storage costs which eats up money for their competitors!

2muchcoffeeman 15y ago
Dell and probably many others had this long before Apple.

yassim 15y ago

Seems to me to be an extension of the 'People who are really serious about software should make their own hardware.'. Say 'People who are really serious about making and selling a product should make their own production, supply and store chains' or 'People who are serious about their product should take ownership of all stages of that product.'

CWIZO 15y ago

And yet we have to wait 2 months to get MBAs here in Slovenia (due to supply shortage) ...

pchristensen 15y ago
That sounded like a really quick education, until I realized you were talking about a laptop.

bravura 15y ago

"This operational edge is what enables Apple to handle massive product launches without having to maintain large, profit-sapping inventories." Could someone explain what that means more specifically? That they don't have to have a large stock? Doesn't this controvert the earlier statement: "Because of its volume ... Apple gets big discounts on parts, manufacturing capacity, and air freight."

wisty 15y ago
Nope. Apple agrees to buy 1 to 5 million ipod screens from a supplier, at a $10 per screen (totally made-up figure). They say they want boxes of 100,000 units, delivered within 1 week of whenever they feel like asking for them. So Apple doesn't need a warehouse, they get their supplier to pay for that. They also have an identical deal with another supplier, so they can play them off against each other if they need to renegotiate. Most companies would just go with whichever supplier was cheapest, but Apple may find it cheaper (in the long run) to keep the competition going.
- pork 15y ago
  To answer GP's question, "in stock" is a buffer between manufacturing and consumer. Apple has an algorithm to keep that buffer small but flowing.
- philwelch 15y ago
  The other thing is just how many units Apple ships. They have to go with multiple suppliers at times just to have enough parts in the first place. You're talking about a company that buys a significant proportion of the world's NAND flash production a year ahead of time.
- MichaelApproved 15y ago
  "So Apple doesn't need a warehouse, they get their supplier to pay for that." That wouldn't make things cheaper since the cost of storage would simply be passed on to Apple by the manufacturer. The point being made is the supply chain has everything built just-in-time with minimal storage needs across the board. Both Apple and the manufacturer wouldn't be storing much of anything. Everything is built in time to ship.

swombat 15y ago

> According to Martin, the logistics executive, Cook uses a catchphrase to hammer home the need for efficiency: “Nobody wants to buy sour milk.” That's a bit of a floppy ending for an otherwise excellent article.

irrationalfab 15y ago

This is a great proof of the strategic advantages of totally controlling your operations. In the start you are at disadvantage, but if you manage to gain steam you end up with a competitive advantage that is almost unfair. In Apples case this strong position is not only visible in the supply chain management but it is clearly present in all their stack. Another example is their supremacy in software. I think that this is one of the great lessons from Steve Jobs, takin your time to control and develop everything internally it is feasible competitive approach.

ippisl 15y ago
Apple do a nice combination of controlling operation, with open(relatively) ecosystem. They use the rapid response of a huge open ecosystem of software developers, while still having a lot of control.They do it this way because in software , time to market is very important. For the hardware part, which normally changes less often(slower phone buying cycle,phones are integrated and not modular like PC's, relatively long time before new electronic components become mass market) and time to market is less important(relative to software) , they use a closed ecosystem, in order to extract most of the profit.

padobson 15y ago

I think Apple's supply chain management is a greater competitive advantage than their product design. There are many factors beyond the quality of product that go into a purchasing decision - things like hype, accessibility, and most importantly, price. Apple never had much a problem with great design or building hype, but the real reason for their success over the last 15 years has been their ability to provide customers better access to their products and to provide them at more competitive prices. The iPhone is ( by most accounts ) a superior product to the Blackberry. However, no one was going to buy an iPhone for $900, and without this impressive supply chain, Apple wouldn't be able to get the profit margins they want at $600 ( or $200 subsidized, which is also supply chain management ). Product is important, and as a culture that builds things, HNers tend to focus on that ( the green light conversation in these comments being proof of that ), but all the logistics of how a product is delivered are just as important as the product itself - and maybe more so - in building a successful company.

bunderbunder 15y ago
The same ethos provides similar results on the customer service side. For example, letting users go to the website and schedule a 15-minute window of time in which Apple calls them is huge. Letting users go to the website and schedule an appointment to go talk to a real live human is huge. And making them walk all the way through a retail outlet full of your products to get there doesn't hurt, either. Every other company in their space is still stuck on figuring out how to distribute tech support resources to customers by asking them to wait on hold for an hour. That's an hour worth of time doing absolutely nothing productive that shows up on the 800 number's bill. That's a bunch more call center hardware to maintain in order to manage the queue of people on hold. That's less productivity per operator, because customers who are pissed off about being on hold for an hour are harder to work with, and because dealing with that for 8 hours a day is an excellent way to lose your own motivation. Let alone that a bad support experience is a good way to make sure a customer doesn't become a repeat customer.
- padobson 15y ago
  +1. This should become the standard in customer support. If it's cheaper to provide in addition to being a better user experience, everyone should be moving this way.

binarray2000 15y ago

OK...I cheer to so many things Apple does regarding operations. But when I read Apple [..] sometimes doesn't pay until as long as 90 days after it uses a part [...] I think only "lame". With $80B and 40% margin, company with that reputation... Manufacturing is hard. And very expensive. Organize processes, buy machines and raw materials, pay the labor. And then comes Apple and gives itself a loan (basically, it's a loan) from a manufacturer. No, sorry. It's lame. PS - Just as a perspective: I help part time in a company my father and brother own (retail and manufacturing company). Even thou other businesses in the industry and the country do the same thing as Apple, they don't. I'm disgusted by that practice here...so, why not be disgusted by it when Apple does it?

