Lessons in Supplier Development: The Apple Watch

Spend Matters is pleased to feature this guest post by Mickey North-Rizza, VP Strategic Solutions at BravoSolution.

April 24, 2015, marks the release of the long-awaited Apple Watch. The hype around this new product is quickly gaining momentum and shipments are expected to reach 4.8 million units in Q1 and up to 9 million in Q2. These high projections could have some serious ramifications for the supply chain, especially since Quanta Computer is said to be the sole manufacturer of the watch. In light of these factors, significant supply and demand issues are expected.

Supply/Demand Issues On Tap?

As an example, Cowen & Co. semiconductor analyst Timothy Arcuri wrote that based on conversations in Asia in early March with a number of parties, Apple will be supply-constrained for the first batch of the Apple Watch. Of course, Apple is working with suppliers to increase capacity and supply, and a secondary manufacturer, such as Foxconn, may be introduced. These are typical supplier development activities – ramping up products produced, working through yield, capacity and product component issues, plus initializing secondary suppliers. Of course, all of this comes with a risk – will the market demand stay as forecast, become stronger or even weaken? The current forecast and stronger aspects will generate more demand on the entire supply chain, necessitating the need for continued supplier development. Weaker demand will mean excess materials, capacity and supplier concerns.

Apple obviously has great practices in new product design, development and introduction, or the demand for the products wouldn’t be so great. The Apple Watch commercials themselves leave one wondering what is coming and how great the product will be. The marketing is definitely working and creating a buzz that appears to be increasing demand.

4 Aspects of Supplier Development for Apple Watch Success

The supply base must be tied to both the success of the new product and Apple itself to also reap the rewards. Supplier development activities have major importance for new product releases, especially for new designs that are changing the way a market is configured. The Apple Watch is one such new product and with it comes many aspects of supplier development:

  1. Supplier development is crucial for suppliers to meet critical design requirements. Aiding suppliers as they configure, build and test the Apple Watch will help eliminate redundant activities, improve yields and reduce manufacturing errors.
  2. The most economical version of Apple Watch will cost around $350 for a sports model, and go up to $17,000 for an 18-karat gold edition. This means configuration for various watch types will be extremely important to meet demand. To reduce the prospect of too much inventory of the wrong types, Apple will configure the watch models late in the production process. This latency approach allows Apple to customize to the model at the very end of the production process without compromising total volume of watches produced.
  3. As suppliers ramp up from pilot to production quantities, there are typically more problems that arise. Certain components may have supply issues with smaller-than-required production yields, material shortages may occur, or product-testing issues need to be addressed. Supplier development teams can help reduce these problems and solve the underlying issues quickly when working closer with the suppliers.
  4. Once suppliers start producing at a product quantity, the products will begin shipping to demand sites – retailers that will sell the products or from Apple inventory locations. This shipping ability and various order processes will also be tested to ensure availability and requirements are met as needed.

No pun intended, but watch for the Apple Watch release date, demand, order and shipment cycles to meet the initial requirements. Any faltering will impact Apple and their supply base. Apple is smart, and they have perfected their supplier development activities in the APAC region. Hopefully this proven model will help Apple continue to deliver new high quality and volume products, reaping great rewards for Apple and the supply base.

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