Apple’s Aggregate Planning and MRP

Apple considered as one of the most revolutionary companies known for bringing most
innovative and radical products for its customers. As much as company has achieved success
both in popularity and financially, apple employs very secretive production processes and very
few senior managers are aware of the developments going on while product launch.

Another major aspect of Apple is that they have very few products being produced on assembly
line in China. So, it is much easier to manage for managers to review and take decisions fast. It is
this secretive process of design, production and launch which creates a big hype among all the
apple fans, thus even encourages the company executives for keeping the process even more
secretive. It is because of this there have been instances where some of the apple product designs
get in the hand of journalists and gets leaked to public. So, in wake of these events company has
very strict policy with regard to maintaining the secrecy of ongoing projects development to the
extent that they can create physical barriers between teams so that there is no communication.

Based on the ranking from Gartner, Apple is the top of supply chain excellence, followed by
McDonald and Amazon. At least 97% of Apple’s procurement expenditures for materials,
manufacturing and assembly of products are finished worldwide in 2013. In 2012, Apple sold
approximately 120 million iPhones, 60 million iPads, 35 million iPods and 15 million Macs.
None of these iPhones were produced in the US, expect vital components, and nearly 85% were
assembled in China.

Why Apple obsessed to outsource its production line to other countries, especially in Asia? Steve
Jobs once claimed that it was not because of the cheap labor in Asian countries, but those
factories could produce much faster with quite a large scale and flexibility. One of Apple’s well-
known suppliers is Foxconn, which is a Taiwan company. They can produce thousands of
iPhones each day with relatively lower cost of labors. Apple also found another supplier,
Pegatron which is also a Taiwan company, to produce iPad and some versions of iPhone. Apple
has already had so much outsource suppliers, why the scales of suppliers still keep increasing?
Not only is Apple sourcing most of its assembly jobs from China, many of its iPhone parts -
including its screen, glass polishing, speakers and vibration unit - come from rare Earth minerals
that mostly come from China.

Following are the lines regarding Suppliers, written on its official website, which in itself acts as
testimony to the kind of control apple exercises over its suppliers: ‘Apple requires each of its
suppliers to meet the highest standards for all goods and services. Our requirements include a
commitment to rigorous quality assurance. In addition, suppliers must be committed, as we are,
to ensuring the highest standards of social responsibility.

The ideal suppliers are those who understand our culture and expectations. We value suppliers
who take the time to learn about and understand our business and who look for ways to add
value. These suppliers know the importance of making and meeting commitments and delivering
the highest quality goods and services.

Our business environment is competitive and fast-paced. Our suppliers must understand this
dynamic and be agile and flexible in responding to changing business conditions. Above all,
Apple values innovation. We appreciate suppliers who truly understand and share in our
challenges, and who help us find the best possible solutions.’

In 2012 alone, Apple sold more than 120 million iPhones, 60 million iPads, 35 million iPods, 15
million Macs – staggering numbers, to say the least. The success of the world’s biggest
technology company has come on the back of a robust supply chain network. Foxconn, a
Taiwanese company, is one of its strategic supply partners that churn out tens of thousands of its
flagship products each day. Manufacturing for Apple isn’t easy. Sales estimates are difficult to
forecast, and for such complex products, the time to market is extremely short. As Apple needed
Foxconn and Foxconn needed Apple, the relationship was mutually beneficial. It was a fine
example of procurement playing an instrumental role in managing growth.

