Apple Supply Chain

Agility to Compete in fast-pace high-tech innovative

industry

Firdaus Alamsjah, Ph.D.

Lessons from One of the Largest Indonesia Retailers
During Pandemic: Be Agile!

March 2020 April 2020 May 2020

• Panic Buying Mode • WFH Mode • Puasa

• Buy more to stock up
• Hand sanitizer • Instant noodle • Instant noodle, use
• Masker • Cook from Home unfamiliar brands
• Sabun requires MORE saos, • Cook from Home: saos,
• Cleaner kecap, sambel, roti kecap, sambel, roti
• Disinfectants tawar, selai tawar, selai
• Vitamins • Vitamins

• Snacks • Roti isi • Roti isi

• Cold beverages • Secondary and Tertiary • Secondary and Tertiary
• Ice cream products products
• Lead to cough and cold

2
 Be Aware of Bullwhip Effects:
Small Changing in retailer will be big changing in manufacturers

Be Aware of
Bullwhip Effect % Increase?
Bullwhip Effect

Different machine

Innovation Tiada akar rotanpun berguna

is a Wangi Cemara vs. kill germs
MUST
INNOVATIVENESS!!
3
 Lessons from Indonesia Largest FMCG: Agility
Agility
Respond to short-term
Strategy changes in demand or supply
quickly; handle external
36 Months
• Business
• Supply 1-3 mos disruptions smoothly.
Chain

Information Integration
Suppliers, Mfg, Dist., Retailers

3
4 1
2
5 Innovation
Tiada akar rotanpun
berguna

Get Ready for

Digital Transformation
Justify the payback
4
Apple Developer Academy at BINUS

The Academy Graduation Day on March 12, 2019

 Economic Profit in SCM
Revenue Customer service levels

Net Operating
Profit After Taxes
_ Transportation costs

(NOPAT) Warehousing costs

Expenses Lot quantity costs

Information systems costs

Economic _ Non cost of money components

Profit of inventory carrying costs

Inventory
Working
capital
Accounts receivable
Capital
charge = Cost of
capital x + Equipment/vehicles

Fixed Land/facilities (owned)

assets

Equipment/facilities (leased)

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 What is the Right Supply Chain for
Your Product?
Responsive

Deployed inventory
Flexible suppliers
Fast Response
Low T/P time
Match

SC Strategy
Min. inventory
Low cost suppl
High Utilization
Low cost

Match

Cost efficient
Product characteristics
Functional Innovative
Predictable Unpredictable
Few Changes Many changes
Low variety High veriety Source: Marshall L. Fisher,”What is the Right
Price stable Price markdown Supply Chain for Your Product?”, Harvard
Low lead time Short lead time Business Review, 1997
Low Margin High margin
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 World-class Supply Chain: Wal-Mart

CROSS-DOCKING Everyday Low

Warehouse as inventory Price…
coordination points (less than
12 hours), not storage points CROSS-DOCKING, Requirements:
Wal-Mart 85%, K-Mart 50%* • Needs advanced IT
• Fast and responsive transportation
system
W1 • Forecasts are critical and shared
• Only effective for large distribution
Uniliver W2
systems to guarantee enough volume
P&G to allow fully loaded shipments
W3
PaperOne
W4

W5 Fortune 500 (2007 Global 500)

Company Revenue Profit
W6 1. Wal-Mart 351,139 11,284 (1)
2.Target 59,490 2,787 (2)
Unilever
3. Sears 53,012 1,490 (3)
P&G Wn
Real-time Information 8. Mark & Spcr 16,267 1.248 (4)
Sony

*Source: Stalk, G et al., “Competing on Capabilities: The New Rules of Corporate Strategy.” Harvard Business Review, 1992
 World-class Supply Chain: Dell Computers

Call Center
Website
Build-to-order
• Background, example: 5 models, 10
drives, 10 monitors, 2 colors à 1,000
configurations
Uniliver
• BTO: Build when the order comes in
P&G
PaperOne

Fortune 500
Company Revenue Profit
Hard Drive Austin, USA 1. HP 91,658 6,198 (2)
Monitor Penang,MAL FedEx 2. IBM 91,424 9,492 (1)
Software UPS 3. Dell 57,095 2,614 (4)
6. Canon 35,727 3,913 (3)

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 How the Supply Chain Decisions
Impact Strategy
Supply Chain Low-Cost Strategy Response Strategy Differentiation Strategy
Decisions (PaperOne, Asian Agri, Pertamina) (Polytron) (Zara, World)

Respond quickly to changing

Supply demand at the lowest Share market research; jointly
Supplier’s Goal requirements and demand to
possible cost develop products and options
minimize stockouts

Select primarily for product

Primary Selection Criteria Cost Capacity, speed, and flexibility
development skills

Invest in excess capacity and Modular processes that lend

Process Characteristics Maintain high average utilization
flexible processes themselves to mass customization

Develop responsive systems, with

Minimize inventory throughout Minimize inventory in the chain to
Inventory Characteristics buffer stocks positioned to ensure
the chain to hold down costs avoid obsolescence
supply
Lead-Time Shorten lead time as long as it Invest aggressively to reduce Invest aggressively to reduce
Characteristics does not increase costs production lead time development lead time

