3 Feb

Why Apple Needs a More Integrated Supply Chain

News agencies across the world often blame Apple for having a slow turnaround for products time to the market. The company, which is known for only having one major product release per a year coupled with 1-2 annual events related to product and software updates, is recognized as keeping its audiences in anticipation. However, is this on purpose or rather due to another factor that is related to Apple’s supply chain?

Apple has some of the best engineers from around the world working at its headquarters in Cupertino and is at the forefront with legal teams in applying for patents for upcoming technologies meant to outcompete competitors in the market. Creating teams that can put together new products and do so through professional management and competence therefore is something Apple does not lack. What the company shorts itself on, however, is an integrated supply chain that allows for quicker results and prioritized access to products.

Here is a simple rundown of what an Apple supply chain looks like and how your orders end up in stores:

  1. Apple creates a prototype with various specifications and begins discussion with supply chains to see if they have the technology and production capacity to produce such goods. This includes everything from panels to touch panels, sensors, cover film, batteries, camera components and many other parts.
  2. Depending on the results in step 1, Apple makes any necessary adjustments to its products. For example, the company may want to produce a 500ppi plus resolution handset but due to lacking production capacity in supply chains it may need to make alterations.
  3. Based on number 2, it is inevitable that at least one supplier will run into a bottleneck or face some kind of financial or production issue along the way, causing Apple to be conservative on its time-to-market release. Apple puts forth orders as much as six months in advance and the engineering team already begins researching alternative products for upcoming releases. Research and development are always 1-2 years ahead of product releases, believe it or not.
  4. Apple then has all components shifted to its man manufacturer Foxconn Electronics in China where products such as the iPhone are assembled. The assemblers work around the clock and may even further shift packaging to other suppliers. Afterwards, the product is shipped back to the US and other countries around the world.

Here is why this is problematic. Depending on how much supply Apple has access to, such as panels, greatly determines the rate at which its products hit the shelves. For example, Apple heavily relies on LG Display and Samsung Display for panel supply. But those two companies are owned by LG Electronics and Samasung Electronics, so if either of those companies decide they want to launch products at different times of the year and needs ample panel access, who are they going to prioritize?

According to various media reports in Korea and Japan, such trends have led to delays in Apple’s iPhone and iPad products, albeit Apple remaining quiet about such developments. In fact, the company has never specifically stated that it purposefully waits once a year to release major products, which further pushes the idea that Apple delays are heavily related to supply chain issues and not initial research and development.

Apple needs to invest more in its own manufacturing facilities as it has done for its Mac Pro. Bringing back assembly to its native land where it can oversee production would be smarter. The company needs to invest it its own supply chains to make sure protocol is more secure and highly consider either furthering cooperation with supply chains not associated with larger manufacturers such as LG.

Media reports recently announced that Foxconn invested in Sharp specifically for it to have quicker access to panel supply in order to help Apple get its products to the market more efficiently. However, this is a passive approach Apple is taking, as it is relying in the security of its company in the hands of its supply chains. In the long run this will prove detrimental for Apple as supply chains can switch priority to other customers such as rising China handset makers who look to dominate major emerging markets in China and India.

Apple has more than enough resources that it could invest in panel supply and component supply facility establishments in the US, thus enforcing a stronger integrated supply chain and quicker product releases. The company’s current tactics of having product components spread all across the globe is part of a globalization technique to save on costs that is based off strategy in the 1970s and 1980s, and is no longer relevant. The company needs to move from this globalization aspect to localization, particularly as supply chain costs in Asia continue to rise, but more so to help the company stay competitive and afloat in the future.