Value Creation Through Supply Chain: Case Study Apple Inc.

Value Creation Through Supply Chain: Case Study Apple Inc.

Introduction

Supply chain management (SCM) is a critical component of organizational management. According to Dubey et al. (2017, p. 1102), SCM is the continuous management of activities in the supply chain to ensure maximum customer value and a sustainable competitive advantage. SCM requires the application of conscious efforts to develop and implement supply chains in efficient and effective ways (Busse, Meinlschmidt, and Foerstl, 2017, p.100). Notably, organizations’ supply chains require cumulative efforts of various organizations to attain their supply chain objectives – delivery of top products and services to customers. Apple Inc. is a technology company that has a comprehensive SCM. The company has a long product list, including iPhones, iPads, Apple Watch, MacBook, iMacs, just to name a few. The company’s supply chain objective is to deliver exceptional customer experience through excellent services and incomparable products. Apple has managed to achieve its supply chain objectives through strategic implementation of proper physical and information flows, which has ensured value Creation.

Apple’s Supply Chain Profile and Strategy

Apple Inc. has been in operation since 1976, after being found by Steve Jobs, Ronald Wayne, and Steve Wozniak. Apple is the largest company globally base on market capitalization and is mainly famous for its iPad, iPhone, MacBook, and iMac products. The company has also ventured into software products such as iCloud, banking products like Apple Pay, and other hardware products such as Apple TV, Apple Watch, and iPods. The company’s supply chain planning includes research and development (R&D), concept testing, pre-launch, launch, and quarterly product review. According to Apple (2020 p.12), Apple’s R&D include the development of new technologies, acquiring of licensing and patenting of intellectual properties, and acquisition of third-party enterprises that suit the company’s supply chain objectives. The company’s concept testing includes extensive market research, product testing, assembling cost data, and identification of potential quality defects. Apple carries out an explicit pre-launch to manage production ramp issues, ensure adherence to the company’s production quality, determine the quantity of production, and make prepayments to suppliers. The company’s product launch is made to resolve the backlog and create demand forecasts for the product. The company is committed to quarterly reviews that assist it in assessing the inventory, adjust demands, monitor sales levels, and evaluate product life cycle status. Apple Inc has the best supply chain practices with the ability to manage the integration of digital and physical supply chains efficiently and cost-effectively. Apple operates its supply chain through effective procurement, manufacturing, and distribution.

Procurement Strategy

Procurement is a critical component in the management of the supply chain. Scholars have used theories like the Transactional Cost Analysis (TCA) model to explain strategic approaches that have been followed by companies to ensure efficient and effective procurement. According to Roeck, Sternberg, and Hofmann (2019 p.13), the TCA model explains the cost strategies that companies implement in searching for information regarding the availability of services and goods, bargain, and decision making as well as policing and enforcing. Strategic procurement demands that companies seek requisite information on the availability of required products in the markets, and the range of prices to select the most reliable and cost-effective. Companies also incur bargaining and decision costs, which are needed to develop acceptable requirements during procurement processes such as contracting. Other costs include policing and enforcing costs, which are costs that are incurred by the company to ensure contracted parties stick to the terms and take appropriate actions whenever there exists a breach. Enforcing the principles of the TCA theory allows companies to gain competitive advantage and monopolized contractual relationships. An example by Roeck, Sternberg, and Hofmann (p.10), related companies that contract others to supply specialized widgets that require specialized machinery that can not be redeployed to serve other companies. Such companies seek better deals in the market, sign long-term contracts with legal bindings on that prevent contracted companies from disclosing their intellectual knowledge. Once the supplier is awarded the contract, there is a change in the relationship between the company and the supplier, from a competitive environment to a bilateral monopoly, where the customer has more leverage over the supplier.