MichaelApproved 15y ago
Weigh that with times that they pay in advance. It's a case by case bases and I'm sure they're not late with payments. If they wait as long as 90 days, I bet it's because that was part of the business agreement they made with the manufacturer.
- tripzilch 15y ago
  Um, no that's not how it goes. Paying late in manufacturing is all over the place, 30 days is considered acceptable, 60 the absolute limit, but paying 90 days late is just something Apple can get away with because of it's size and "occasional ruthlessness".
  - screwt 15y ago
    It's not paying 90 days 'late'. It's completely standard in manufacturing for payments to be agreed as due 30, 60 or 90 days after delivery. 90 days fairly long, but not particularly unusual. It's also not unusual for companies to pay later than the agreed dates, but no-one has said Apple's doing that.
- asmithmd1 15y ago
  I would bet that 90 day payment was a one off. You notice NO ONE quoted in the article was willing to have their name used so it might have been a friend of a friend story. The suppliers who talked gave details about turning down a $1 Billion pre-payment!

tripzilch 15y ago

Interesting article, but this quote is absolutely sickening: > Because of its volume—and its occasional ruthlessness—Apple gets big discounts on parts, manufacturing capacity, and air freight. “Operations expertise is as big an asset for Apple as product innovation or marketing,” says Mike Fawkes, the former supply-chain chief at Hewlett-Packard (HPQ) and now a venture capitalist with VantagePoint Capital Partners. “They’ve taken operational excellence to a level never seen before.” Crediting a company that until very recently employed slave labour with "occasional ruthlessness" and "taking operational excellence to a new level" is just disgusting. There is still no excuse for that. They should be grovelling on the ground begging for forgiveness, not being commended for it!! At least thanks to this article we know how that situation came to being... Just a little harmless "occasional ruthlessness".

Synaesthesia 15y ago
Slave labour? Really? Since Apple products are made my Foxconn, which also make products for a number of other manufacturers, aren't they then complicit too? How about Foxconn?
ceejayoz 15y ago
I'm pretty sure Foxconn paid their workers the whole time Apple has been involved with them.

CoffeeDregs 15y ago

These kinds of articles were novel 10 years ago when Apple was coming back and was doing so while beating Dell at supply chain optimization and that was, justifiably, a huge story. Ironically, I read them in BusinessWeek back then, too. Now, the ODM/OEMs have become brands and the folks who once were the main participants in Apple's supply chain are now directly competing with Apple. Breathless articles aside, are we really sure that Apple's supply chain is much shorter/faster than those of Lenovo, Dell, HTC, Sony or, holy hell, Samsung? I also have a hard time seeing how $25M worth of lasers is a supply chain innovation; most other manufacturers would probably prefer to make the laptop for $6 (amortization) less. I have a ThinkPad T520 [with Linux] because it's rugged, comfortable (no wrist razor), has a TrackPoint (I know, I know, but I love it) and about $1200-$1500 less than a comparable Macbook Pro. Clearly, the majority of hackers disagree with me, so I'm convinced that 90% of Apple's incredibleness is their marketing (not ads, but understanding how to design and build excellent products which are very well targeted at their audiences).

kooshball 15y ago
>Clearly, the majority of hackers disagree with me, so I'm convinced that 90% of Apple's incredibleness is their marketing (not ads, but understanding how to design and build excellent products which are very well targeted at their audiences). That last sentence there doesn't make much sense at all. How is "understanding how to design and build excellent products which are very well targeted at their audiences" part of marketing? That's straight up design and engineering.
zdw 15y ago
One minor nitpick - recent unibody Mac's have a slightly rounded, less "wrist razor" front edge on them.
pinwale 15y ago
>I also have a hard time seeing how $25M worth of lasers is a supply chain innovation; most other manufacturers would probably prefer to make the laptop for $6 (amortization) less It looks like Apple's supply logistics chain is similar to WalMart's supply chain. WalMart has deep connections with their suppliers, requiring suppliers to hand over financial records, dictating factory processes, and demanding yearly cost reduction. The difference (and it is the major difference) is that Apple focuses their relationships with suppliers on quality of process and availability by locking up supply years ahead of time. WalMart just focuses on cost reduction. The innovation is that Apple willing to pay high upfront costs years in advance to design efficient manufacturing processes so that later it would be able to get both cheaper component rates and a guaranteed supply. Jonathan Ive has said that most of his time is spent designing processes rather than products. Check out this excerpt from the [Objectified](http://en.wikipedia.org/wiki/Objectified http://en.wikipedia.org/wiki/Objectified) documentary: [Youtube](http://www.youtube.com/watch?feature=player_detailpage&v=t0fe800C2CU#t=149s http://www.youtube.com/watch?feature=player_detailpage&v...)

mkramlich 15y ago

Speaking as a contractor, I have a bias/tendency to eventually "fire" any client that takes too long or is too sketchy about paying me. Too much risk on my part. I work, I get paid. With all bullshit set aside, it should only take on OOM of about 1 minute to write a check, put in envelope, put stamp on it, and put in outbound mailbox. Anything longer than that is self-imposed bureaucracy, not physics.

fredoliveira 15y ago

I very highly recommend listening to a couple of episodes of Critical path if you care about Apple's supply chain strategy. I was amazed at the level of detail in which this was discussed (and going through this article I couldn't help but think that part of the information in it is due to the analysis on that podcast): http://5by5.tv/criticalpath/10 http://5by5.tv/criticalpath/10 and http://5by5.tv/criticalpath/11 http://5by5.tv/criticalpath/11