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Apple is actually probably the best example of a company taking a cost center (in this case, manufacturing and logistics) and turning it into a strategic advant

by exelius 12y ago

Apple is actually probably the best example of a company taking a cost center (in this case, manufacturing and logistics) and turning it into a strategic advantage. Apple wields its supply chain like a weapon. It's very difficult to compete with Apple because the world has a limited supply of high-quality parts (flash memory, LCD screens, etc.), and Apple can just outbid everyone else for the entire market supply for 6 months at a time and still make a profit thanks to their fat margins and high volumes. They've done the same thing with advanced manufacturing robots, and likely again with the metallurgy and large-scale 6-axis CNC manufacturing tools. The manufacturers of these devices can only make so many of them per year, and Apple just buys all of them. By the time the market catches up, Apple has moved on to monopolizing another factor of production for some new manufacturing process. This is why Tim Cook is CEO: he was the architect of their supply chain strategy which basically ensured nobody could build a phone at the same level as Apple. But he took what was once a pure cost center for Apple and turned it into the engine of their dominance. I can't say I've seen the same for customer support though. It's just not a strategic advantage in most industries because only a small percentage of your customers ever call in to support in the first place.

nostrademons 12y ago
Isn't Samsung the main supplier for many of the parts used in the iPhone? And that's the reason why a.) they're in the phone business and b.) they can dominate the Android market? They took the other side of those transactions so they could learn exactly what it took to build a mobile phone, and then once they had phone-building expertise, they just need to ramp up their own production and divert some to internal use to fuel their own smartphones.
- ptx 12y ago
  Samsung made phones long before the iPhone existed.
  - soperj 12y ago
    Downvoted for being right. Gotta love a zealot.
    - nostrademons 12y ago
      I didn't downvote either of you, but I didn't respond to either of your comments because they miss the point of mine. Yes, Samsung's been making phones forever. They have not been making smartphones forever. The iPhone was a fundamentally different product category from what phone manufacturers were doing before, requiring that competitors scrap a lot of what they were doing before [1]. And Samsung had a big leg-up in entering that product category by virtue of making many of the screens and chips used in the iPhone. [1] http://arstechnica.com/gadgets/2014/06/building-android-a-40000-word-history-of-googles-mobile-os/1/#milestone3 http://arstechnica.com/gadgets/2014/06/building-android-a-40...
      - cmrdporcupine 12y ago
        http://www.cnet.com/products/samsung-sch-i730-verizon-wireless/ http://www.cnet.com/products/samsung-sch-i730-verizon-wirele... 2005, 2 years before the iphone. And even called a smartphone in the review. Touch screen keyboardless iphone clone, no. But smartphone, yes. Apple didn't invent this category, they just changed it.
        hondo77 12y ago
        And it must have sucked or else people would have bought it in iPhone-like numbers. Apple changed the category by figuring it out.
        TheAnimus 12y ago
        I appreciate it's not a good way to start a conversation, but do you mind my asking how old you are? When the iPhone launched, people like me [0] couldn't really understand it. I was a top five percentile earner in the UK, but still new to that bracket having only recently left uni. I was used to mobile phones being expensive at £400 commitment, £1800 (Uk price with minimum O2 exclusive contract) was unbelievable to me. I made the mistake of looking at the original iPhone, and seeing something that was slow (no 3G), didn't have GPS (recently moved to London, I needed my GPS-maps!) and didn't support any third party applications. It was a joke. It sold buckets loads. The problem was before that mobile apps were a limited affair. We had things like google maps on smartphones, but not much effort went in. We had a few games, but no one was really pushing serious money in that direction. The iPhone became a fashion hit. It was the must have for the 20-something plus who could afford it, it was a status symbol because of price. Everything about it was worse than phones on the market, it took ages to make a call, writing a text took considerably longer. It simply didn't make sense as a phone. However it became a platform. Companies from all walks of life, some who hadn't really bothered to have a website suddenly needed an 'App' for their marketing team to be happy. This created such gravity, people thought that Android would never be able to compete. The internals of it were not really special at all, it was quite slow, the screen resolution awfully poor. It wasn't until the 4 addressed that last major concern I bought one. [0] - http://forums.hexus.net/iphone-ios/110525-iphone-demo.html#post1123168 http://forums.hexus.net/iphone-ios/110525-iphone-demo.html#p...
- exelius 12y ago