Apple Inc. has implemented the concepts of the TCA model in its supply chain to leverage the benefits of the procurement strategy. The company’s contracts multiple companies to produce specialized components of its products. Apple has awarded contracts to about 785 suppliers in 31 countries. Notably, 349 of these suppliers are based in China (Apple, 2020, p.43). The company ensures that the company’s main production contract is awarded to Foxconn Co. Ltd., a Chinese company. Contracting of most suppliers from china is a strategic move by the company to cut the costs of sourcing. Production costs are cheaper in China than they are in the United States – an opportunity that the company has leveraged. The main products of the company, iPhone, iPads, and iPods, are manufactured in China, which makes contracting China-based suppliers strategic in limiting the costs of delivery. Apple has also enforced high measures to ensure its intellectual property is protected (p.18). The company invests highly in its intellectual stamina to provide a stable competitive advantage. Steps that have been taken by Apple to protect its intellectual property include detailed product design and disintegrated production of product components. Also, the company has ensured strict management of the creation of its parts. The company ensures that models and prototypes are manufactured within its headquarters. Also, centers of production at Foxconn are managed by Apple’s personnel. Apple’s Engineering Program Manager and Global Supply Manager, commonly referred to as the EPM Mafia, is located in china, and they control the rightness and timeliness at which the company’s products are manufactured and delivered. Leveraging the principles of the TCA model has allowed Apple Inc. to implement an effective and efficient procurement strategy that supports its competitive advantage.

Product Quality Strategy

Product quality is a critical component of effective supply chain management. According to Modak et al. (2018 p.513), the quality of products impacts organizations’ competitive advantage. Product quality is directly linked to customer experience and satisfaction. The assimilation theory posits that customers make cognitive comparisons between the perceived performance of products and their expectations about the products (Kivisto, 2017 p.1418). The company creates expectations through the organization’s marketing strategy, and the company is obliged to meet consumer satisfaction. The quality of the product fulfills or fails the expectations of customers. The consequent effect of product quality is the alteration that it causes on a company’s public image. Fulfilling the performance requirements and desired expectations create a sharp brand image, which improves the competitive advantage of the company.

Product quality is the core focus of Apple’s supply chain management. The company has set exemplary standards of excellence in the technology industry. The company’s competitive advantage is based on the quality of its products (Apple, 2020, p.21). Apple has created customer expectations of perfection in their experience with the company’s products and services. The company has implemented cutting-edge technologies to ensure the utmost user experience. The company’s product and service design are based on delivering an extraordinary experience to all its customers. The company implements superior technologies in product design with a fully funded unlimited product design team. The company has employed a team that tests the limits of technology through research and design. Each product release has incorporated exclusive technologies and sophisticated design.  Product quality is also included in the state-of-the-art packaging that the company implements. Explicit attention to detail is implemented by the company to ensure its customers have the best experience – hence an unmatched market preference.

Distribution Strategy

The distribution strategy can either be direct or indirect. According to Heath (2018 p.10), direct distribution, also known as zero-level distribution, is a strategy where producers make direct sales of the products to customers. Manufacturers layout retail or online selling points with field sales teams and representatives responsible for sales. The zero-level distribution strategy allows the company to have direct control over its relationship with customers. Gattorna (2017 p.38) explains that companies that employ the method make higher profits. Scholars have argued that the implementation of zero-level distribution is complex and mainly suitable for smaller companies.

On the other hand, an indirect distribution strategy allows the company to deal with intermediaries, who are responsible for getting the company’s products to the market. According to Yoo and Cheong (2018 p.341), indirect distribution can involve selling products directly to retailers, wholesalers, or distribution agents. The significance of indirect distribution is the ability of the company to distribute its products to most customers, which increases their revenue. Most global businesses employ an indirect distribution strategy. Companies like Coca Cola have grown globally through the employment of indirect distribution channels. Coca-cola has established reliable production and distribution logistics in all countries around the world to ensure customers access products within their locality.

