Apple and GTAT, and Is Apple’s Supply Chain Management REALLY That Great?

My colleague Pierre Mitchell at Spend Matters US wrote an excellent article recently about the issues around Apple and GTAT. That supplier makes sapphire manufacturing equipment and had hoped also to sell some special sapphire glass made from its most advanced equipment to Apple for their latest iPhone and iPads.

Unfortunately, the business didn’t happen, and GTAT has filed for Chapter 11 bankruptcy protection, which means it can re-organise and continue in business. But plants in the US will close and people will lose their jobs. There are now claims and counter claims around the contractual situation between the firms, whether GTAT failed to meet its obligations or Apple promised work that didn’t materialise, and the lawyers are licking their lips in anticipation of happy and lucrative days.

Pierre provides a great analysis of this, first of all in terms of a summary of what happened. But then, perhaps even more usefully, he draws some lessons to be noted from this for anyone in procurement and supply chain. For instance, here are just three of his nine powerful points.

  • You have to manage strategic relationships strategically. If you manage your strategic suppliers like commodity suppliers without dealing with inherent complexity/risk of this type of relationship, it’s only a matter a time before you’ll get burned.
  • As a related point, you can’t completely make the supply chain risk free. Apple wanted the benefits of a captive, exclusive manufacturing process, but without the risk. Yes, Apple had to invest, but hoped to protect itself through onerous contract clauses. Shame on GTAT for accepting the risk. As the GTAT legal team said, “Our management foolishly accepted oppressive and burdensome terms and obligations – so now we are trying the Chapter 11 route to escape the noose we placed around our own necks.” But shame on Apple for letting this hungry supplier set itself up (and Apple) for failure.
  • Increase your supplier monitoring (and enablement) activities when things start to go awry. I’m not sure why the supplier manager responsible for GTAT wasn’t getting more scrutinized and raising the alarm bells. Unfortunately, supplier management is a process that is not well invested in relative to sourcing activities. Based on an SRM study I led a few years ago, top SRM performers invest nearly 3 times the amount per strategic suppliers than their peers.

It’s really great advice and well worth reading – see the whole article here. And one final point. Pierre makes a passing comment at the end:

Anyway, I’m not writing this article to bash Apple’s supply chain, although I always do a bit of an eye roll on many of the supply chain rankings where Apple scores so highly. Any large firm like Apple has likely experienced something like this – even if at a much smaller scale.

That brings to mind something I’ve always wondered about. Every survey shows Apple as top of the procurement or supply chain excellence rankings. But I have always had a suspicion that they are top because the firm is so successful and therefore people assume their supply chain management must be great. But maybe they are successful for very different reasons, not great supply chain management – it is a question of cause and effect really isn’t it? I bet Tesco were topping the supply chain surveys when they were number 1 in UK retail and steaming ahead – now suddenly everyone thinks their procurement approach was a key cause of their crash!

We might come back to this point, but do ask yourself next time you see a ranking – is this really the “best firms in supply chain” or just a list of the “best firms” in some much wider, generic sense?

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