  Yeah, but the interesting part is that for a while, Samsung was the only manufacturer capable of producing LCD screens that met Apple's specs. Apple outbid Samsung's mobile division on those parts, so that resulted in a situation where the iPhone had better screens than the Galaxy, even though the iPhone's screen was manufactured by Samsung. AFAIK Samsung still manufactures Apple's mobile CPUs (likely under heavy NDA; like when accounting firms audit each other). But you're right, being such a critical component of Apple's supply chain has likely given Samsung inside knowledge of Apple's platforms. As a result, Apple has been diversifying their supply chain to avoid Samsung. I don't know that plays into their dominance of the Android market though. Samsung was already the top consumer electronics brand in the world prior to the release of the iPhone, so it's not surprising that would carry over into mobile phones. It was certainly a factor, though probably not a large one.
  - soperj 12y ago
    And yet they had to go back to Samsung for screens because no one else could really provide the quality & quantity that Samsung could.
    - exelius 12y ago
      Yeah; it's been a problem for them. Apple has been making strategic investments in these areas trying to create a healthier marketplace so they don't have to go to their biggest competitor to buy critical components. Fortunately, Samsung loves money more than it hates Apple.
  - ch4ck 12y ago
    LCD? Samsung used OLED for its top Galaxy devices since the day one. That was and is the main differentiator.
    - moogly 12y ago
      He probably means PLS. Apple used (uses?) Samsung displays for the iPad. Their phones have always used Sharp or LG displays, I believe.
- soperj 12y ago
  Except, you know, they've been building phones for far longer than Apple.
  - varjag 12y ago
    That's what Apple pixie dust does to people. I had people seriously arguing that Apple invented portable mp3 player with iPad too.
notsony 12y ago
> Apple wields its supply chain like a weapon...This is why Tim Cook is CEO: he was the architect of their supply chain strategy... Really? "From 2016, {Samsung] the company will supply 80 percent of APs used in Apple devices" http://www.koreatimes.co.kr/www/news/tech/2014/11/133_168259.html http://www.koreatimes.co.kr/www/news/tech/2014/11/133_168259... Let's call Tim Cook out for what he is. A former Dell middle manager who happened to be working the supply chain when China opened up to the world. Otherwise there must be a million supply chain geniuses out there who have also figured out how to place orders using cheap labor...
- dba7dba 12y ago
  AND may I add that Mr Cook caught Mr Steve's attention when Mr Cook arranged a deal with Samsung to ensure steady flow of RAM. This was when RAM shortage was causing severe issues for tech companies.
ArtDev 12y ago
"nobody could build a phone at the same level as Apple." People have to put their iphones in bulky cases because the screens break so easily. I have dropped my Samsung Note4 so many times, and it is fine (also, the charge lasts three days. Did I mention it is really fast too?).
- britknight 12y ago
  I think that by Apple's "level", the above comment was referring less to design elements and more to manufacturing processes that would not be feasible for a company operating at smaller scale. An article a while ago [1] had a list of examples, such as CNC milling at scale and laser drilled holes. [1]: https://medium.com/@BoltVC/no-you-cant-manufacture-that-like-apple-does-93bea02a3bbf https://medium.com/@BoltVC/no-you-cant-manufacture-that-like...
- clarky07 12y ago
  i haven't had a case on my iPhone in 6 years. the screens do not in fact break easily. some people are more clumsy than others. some just prefer to have a case for whatever reason. the same is true for android phones.
- ch4ck 12y ago
  My S4 fell less than 20 cm on the wooden floor and the screen cracked. I saw many Samsung made in Vietnam devices with horrible quality.
Scramblejams 12y ago
I remember reading an article about eMachines' turnaround. It said they put their customer support and product development teams together and tried to take every customer problem and turn it, wherever possible, into a product improvement to eliminate the given problem. They gave this concept a lot of credit for turning themselves around from being a bottom of the barrel PC vendor to becoming a retail powerhouse in the early 2000s, before they were acquired by Gateway. This isn't what I originally read, but there's an interesting publication here on the subject: http://www.pcic.merage.uci.edu/papers/2004/eMachines.pdf http://www.pcic.merage.uci.edu/papers/2004/eMachines.pdf
rogerbinns 12y ago
There is some more subtlety to this too. Apple's products (like most tech companies) are made by contract manufacturers, primarily Foxconn (Hon Hai Precision Industry). What Apple does different is to buy the equipment Foxconn needs to make the products. This means there is no financial risk in that equipment to Foxconn, and that Foxconn's other customers don't get to take advantage of the equipment. I highly recommend following http://www.asymco.com/ http://www.asymco.com/ where Horace Deidu does lots of analysis on the industry, with focus on Apple. Heck he can fairly accurately predict future Apple sales because of the capital expenditures mentioned in the previous paragraph http://www.asymco.com/2015/02/10/how-many-ios-devices-didwill-apple-ship/ http://www.asymco.com/2015/02/10/how-many-ios-devices-didwil...

