Apple's Secretive Supply Chain Succeeds Again

Over on Supply Chain Matters, Bob Ferrari recently penned a useful round-up of Apple’s recent quarter and how its supply chain played yet another critical role driving overall earnings and shareholder returns. Bob writes that “beyond the quarterly financials is yet another incredible demonstration of supply chain fulfillment capability … combined unit shipments equate to a total of 10.0 million total units sold, reflecting an average of 277,000 units of daily sales output.” Translation: “Every day, Apple has been selling over a quarter million end-item products, and the company’s value-chain processes continue to consistently rise to the challenge.”

Despite this growth, Apple is doing more than almost anyone in its class to increase inventory turns and reduce working capital requirements. To this end, “Whether by design or shortage, Apple reduced its overall inventory levels by $125 million over the nine months from September to June. The company had an average of 39 inventory turns, and by my calculation, just less than 7 days of inventory sales outstanding.” In Bob’s words, this represents “a true reflection of running a lean and continuous replenishment of supply. In other words, if you visit your local Apple store or retailer, and you don’t find what you want, chances are good that you might find it again in a week.”

Despite these supply chain successes, Apple remains an enigma when it comes to disclosing its secret sauce, refusing to “to boast or allow disclosure of the specifics related to their supply chain business processes,” as Bob notes. In marked contrast to Dell, IKEA and others, who have broadcasted many of their supply chain specifics loud and wide to all who would listen in the past, Apple is keeping things close to the touch screen so to speak. But might this be a mistake? Just as Amazon and Zappos individually began to offer supply chain capabilities as a service even before their announced merger, might Apple benefit from helping other high tech companies and manufacturers capitalize on its knowledge?

The margin for such services is no doubt high, but perhaps not at the same level as the iPhone 3GS. Still, once a company begins to compete as much on its supply chain as its products -- at least from a shareholder perspective -- one has to wonder about else it could be doing to capitalize on one of its core assets.

Jason Busch

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