(i) Apple has built a closed ecosystem with a direct influence on all aspects of supply chain from design to retail store.
(ii) Large volumes allow Apple to negotiate big discounts of parts, manufacturing capacity, and air freight.
(iii) Operations expertise enables Apple to handle massive product launches without having to maintain large inventories.
(iii) The overall supply chain competence helps Apple to create a competitive pricing for its iPad and still earn a 25 percent margin.
(iv) Supply chain expertise provides Apple to enter into new territories (e.g. the planned entry into television market by 2013)
(v) The focus on supply chain competence began in 1997 when Steve Jobs returned to Apple. Instead of choosing the cheaper option of transportation (ocean freight), Apple paid $50 million to buy up all the available holiday air freight space to ensure that the company's translucent blue iMacs would be widely available by Christmas the following year. This move handicapped rivals such as Compaq who later wanted to book air transport.
(vi) Similar transportation strategy was adopted when iPod took off in 2001. Apple found it more economical to ship iPods directly from Chinese factories to consumers' doors.
(vii) The approach of spending exorbitantly wherever necessary and reaping the benefits from greater volume in the long run is institutionalized throughout Apple's supply chain, and begins at the design stage.
(viii) Apple's design guru Jony Ive and his team sometimes spend months living out of hotel rooms in order to be close to suppliers and manufacturers, helping to tweak the industrial processes that translate prototypes into mass produced devices. For instance, for new designs such as MacBook's unibody shell, cut from a single-piece of aluminum, Apple's designers work with suppliers to create new tooling equipment.
(ix) The company gains tremendous advantage from its strategy of focusing on a few product lines, and to do little in the way of customization.
(x) Apple has more than $80 billion in cash and investments. It plans to nearly double capital expenditures on its supply chain in the next year, to $7.1 billion, while committing another $2.4 billion in prepayments to key suppliers. This tactic ensures availability and low prices for Apple and sometimes limits the option for everyone else. For instance, before the release of iPhone 4 in June 2010, rivals such as HTC couldn't buy as many screens as they needed because manufacturers were busy filling Apple's orders. To manufacture the iPad 2, Apple bought so many high-end drills to make the device's internal casing that other company's wait time for the machines stretched from six weeks to six months.
(ix) Apple expects its suppliers to provide a detailed accounting of how the manufacturer arrived at a certain price quote. The supplier is also expected to provide details regarding the estimates for material and labor costs, and its own projected profit.
(xii) Apple requires many key suppliers to keep two weeks of inventory within a mile of Apple's assembly plants in Asia.
(xiii) Sometimes Apple doesn't pay until as long as 90 days after it uses a part.
(xiv) For weeks in advance of the announcement of a new launch, factories work overtime to build hundreds of thousands of devices. To track efficiency and ensure pre-launch secrecy, Apple places electronic monitors in some boxes of parts that allow observers in Cupertino to track them through Chinese factories. 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.
(xv) Apple's retail stores also provide an important supply chain advantage. Once a product goes on sale, the company can track demand by the store and by the hour, and adjust production forecasts daily. If the company realizes that a given part wil run out of stock, teams are deployed and given approval to spend millions of dollars on extra equipment to get around the bottleneck.
(xvi) The supply chain competence enabled Apple to earn gross margins of 40% in the third quarter of 2011, when most other hardware companies were only able to achieve 10-20% gross margins.
Source: Satariano, A. and Burrows, P. 2011. Apple's supply chain secret? Hoard Lasers. Bloomberg Businesweek, November 7 - November 13,