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"This operational edge is what enables Apple to handle massive product launches without having to maintain large, profit-sapping inventories." Could someone ex

by 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.
- cube13 15y ago
  The suppliers don't need that much of a warehouse, either. Let's assume that Apple is forecasting that 100,000 iPods per week will meet demand. They go to the supplier, and tell them that they need the screens delivered at 100,100 per week(assuming that a very high .1% of all screens are defective, after the supplier's QA). The supplier gets their factories producing around that number per week, and ships them out immediately. Apple takes them in, and immediately produces iPods with them, where they the go out to retail. This way, neither Apple nor the supplier need to keep more than a week's worth of stock. The reason that Apple keeps a similar deal with another supplier is if anything goes wrong with the other company. So in the previous example, if in week 5, Fukushima happened, and the first company was unable to keep production up, Apple could go to the other supplier and keep up production, with a very short(maybe a couple of weeks) delay. This is vital, since Apple doesn't maintain that much inventory of new parts. The other benefit to this setup is that it allows Apple to almost instantly double their supply inputs for new product releases or for the holiday season. If necessary, Apple can use both suppliers to get 200,000 screens per week, then just rent a few warehouses for the temporary storage of new products or the holiday rush inventory.
forgottenpaswrd 15y ago
Just in time: http://en.wikipedia.org/wiki/Just_in_time_%28business%29 http://en.wikipedia.org/wiki/Just_in_time_%28business%29 Inventories are buffers, in an idealistic scenario(perfectly efficient) we don't need them. I order something, they make it and they give me instantly, no need to store it). In reality we need them, but Apple have very efficient logistics that make them minimal, compared with other companies, that can't control as much as the supply chain as Apple does, or can't use air planes to send their devices(so their products arrive weeks or months late, infuriating their customers). This is an oversimplification of course, there is way more about it, like demand-offer time lag problems, any operations research or logistic book will support you if you are interested.
- cousin_it 15y ago
  So to simplify even more, Apple doesn't have to maintain "large, profit-sapping inventories" because they can just force their suppliers to do that instead?
  - AllenKids 15y ago
    Yes and no. Some of the inventories translate in to parts and bolts sat in the warehouses of Apple's suppliers. But more of the inventory reduction comes from precise demand prediction and great control of the whole chain from production to delivery. In short, Apple works with its upstream suppliers to secure the ability to manufacture and transport then dispatch tens of millions of gadgets from scratch(read: silicon and aluminum) in weeks and maintain the quality and price point. So many things could go wrong and Apple would be left with nothing to sell. for example iPad's channel inventory is only 4-6 weeks deep, and that's for the big box retailers, for Apple's own brick and mortar store it's even less. It works for Apple instead of disastrous through unexpected manufacturing difficulties and natural disasters or accidents because of Tim Cook's ironclad control.
  - Game_Ender 15y ago
    No, you just have to work with your suppliers so they can produce at rates that match your anticipated demands. Toyota was one of the first companies to start this process decades ago: http://en.wikipedia.org/wiki/Toyota_Production_System http://en.wikipedia.org/wiki/Toyota_Production_System

by bravura 15y ago

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.
cube13 15y ago
The suppliers don't need that much of a warehouse, either. Let's assume that Apple is forecasting that 100,000 iPods per week will meet demand. They go to the supplier, and tell them that they need the screens delivered at 100,100 per week(assuming that a very high .1% of all screens are defective, after the supplier's QA). The supplier gets their factories producing around that number per week, and ships them out immediately. Apple takes them in, and immediately produces iPods with them, where they the go out to retail. This way, neither Apple nor the supplier need to keep more than a week's worth of stock. The reason that Apple keeps a similar deal with another supplier is if anything goes wrong with the other company. So in the previous example, if in week 5, Fukushima happened, and the first company was unable to keep production up, Apple could go to the other supplier and keep up production, with a very short(maybe a couple of weeks) delay. This is vital, since Apple doesn't maintain that much inventory of new parts. The other benefit to this setup is that it allows Apple to almost instantly double their supply inputs for new product releases or for the holiday season. If necessary, Apple can use both suppliers to get 200,000 screens per week, then just rent a few warehouses for the temporary storage of new products or the holiday rush inventory.

forgottenpaswrd 15y ago

Just in time: http://en.wikipedia.org/wiki/Just_in_time_%28business%29 http://en.wikipedia.org/wiki/Just_in_time_%28business%29 Inventories are buffers, in an idealistic scenario(perfectly efficient) we don't need them. I order something, they make it and they give me instantly, no need to store it). In reality we need them, but Apple have very efficient logistics that make them minimal, compared with other companies, that can't control as much as the supply chain as Apple does, or can't use air planes to send their devices(so their products arrive weeks or months late, infuriating their customers). This is an oversimplification of course, there is way more about it, like demand-offer time lag problems, any operations research or logistic book will support you if you are interested.

cousin_it 15y ago
So to simplify even more, Apple doesn't have to maintain "large, profit-sapping inventories" because they can just force their suppliers to do that instead?
- AllenKids 15y ago
  Yes and no. Some of the inventories translate in to parts and bolts sat in the warehouses of Apple's suppliers. But more of the inventory reduction comes from precise demand prediction and great control of the whole chain from production to delivery. In short, Apple works with its upstream suppliers to secure the ability to manufacture and transport then dispatch tens of millions of gadgets from scratch(read: silicon and aluminum) in weeks and maintain the quality and price point. So many things could go wrong and Apple would be left with nothing to sell. for example iPad's channel inventory is only 4-6 weeks deep, and that's for the big box retailers, for Apple's own brick and mortar store it's even less. It works for Apple instead of disastrous through unexpected manufacturing difficulties and natural disasters or accidents because of Tim Cook's ironclad control.
- Game_Ender 15y ago
  No, you just have to work with your suppliers so they can produce at rates that match your anticipated demands. Toyota was one of the first companies to start this process decades ago: http://en.wikipedia.org/wiki/Toyota_Production_System http://en.wikipedia.org/wiki/Toyota_Production_System