Apple Inc. leverages indirect and direct distribution strategies. Earlier, the company mainly outsourced its production, after which it took over the role of product distribution to customers. After production, the company’s products got shipped to the company’s headquarters for assessment and packaging. The company’s strategy to walkaround the limitation of the direct distribution strategy proved that global companies could employ the approach. The company runs an eCommerce store that serves clients all over the world. Also, the company has 509 retail stores in 34 countries with most of its stores, 271, located in the US (Apple, 2020, p.67). The company also leveraged the indirect distribution strategy, where third-party retailers have been contracted to sell the company’s products. Despite the use of third-party retailers, the company has retained full control over its distribution strategy. The company ensures that sales personnel, in Apple stores and third-party retailers, have the requisite experience to offer competent brand sales and representation of the company’s values. These distribution channels employed by the company have conveyed the value of the company and ensured a strong brand image.

Customer Satisfaction Assessment

The provision and maintenance of customer satisfaction is a critical challenge that faces businesses. The expectancy-value model and disconfirmation theory are crucial frameworks that best explain customer satisfaction. The disconfirmation theory posits that consumers make comparisons between the standards they have developed and delivered services (Gattorna, 2017, p.40). Its congruence with their set standards measures the belief of customers regarding the product or service. The expectancy-value theory postulates that judgments by customers regarding a product or services are made regarding possible outcomes and benefits of using it (Husaini, Kusumawati, and Mawardi, 2017 p.35). The theory explains that people adopt behaviors that are likely to lead to positive outcomes.  These theories create a framework that companies can employ to ensure they convey a positive brand image among customers. The study posits that companies should implement intense research to understand their customers, offer bespoke services, educate customers, create a medium to interact with customers, provide additional benefits, and implement feedback strategies. Understanding customers allows the company to cater to their tastes, interests, and additional problems. Bespoke services create a strong sense of belonging as customers fee the direct interaction with the company. Other strategies, like the provision of training and creating on communication media, allow the customer to make meaningful use of the products, which leads to an appreciation of the company’s efforts in the product. Providing feedback channels allows customers to communicate their levels of satisfaction with the products and services, which in turn, allows companies the develop better organizations to evaluate their performance.

Apple has embodied customer satisfaction strategies to ensure its products remain the most preferred electronic globally. The company’s product design and sleekness demonstrate the level at which the company goes in researching customers’ preferences. The company encapsulates consumer needs and ensures their released products surpass these needs through meticulous, robust, and easy-to-use products (Apple, 2020, p.54).  The company has customer feedback strategies that ensure customers can give compliments, suggestions, and complaints. The company treasures its customer service and takes responsibility for any forms of defects in its products. Apple has implemented strategies to collect all defect and spoilt devices from customers globally and repair them, which shows the extra mile than the company has taken to ensure its customers are satisfied with its products and services. These strategies have ensured that the company achieves its customer satisfaction.

Major Challenges in the Supply Chain

Despite having a successful performance, Apple’s supply chain has recorded classical challenges that have threatened its performance. The company has trailed in social responsibilities such as environmental sustainability. According to Hoangova (2018 p.65), Apple Inc. was the last global company to come on board in discussing environmental sustainability issues. The company has also failed to impact sobriety cobalt mines in Congo, which have led to the death of children, yet these mining activities fuel its supply chain. The company was mentioned in a US lawsuit with its counterpart, Google, for aiding and abetting child abuse in Congo-based cobalt mines. Other challenges include its failure to ensure better treatment of human resources in contracted production companies like Foxconn. The Clarke, and Boersma, (2017 p.113), reported that the employees at Foxconn were working at long extended hours in poor working conditions. The report blamed Apple for the demand pressures that it made on Foxconn, which resulted in the overworking of employees, which led to extreme burnouts. Despite the outcry, Apple made little efforts to pressure Foxconn to implement better HR management despite having leverage over the company.

