Does Apple Have A Supply Chain Flaw?

Apple, a company that holds power, and diligence in the business world, is considered to have a top line supply chain management system. The success of this powerhouse company is mainly due to the innovative thinking and approach when it comes to supply chain management. However, why is their stock falling like a sack of bricks, and how come sales have slowed down?

Apple has created a “closed ecosystem” where they control every aspect of the supply chain, and in turn this enables Apple to launch large product lines avoiding high costs. For example, when designing the green light that lets you know the camera is on in all their laptops, they designed special tools to create this “at the time impossible idea.” They concluded that they needed to create lazar beams to cut a perfect whole in to the aluminum, which saved money and shows how they have total control over their product supply. Another example of innovative thinking that complements Apple’s productivity in their supply chain is when they bought 50 million dollars worth of holiday airfreight space. This in turn limited competitors to get their product to retailers, and also gave a huge supply of Apple products in stores limiting consumer options. “They have a very unified strategy, and every part of their business is aligned around that strategy,” says Matthew Davis, a supply-chain analyst with Gartner. He has ranked Apple as the world’s best supply chain for the last four years.

Clearly they are doing something right, right? Well with the decline of the stock a lot of question has been raised. For example, if Tim Cook is such a supply chain specialist, then why does he only have one supplier for all it displays? Even worse, why is that sole supplier Samsung, one of Apple’s biggest competitors? Because of business related tension between the two, and lawsuits, Samsung is not supplying displays to Apple for the new iPad Mini which is a problem. Tim Cook is clearly forced with a rough decision, and now basically has to choose between two Suppliers, LGD, and AUO, who is a very new inexperienced supplier. AUO cannot meet the volume demands for Apple so that really only leaves one supplier, LGD.

Overall, if there is such a fantastic supply chain in the company, and Tim Cook, who was COO under Steve Jobs, is considered to be the specialist in that, why would he but sole supplying responsibility on Samsung, one of their biggest competitor? It seems to be a huge gamble, and almost idiotic. Do you think that this sole supplier Apple uses is their flaw? Do you think this is going to hurt them in the long run? Could Apple be giving away their “closed eco system” by doing this? Could it be the small size of the supplier market that is hurting Apple? How can they avoid this problem?


13 thoughts on “Does Apple Have A Supply Chain Flaw?

  1. I think this will definitely hurt them in the long run. Seeing how Samsung and Apple are both rivals and power hungry, like you said, this could lead to Apple losing their sole supplier if their tension in their relationship. Apple shouldn’t avoid this problem but should quickly adapt to it. I would like to investigate the contractual relationship Apple and their supplier, in order to gain a more accurate scope of future risk. Also, apple could adapt to also by simply diversify their vendors.

    1. *I think this will definitely hurt them in the long run. Seeing how Samsung and Apple are both power hungry rivals, like you said, this could lead to Apple losing their sole supplier if tension were to arise in their relationship. Apple shouldn’t avoid this problem but should quickly adapt to it. I would like to investigate the contractual relationship between Apple and their supplier, in order to gain a more accurate scope of future risk. Also, Apple could adapt by simply diversifying their vendors. *

  2. I remember earlier in the school year talking about how one of Apples biggest competitors is also one of its largest suppliers. What I did not know at the time, which I do know now is that Apple has two other suppliers besides Samsung (the competitor), which as you mentioned are LGD and AUO. But, Is there a conflict of interest with Apples contract with Samsung, some may say yes, but I say no. Samsung is only manufacturing the physical capabilities with Apple products, not the processing itself, which is the most important aspect. I don’t think this will hurt Apple in the long-run as long as they keep the software separate, and only allow the hardware to be created by Samsung during the manufacturing process.

  3. Apple’s biggest problem right now is not supply chain management or the fact that its biggest competitor is its supplier. Apple’s biggest problem is lack of innovation and poor management by Tim Cook. In the past consumers bought Apple because of Steve Jobs. Steve Jobs was constantly looking to invent new things that would blow peoples socks off (which he did). Not only where his ideas brilliant but they were timed perfectly. For example choosing to release the iPhone before the iPad (many are unaware of this). The only thing Tim Cook has done is create a new iPhone, a smaller iPad, and a few different iPods. A huge mistake that he made was being absent from the public while the company’s stock was declining rapidly. When a company’s stock is in a death spiral, “Being a CEO” 101 is to go on CNBC and tell the public that everything is OK, even if it’s not. This provides a boost of confidence to shareholders; think of it like a parachute. I was not surprised that Apple’s Q2 earnings where bellow what was expected. I am also not surprised that during the Q2 earnings conference call Cook mentioned “that Apple has big plans for new products that will be revealed sometime in the future”. That’s what should have been said in early November of 2012 when the stock was first starting to drop. In conclusion, I think the only way for Apple to succeed again is if Tim Cook is replaced by someone who is more aggressive and creative. You can only recreate the wheel for so long.