by exelius 12y ago

nostrademons 12y ago

Isn't Samsung the main supplier for many of the parts used in the iPhone? And that's the reason why a.) they're in the phone business and b.) they can dominate the Android market? They took the other side of those transactions so they could learn exactly what it took to build a mobile phone, and then once they had phone-building expertise, they just need to ramp up their own production and divert some to internal use to fuel their own smartphones.

ptx 12y ago
Samsung made phones long before the iPhone existed.
- soperj 12y ago
  Downvoted for being right. Gotta love a zealot.
  - nostrademons 12y ago
    I didn't downvote either of you, but I didn't respond to either of your comments because they miss the point of mine. Yes, Samsung's been making phones forever. They have not been making smartphones forever. The iPhone was a fundamentally different product category from what phone manufacturers were doing before, requiring that competitors scrap a lot of what they were doing before [1]. And Samsung had a big leg-up in entering that product category by virtue of making many of the screens and chips used in the iPhone. [1] http://arstechnica.com/gadgets/2014/06/building-android-a-40000-word-history-of-googles-mobile-os/1/#milestone3 http://arstechnica.com/gadgets/2014/06/building-android-a-40...
    - cmrdporcupine 12y ago
      http://www.cnet.com/products/samsung-sch-i730-verizon-wireless/ http://www.cnet.com/products/samsung-sch-i730-verizon-wirele... 2005, 2 years before the iphone. And even called a smartphone in the review. Touch screen keyboardless iphone clone, no. But smartphone, yes. Apple didn't invent this category, they just changed it.
      - hondo77 12y ago
        And it must have sucked or else people would have bought it in iPhone-like numbers. Apple changed the category by figuring it out.
        TheAnimus 12y ago
        I appreciate it's not a good way to start a conversation, but do you mind my asking how old you are? When the iPhone launched, people like me [0] couldn't really understand it. I was a top five percentile earner in the UK, but still new to that bracket having only recently left uni. I was used to mobile phones being expensive at £400 commitment, £1800 (Uk price with minimum O2 exclusive contract) was unbelievable to me. I made the mistake of looking at the original iPhone, and seeing something that was slow (no 3G), didn't have GPS (recently moved to London, I needed my GPS-maps!) and didn't support any third party applications. It was a joke. It sold buckets loads. The problem was before that mobile apps were a limited affair. We had things like google maps on smartphones, but not much effort went in. We had a few games, but no one was really pushing serious money in that direction. The iPhone became a fashion hit. It was the must have for the 20-something plus who could afford it, it was a status symbol because of price. Everything about it was worse than phones on the market, it took ages to make a call, writing a text took considerably longer. It simply didn't make sense as a phone. However it became a platform. Companies from all walks of life, some who hadn't really bothered to have a website suddenly needed an 'App' for their marketing team to be happy. This created such gravity, people thought that Android would never be able to compete. The internals of it were not really special at all, it was quite slow, the screen resolution awfully poor. It wasn't until the 4 addressed that last major concern I bought one. [0] - http://forums.hexus.net/iphone-ios/110525-iphone-demo.html#post1123168 http://forums.hexus.net/iphone-ios/110525-iphone-demo.html#p...
exelius 12y ago
Yeah, but the interesting part is that for a while, Samsung was the only manufacturer capable of producing LCD screens that met Apple's specs. Apple outbid Samsung's mobile division on those parts, so that resulted in a situation where the iPhone had better screens than the Galaxy, even though the iPhone's screen was manufactured by Samsung. AFAIK Samsung still manufactures Apple's mobile CPUs (likely under heavy NDA; like when accounting firms audit each other). But you're right, being such a critical component of Apple's supply chain has likely given Samsung inside knowledge of Apple's platforms. As a result, Apple has been diversifying their supply chain to avoid Samsung. I don't know that plays into their dominance of the Android market though. Samsung was already the top consumer electronics brand in the world prior to the release of the iPhone, so it's not surprising that would carry over into mobile phones. It was certainly a factor, though probably not a large one.
- soperj 12y ago
  And yet they had to go back to Samsung for screens because no one else could really provide the quality & quantity that Samsung could.
  - exelius 12y ago
    Yeah; it's been a problem for them. Apple has been making strategic investments in these areas trying to create a healthier marketplace so they don't have to go to their biggest competitor to buy critical components. Fortunately, Samsung loves money more than it hates Apple.
- ch4ck 12y ago
  LCD? Samsung used OLED for its top Galaxy devices since the day one. That was and is the main differentiator.
  - moogly 12y ago
    He probably means PLS. Apple used (uses?) Samsung displays for the iPad. Their phones have always used Sharp or LG displays, I believe.
soperj 12y ago
Except, you know, they've been building phones for far longer than Apple.
- varjag 12y ago
  That's what Apple pixie dust does to people. I had people seriously arguing that Apple invented portable mp3 player with iPad too.

