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Learning From Apple’s Strained Supply Chain

Like many of its predecessors, Apple’s latest iPhone iteration is facing supply shortages amid enormous demand. Even as Foxconn churns out 400,000 iPhone 6 and 140,000 iPhone 6 Plus phones daily, volume remains below expectations. Apple’s struggles with supplier consolidation...

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Like many of its predecessors, Apple’s latest iPhone iteration is facing supply shortages amid enormous demand. Even as Foxconn churns out 400,000 iPhone 6 and 140,000 iPhone 6 Plus phones daily, volume remains below expectations. Apple’s struggles with supplier consolidation and low output rate, especially for the larger iPhone 6 Plus, are shining the spotlight on more systemic issues within Apple’s supply chain.

While not every firm sells 10 million devices in one weekend — or has to contend with the complex global supply chain and massive consumer pressure that comes with it — all organizations can learn from Apple’s supply chain pitfalls when managing and designing their own.

Too Many Eggs in One Basket

One of primary bottleneck in Apple’s supply chain is its problematic reliance on Foxconn for the assembly of both of the new iPhone models. While Apple has always depended heavily on the mega-manufacturer for its product line, previous releases divided the work more equitably between Foxconn and other suppliers. Last year’s iPhone 5S, for example, was produced by Foxconn, while Pegatron handled the iPhone 5c assembly. This year, Foxconn is again the sole manufacturer for Apple’s high-end iPhone 6 Plus, but it's responsible for a large portion of the iPhone 6 supply as well. Not even 24-hour assembly lines churning out unprecedented numbers of devices can keep up with sales.

Apple’s supplier struggles should serve as a cautionary tale for firms in and outside of the tech industry. While the need for efficiency, cost savings, and quality and supplier risk control all encourage supplier consolidation, this can become a risky proposition. Even if a small number of suppliers are capable of meeting demand, consolidated operations exponentially increase the risk of disruption due to disasters, natural or otherwise. Those same efforts designed to keep costs down can result in firms spending massive sums as they scramble to rebuild their supply chain after a critical link fails. The solution is simple: firms must avoid centralizing their supply chains to a fault. Time and effort spent now to find trustworthy, capable suppliers will avoid potentially catastrophic problems in the future.

Design for Manufacturability

Another major hurdle facing Apple’s iPhone production is the high level of complexity inherent in the screen designs. The pass rate for the 4.7-inch iPhone 6 screen is around 85 percent, while its larger 5.5-inch companion hovers around 50-60 percent. These higher margins of failure are the price Apple's paying for the extremely thin screens, which integrate touch sensor technology into one glass layer. Apple is famous for engineering around its design ethos rather than vice versa, but this time it’s causing some major supply chain headaches. The problem may simply be that Foxconn lacks the expertise to execute such intricate displays, and Apple has sacrificed efficiency for design.

Most firms don’t have the aesthetic expectations Apple has cultivated, but all businesses must remain aware of flaws within their own production processes. While a product design may be theoretically possible, it is not always practical. In the case of the iPhone 6 and 6 Plus, perhaps form should've followed the factory's function. The uncertainties associated with suppliers, their employees' skill level and the materials used in operation, are moving variables that make the need for simpler design apparent. Companies that do move forward with technical or specialized designs may need to stray from their regular suppliers in favor of new partners with the necessary resources to meet production timelines.

Seeking Supply Chain Stability

Businesses looking to optimize their supply chain can draw two major lessons from Apple’s cutting edge tactics: stability and efficiency. Firms must carefully calculate the risks it introduces into their supply chains by centralization of suppliers. Apple may feel compelled to centralize so they can preserve their secrecy and control manufacturing even when it’s sub-contracted, but there’s a limit to those reasons and their ability to balance the risk incurred.

It is also worth evaluating internal procurement processes and their impact on an organization’s supply chain. Businesses must be vigilant, lest a torrent of unrealized costs slip through the cracks. Procurement processes should be mindful of supplier quality and reliability, and also keep track of budget overruns and delays to help firms gauge the total realized costs associated with their supply chain model. Firms seeking to broaden their supplier base or locate specific expertise might need to graduate from siloed databases to a more modern procurement solution in order to effectively identify the best partners. 

Apple is definitely pushing the boundaries of supply-chain science. Balancing the benefits to marketing and design against the risks of a centralized and over-tasked supply-base. At a minimum, it gives other OEMs and sub-contractors a chance to see just how far things can be pushed before they break. I hope you’re all taking notes (on your device of choice, of course)!

As SVP of procurement solutions at international spend management and procurement solutions provider Ivalua, Paul Noël is responsible for product development, solution design and implementation for clients in the Americas. 

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