Apple's Risky iPod Supply Chain

Over on BCP Confidential, a Ziff David blog, Nathaniel Forbes offers a great example of why companies cannot afford to ignore global supply risk. In his post, Forbes poses the question: "Could a typhoon in Manila affect what teenagers in Minneapolis find in their Christmas stockings? I sure think so." And he's right. Forbes goes onto explain how the Philippines is a hub of high tech manufacturing for a range of components and assemblies that go into technology gadgets such as Apple's iPod. He then drills down on the Apple's supply chain for 1.8 inch disk drives that are a key component in iPods. It turns out that Apple's two suppliers for these parts are competitors located in the same neighborhood.

Now this might not be such a bad thing if there were not such an array of geographic risk elements built into the regional sourcing equation. What types of risk? Well, try an active volcano located less than 20 miles away, proximity within an earthquake zone (which makes San Francisco’s seismic activity look tame), and the very real threat of tropic storms and typhoons. And that's not even considering that the area around the plants is "subject to regular flooding from storm water, blocking ingress of people and egress of goods ... [the factories] even sends people home early when a serious storm is forecast, because of the risk that the roads will be impassable."

I won't steal the rest of Forbes' supply risk thunder. So read the rest of his post for yourself, as the detail on the suppliers' inventory levels and buffer stock are even more shocking. Needless to say, Apple's iPod supply chain comes away looking quite risky indeed -- there's certainly nothing nano about it! One wonders if Apple even considered the concept of supply risk before deciding to conduct a dual-source strategy from 2 competitors located less than a mile of part in one of the most geographically unstable parts of the world. My guess is probably not. They're too busy expanding the marketing budget and trying to get the darn things even smaller.

Jason Busch

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