notsony 12y ago

> Apple wields its supply chain like a weapon...This is why Tim Cook is CEO: he was the architect of their supply chain strategy... Really? "From 2016, {Samsung] the company will supply 80 percent of APs used in Apple devices" http://www.koreatimes.co.kr/www/news/tech/2014/11/133_168259.html http://www.koreatimes.co.kr/www/news/tech/2014/11/133_168259... Let's call Tim Cook out for what he is. A former Dell middle manager who happened to be working the supply chain when China opened up to the world. Otherwise there must be a million supply chain geniuses out there who have also figured out how to place orders using cheap labor...

dba7dba 12y ago
AND may I add that Mr Cook caught Mr Steve's attention when Mr Cook arranged a deal with Samsung to ensure steady flow of RAM. This was when RAM shortage was causing severe issues for tech companies.

ArtDev 12y ago

"nobody could build a phone at the same level as Apple." People have to put their iphones in bulky cases because the screens break so easily. I have dropped my Samsung Note4 so many times, and it is fine (also, the charge lasts three days. Did I mention it is really fast too?).

britknight 12y ago
I think that by Apple's "level", the above comment was referring less to design elements and more to manufacturing processes that would not be feasible for a company operating at smaller scale. An article a while ago [1] had a list of examples, such as CNC milling at scale and laser drilled holes. [1]: https://medium.com/@BoltVC/no-you-cant-manufacture-that-like-apple-does-93bea02a3bbf https://medium.com/@BoltVC/no-you-cant-manufacture-that-like...
clarky07 12y ago
i haven't had a case on my iPhone in 6 years. the screens do not in fact break easily. some people are more clumsy than others. some just prefer to have a case for whatever reason. the same is true for android phones.
ch4ck 12y ago
My S4 fell less than 20 cm on the wooden floor and the screen cracked. I saw many Samsung made in Vietnam devices with horrible quality.

Scramblejams 12y ago

I remember reading an article about eMachines' turnaround. It said they put their customer support and product development teams together and tried to take every customer problem and turn it, wherever possible, into a product improvement to eliminate the given problem. They gave this concept a lot of credit for turning themselves around from being a bottom of the barrel PC vendor to becoming a retail powerhouse in the early 2000s, before they were acquired by Gateway. This isn't what I originally read, but there's an interesting publication here on the subject: http://www.pcic.merage.uci.edu/papers/2004/eMachines.pdf http://www.pcic.merage.uci.edu/papers/2004/eMachines.pdf

rogerbinns 12y ago

There is some more subtlety to this too. Apple's products (like most tech companies) are made by contract manufacturers, primarily Foxconn (Hon Hai Precision Industry). What Apple does different is to buy the equipment Foxconn needs to make the products. This means there is no financial risk in that equipment to Foxconn, and that Foxconn's other customers don't get to take advantage of the equipment. I highly recommend following http://www.asymco.com/ http://www.asymco.com/ where Horace Deidu does lots of analysis on the industry, with focus on Apple. Heck he can fairly accurately predict future Apple sales because of the capital expenditures mentioned in the previous paragraph http://www.asymco.com/2015/02/10/how-many-ios-devices-didwill-apple-ship/ http://www.asymco.com/2015/02/10/how-many-ios-devices-didwil...