  4. I tend to agree with the previous posts. I myself am an owner of a second genteration Iphone and can see that their technology has reached a level where the company has seen some diminishing returns. If apple can somehow find a way to diversify their product with more technolgy from different suppliers, or possibly even find a close competitor to work with, I feel that they would see another period of rapid innovation like they saw from ’00 – ’09.

  5. Yes I do agree with you think is a huge gamble. I don’t think apple should do this I think they will lose a lot of the customers. Then it’s also going to hurt them in the long run. After Steve Jobs passed apple has not been doing that well anyway and if they go had and do this I think apple is going to be at all time low. Apple would be giving closed eco system by doing this. I personally don’t think apple should do this.

  6. As I understand, Apple sells 100% of what they release to the public, which is something any company would love. However, when it comes down to the supply chain and sticking with Samsung, one must think of quality and reliability of a product and Apple must be known for both. Samsung may no longer be a strategic partner with the rivalry, but they deliver quality products for Apple. Apple may need to find another quality provider that is suitable for they supply chain.

  7. I personally think that Apple does not have a supply chain problem. I think using Samsung to provide the screens is good because they specialize in more parts than Apple. Samsung is one of the leaders in smart phones, tvs, and appliances. It would be better to use a company that is good at what they do instead of using a 2nd tier. I personally think that it is better to use a good company instead of taking the chance using an unreliable one. Also I am sure Samsung does not mind having Apple just buy from them.

  8. Having Samsung as a significant supplier will definitely hurt Apple in the long run, especially as Samsung becomes a force to reckon with. However, I do not think this is the reason behind the recent decline in its stock price. I believe that has to do with larger macroeconomic trends within the industry. Apple has historically relied on products that appear cool and unique that have been brilliantly marketed. Their profit margins are historically high, indicating their products are marked up to a higher degree than everyone else’s. Finally though, competitors are catching up, and people are realizing that they can get a product that is just as good for two thirds the price from a different company. At the same time, this increased competition, mainly Samsung, is becoming more and more capable of matching Apple’s “cool and unique” factor while maintaining lower profit margins (relative to Apple’s). This is forcing Apple into territory that it hasn’t seen for at least a decade; one where introducing cheaper products may finally be necessary in order to maintain their level of growth.

  9. I do think that this will hurt apple in the long run because we can clearly see how this both companies are fighting out in the race for having the best innovative products. With the decline in the stock prices for apple it is clearly seen that the company is clearly getting affected by this and many fingers are being raised on Tim Cook and whether if he is capable of running Apple. It will be really interesting to see what steps Apple take if they completely cut ties with samsung and heads in a new direction.

  10. Apple may have a very hard supply chain system because it is a very long supply chain from he raw materials, o manufacturer to distributor to the retailer. So I can see where it would be complicated to make his happen. It is also interesting that a big competitors is one of their suppliers in Samsung. So if Samsung decides to stop selling to them then there would be a problem. So it is important to have a multitude of suppliers as well. If there is an earthquake in Japan again then that can affect the supply chain and affect people who they trade with. So i is important to have different suppliers just in case.

  11. I do believe it may be time for Apple to diversify their suppliers, and stop putting all their eggs in one basket. Especially because that basket is in the hands of one of their biggest competitors. However, I think Apple is going to be faced with more problems if AUO or LGD can’t supply products with the same quality that Samsung can. Tim Cook needs to reconsider the direction he is taking Apple, especially because of the current steep decline in stock prices. If they are able to find better suppliers that can improve their products, it may be the push they need to diversify and be on top again.

  12. Having a competitor to be a sole supplier is one of the biggest mistakes a company can make. While Samsung does provide great products, Apple is putting itself at risk by having it as its sole supplier. Samsung might cancel Apple’s contract at any point and Apple would have to stop production on all Apple products that contain Samsung material. Samsung might also try to sabotage some of the products that they provide to Apple just so that they can give Apple a bad reputation and cause it to lose customers. Another risk that having a sole supplier can cause for a company to have is the possibility that a natural disaster or other critical event can stop production for the supplier and leave Apple without the materials that it needs. Apple must diversify its supplier base in order to protect itself.

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