Use product designs that lead to Modular design to postpone

Product-Design Maximize performance and
low setup time and rapid product differentiation for as long
Characteristics minimize cost
production ramp-up as possible

Source: Marshall L. Fisher,”What is the Right Supply Chain for Your Product?”, Harvard Business Review, 1997

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13
Sales of iPhone 2007Q3 - 2014Q1

iPhone5S, 5C

iPhone4S

iPhone4

iPhone3G
iPhone1
List of the Largest IT Companies
Compare between Apple
and Samsung Electronics
• Product variants
• Profitability

Samsung
Metrics Apple
Electronics
Fortune Global
11 12
Ranking 2018
Revenue ($M) 229,234 211,940

Profit ($M) 48,351 36,575

Profit/Revenue 21% 17%

Source: Fortune 500

Supply Chain Rankings by Gartner Group
2.8 25.2 91.3
 Perbandingan Kimia Farma dan Kalbe Farma
KIMIA FARMA KALBE FARMA
Financial Metrics 2018 2017 2018 2017
Net Sales 7,454,114,741,189 6,127,479,369,403 21,074,306,186,027 20,182,120,166,616
Cost of Goods Sold 4,673,936,445,914 3,925,599,724,290 11,226,380,392,484 10,369,836,693,616
Inventories 1,805,736,012,012 1,192,342,702,145 3,474,587,231,854 3,557,496,638,218
Inventory Turn (COGS/ INV) 2.6 3.3 3.2 2.9
Days of Inventory (DOI = 365/ITO) 141 111 113 125
Piutang Pihak Ketiga 736,771,582,922 848,656,201,775 3,230,855,504,419 2,851,855,047,281
Piutang Related Parties 116,990,851,398 81,343,855,030 24,689,355,369 24,562,301,353
Total Receivables 853,762,434,320 930,000,056,805 3,255,544,859,788 2,876,417,348,634
Days of Receivables, DOR = AR / sales) x 365) 42 55 56 52
Utang Usaa Pihak Ketiga 1,177,242,956,546 843,751,139,064 1,214,689,608,252 1,040,508,502,669
Utang Usaha Pihak Berelasi 12,252,040,420 35,457,019,096 75,208,161,202 68,042,882,218
Total Payable 1,189,494,996,966 879,208,158,160 1,289,897,769,454 1,108,551,384,887
Days of Payable, DOP = (AP/COGS) x 365 93 82 42 39
Cash to Cash Conversion = DOI + DOR - DOP 90 85 127 138

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Lean Supply Chain towards Efficient Supply
Chain

Reduce
Supplier lead time inventory
Customer fulfillment
Number of suppliers Scrap, rework, warranty costs
Direct material Cost

Cycle time: order to delivery, product development

Source: Roger Lee, et al., “Wolrd-class Logistics & Supply Chain Management”, Singapore Institute of Materials
Management, 2001

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 Apple Supply Chain
Key Suppliers
Optimization of Third-Party
Production – Apple engineers are
sent to supplier factories to monitor
testing and assembly processes with
the objective of optimizing production
to meet spikes in demand.
• 156 Suppliers for 97% of iPhone
product materials
Design and Cost
Structure
Final Assembly
• Strategic Investments in
Suppliers – Apple strategically
invests capital with suppliers in
order to reserve and assure
production capacity, effectively
restricting supply options for
competitors.
Control Over Intellectual Property – Creative design and engineering
takes place in California and is managed in-house.
Control over Consumer Insights – Market research is performed in-
house.
Distribution
Rent Retail Stores
Centers
• Offloading Working Capital Investment to Suppliers – Apple has a negative
cash conversion cycle (CCC). It stretches its payables to 80 to100 days,
whereas accounts receivables are 20 to 30 days, and inventory is three to six
days (see Exhibit TN-5). CCC = inventory conversion + A/R conversion - A/P
conversion = 6 days + 28 days – 77 days = -43 days. On average, Apple is able
to convert its purchases into cash approximately 43 days before paying its
suppliers. This metric compares
favourably to Wal-Mart, which had a CCC of approximately 13 days (46 + 5-38 =
13) in 2014.1
 Strategy Retail Supply Distribution

• Focus: Innovation, NPD and brand • Multiple channels: authorized, • Dominant buyer – purchases most • Outsourced

management. dealers, online, Apple stores or all of supplier capacity to shut out • Purchases capacity in advance

• Outsources manufacturing, • Apple stores: A place to test and competition • Uses (expensive) airfreight to speed

assembly and distribution experiment with products without • Makes investments in suppliers to • Robust reverse logistics process

• Frequent introduction of new being pressured assure they use the latest

products and features on existing • Staff – “techies” not salespeople technology

products • Located in affluent, high consumer • 156 total suppliers, 8-10 “A”

• Frequent new-product introductions traffic areas suppliers

• Product breadth: Limited • Checkout counter at back of store to • Embraces variability and manages

• Compatibility of products (e.g., force customers to see entire retail the bullwhip effect through a robust

synchronization of files): Ecosystem location planning and forecasting process:

• High quality and reliable products • Supplier code of conduct 150-day (approx.) planning cycle for

• “Apple culture” – customers loyal to new product launch

the brand • Builds flexibility into the supply

chain to respond to surges in

demand

Underpinnings:
END OF PRESENTATION