The pricing of Apple’s products is also a challenge to the company’s supply chain. Apple prices its products with a focus on high-end customers and prioritizes its profits over its market share. The company uses marketing strategies to sell the idea that its products are premier hence qualify for the prices charged. Despite its success in selling the ideology over the years, the public has started giving the company a second thought with a comparison of the quality of its products with those of its competitors like Samsung and Google. In 2019, the company reported a 17 % drop in its iPhone revenue, while competitors like Samsung recorded a 46% increase in its phone sales revenue (Apple, 2020 p.23). Nevertheless, the company records the highest customer loyalty, which assures the company of future success.

Digital Transformation if the Supply Chain

Apple is a company that employs cutting edge technology, from design, production, distribution, and customer support. The company is at the core of digital research to stretch the limits of technology in the communication industry. The company applies data analytics, omnichannel, and the Internet of Things to ensure it meets its objectives. Apple has incorporated vital technologies in its products to collect information that is vital to the company’s growth. According to Husaini, Kusumawati, and Mawardi (2017 p.34), Apple utilizes big data analytics to create insights into the preferences and demands of its customers. Big data analytics have been used to draw the roadmap of the company’s application design, which has revolutionized the sector. The company also partnered with IBM to help collect health data through Apple Watch. The company intends to use big data analytics to measure and improve a healthy lifestyle in public. Bigdata that is collected through iTunes, iCloud, and Apple store, has helped the company to position itself to be able to handle customer’s demands and expectations.

The Internet of Things is a strategic asset to Apple’s operations. The company has leveraged the internet of things to extend its service list. The company has invested in cloud-hosting and soft payment services, which strongly depend on the internet of things. The company’s iCloud and Apple Pay are investment lines that make 10% of the company’s annual revenue (Apple, 2020, p.25). The company has also leveraged the IoT to improve its distribution. The company runs an eCommerce service that distributes its products and services in about fifty counties. A substantial revenue has been recorded from these channels. Also, the application of IoT in distribution reduces the cost of distribution as the company does not need a localized retail store to distribute its products. IoT has also been used to implement cutting-edge security functionality in the company’s products. Apple customers utilize iCloud accounts, which are synchronized with their devices for data and device security. Through iCloud, the company has been able to assure customers of their device and data security.

The company has leveraged the IoT to promote its omnichannel strategy. According to Sopadjieva, Dholakia, and Benjamin (2017 p.2), the concept of an omnichannel strategy is a multi-channel concept to retailing that seeks to provide consumers with seamless experiences in their shopping regardless of the method they are using to purchase, online or in physical stores. Apple Inc. is one of the pioneers of the omnichannel strategies, has revolutionized how people accessed and listened to music in the past decades. iTunes, for example, allows users to integrate their music playlists across Apple devices, which boosts customer engagement (Apple, 2020 p.19). The company has also leveraged the omnichannel strategy to boost customers’ shopping experience, where the change of devices does not affect customers’ cart content. Also, the company has leveraged Artificial Intelligence to make the experience of online shopping similar to that of physical shopping. Customers can get instant assistance on the company’s online stores, just as they would in the physical Apple Store.

Conclusion

Supply chain management is the continuous management of activities in the supply chain to ensure maximum customer value and a sustainable competitive advantage. The supply chain consists of all the products and stakeholders that the company leverages to make a profit. Apple Inc has the best supply chain practices with the ability to manage the integration of digital and physical supply chains efficiently and cost-effectively. Apple Inc. has implemented the concepts of the TCA model in its supply chain to leverage the benefits of procurement strategy, including cost-effectiveness and efficiency. The company also leverages indirect and direct distribution strategies to ensure the best efficient distribution of its products to customers. The employment of imperial technologies in its product design and production has ensured a firm competitive advantage. The quality of customer service has been at the core of the company’s operation to ensure unmatched customer satisfaction. Digital evolution has been leveraged by the company to increase its services, conduct research, and improve customer experience.

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