Recently, news surfaced that Apple is planning to award more business to a relatively unknown
company called Pegatron. This company already manufactures iPad Minis and some versions of
the iPhone. It is perceived as a step towards achieving better stability in Apple’s supply chain.
 Though the jury is still out on the success of such a move, it nevertheless provides some pointers
on the procurement’s alignment with overall organizational goals.
 Risk Diversification: Many analysts feel that the motivation behind the addition of a new
supplier is to diversify supply chain risks. A bulging product portfolio, burgeoning growth from
the much anticipated “cheaper” iPhone, increasing design complexities and ever decreasing time
to market necessitate frequent revisits to supply chain strategy and supply partners. Addition of a
new supplier will provide a greater flexibility and Apple can react faster to supply chain
disruptions, should they arise. As a result of its strong commitment towards safe and ethical
manufacturing practices, Apple needs to be in a position to sever ties with any supplier that
doesn’t comply with its Code of Conduct. It doesn’t mean non-compliance from Foxconn but a
mere option to exercise—if needed.
 Capacity Management: Apple has a history of competing with multiple companies across the
value chain. Unlike Google, Apple cannot afford the luxury of working with multiple handset
partners such as Motorola, Samsung, LG, etc. Since Apple’s proprietary OS is closely linked to
its hardware design, it needs to manage handset capacity issues as well. To succeed in emerging
markets such as China and India (one the world’s largest user base), Apple needs to ramp up its
production capacity rather quickly. Having a second supplier will ease some of the capacity
constraints and help Apple focus on its core business – developing groundbreaking technologies.
 Margins sustenance: With the advent of Android and successful market penetration of Samsung
and other competitors, Apple is planning to introduce stripped down versions of its flagship
products at reduced prices to increase market share. Increasing freight costs, both due to market
pressures and Apple’s product choices, do not help either. To maintain the high levels of
profitability as the company embarks on the next phase of growth, it needs its suppliers to help
reduce costs. Positioning Pegatron as a reliable supplier will help Apple gain strong bargaining
leverage. Given the steep manufacturing learning curve that Apple has gained in the last five
years, it will be relatively easier to replicate these manufacturing practices for its simpler and
cheaper products – at a relatively lower cost.
 Supplier Innovation: A new supplier will also be more willing to invest in capital to fund
growth as opposed to a long serving incumbent who may have reservations on the returns on
such an investment. In order to increase its share of Apple’s business, Pegatron may strive to
improve operational efficiencies in an effort to differentiate itself from its competitor. As a
customer, Apple will stand to gain from such an arrangement.

After coming of Tim Cook to Apple, he reduced the number of strategic global suppliers to
meager 156, thus making the management of these vendors easier and in general of the complete
supply chain. This kind of aggregate planning practice by Tim Cook actually put Apple one of
the best supply chain management companies globally. What Cook also did was giving out
contracts of longer durations, thus putting more terms for vendors and reducing the prices of
crucial components.

Material requirement Plan (MRP):

Material Requirements Planning (MRP) is a computer-based production planning and inventory
control system. MRP is concerned with both production scheduling and inventory control. It is a
material control system that attempts to keep adequate inventory levels to assure that required
materials are available when needed. MRP is applicable in situations of multiple items with
complex bills of materials. MRP is not useful for job shops or for continuous processes that are
tightly linked. The major objectives of an MRP system are to simultaneously: 1. Ensure the
availability of materials, components, and products for planned production and for customer
delivery, 2. Maintain the lowest possible level of inventory, 3. Plan manufacturing activities,
delivery schedules, and purchasing activities. MRP is especially suited to manufacturing settings
where the demand of many of the components and subassemblies depend on the demands of
items that face external demands. Demand for end items are independent. In contrast, demand for
components used to manufacture end items depend on the demands for the end items. The
distinctions between independent and dependent demands are important in classifying inventory
items and in developing systems to manage items within each demand classification. MRP
systems were developed to cope better with dependent demand items. The three major inputs of
an MRP system are the master production schedule, the product structure records, and the
inventory status records. Without these basic inputs the MRP system cannot function. The
demand for end items is scheduled over a number of time periods and recorded on a master
production schedule (MPS). The master production schedule expresses how much of each item is
wanted and when it is wanted. The MPS is developed from forecasts and firm customer orders
for end items, safety stock requirements, and internal orders. MRP takes the master schedule for
end items and translates it into individual time-phased component requirements. The product
structure records, also known as bill of material records (BOM), contain information on every
item or assembly required to produce end items. Information on each item, such as part number,
description, quantity per assembly, next higher assembly, lead times, and quantity per end item,
must be available. The inventory status records contain the status of all items in inventory,
including on hand inventory and scheduled receipts. These records must be kept up to date, with
each receipt, disbursement, or withdrawal documented to maintain record integrity. MRP will
determine from the master production schedule and the product structure records the gross
component requirements; the gross component requirements will be reduced by the available
inventory as indicated in the inventory status records. Because of very high secrecy measures
taken by apple, it was not possible for us to find the MRP for Apple products.

References-

R.S. Russell, B.W. Taylor III , Operations Management: creating value along the supply chain,
Wiley 7 th edition

https://www.apple.com/procurement/

http://spendmatters.com/2013/06/04/apples-procurement-strategy/

http://cmuscm.blogspot.in/2014/09/apples-sourcing-strategy.html

http://www.strategicsourceror.com/2013/08/how-apple-and-google-differ-in.html

http://www.columbia.edu/~gmg2/4000/pdf/lect_06.pdf