Global Supply Chain- Final Exam PDF

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Global Supply Chain Management

Professor Richard Tremblay

Final Exam: Supply Chain of Apple Inc.

Mohawk College of Applied Science and Technology

Student Name: Date of Submission

Student # 04/13/20

Company Name Company Stock Symbol

Apple Inc. NASDAQ: AAPL

Company Profile: (5 Marks)

Apple incorporated is one of the top five global tech giants and the world’s first trillion-dollar company (Rooks, 2018; Apple, 2020). The company was founded on April 1, 1978, by Steven Paul Jobs, Ronald Gerald Wayne, and Stephen G. Wozniak. Apples headquarter is in Cupertino, California, USA and its current CEO is Tim Cook. Apple’s offerings span across product designing, manufacturing, and sales of tablets (iPads), smartphones (iPhones), personal computers (Mac and MacBook), smartwatches (apple watch) and other wearables (Air Pods, beats headphones). (Apple, 2020; CNN, 2020). They also offer support services related to their products, and this is an integral part of Apple. Apple’s operations extend across different geographical locations such as America, China, Europe, Japan and Asia Pacific. (Apple, 2020; CNN, 2020). The designing of Apple’s products is done in California, while reliance is majorly on China for the manufacturing of most of its products due to reduced cost of production from lower labor wages and the high level of industrial efficiency in the region.

AAPL: 267.99 USD +1.92 (0.72%) NASDAQ Market Summary (Apr 9, 4:00pm) Why I chose this company: (5 Marks)

I chose Apple because it is a company/brand that resonated with me. Going back to about 12 years ago, when I became astonished by the shiny and elegant looking piece of slab the world came to know as a smartphone (iPhone). Well-packaged and presented, meeting everyone’s needs. The name iPhone became permanently crested in my mind. Although I could not afford one at the time, I became so passionate about the Apple brand and their devices. Fast forward to 2014, when I purchased my first apple product—the iPhone 4s, I was more than impressed with the functionality and prestige owning such a device gave me. I have since then become a loyal fan of Apple and its products. I currently own an apple watch, iPhone, iPad, MacBook air, AirPods; just to mention a few. I also closely monitor the company’s growth and development on a weekly basis. I do hope I can one day work for or work with such a highly respectable company as

Apple. I sometimes go on online forums to assist apple customers experiencing issues which I have either overcome in the past or have knowledge about the solutions. Considering the recent COVID-19 pandemic, I was also impressed with the strategies Apple employed in re-adjusting its supply chain and services to protect customers while still trying to meet investors’ expectations. For all these reasons I decided to pick Apple as my preferred company.

Chapter 10 – Managing Relationships with Customers and Suppliers. (10 Marks) How Apple Manages Relationships with Customers Apple utilizes customer relationship management (CRM) tools in dealing with its customers. For Apple, the goal is not just to sell a product, for example an iPhone, but rather for customers to have an experience (EGM, 2014). According to Steve Jobs cofounder of Apple: “You’ve gotta start with the customer experience and work backwards to technology” EGM (2014). Apple uses an in-house system called ‘Genius bar’, where customers can book appointment or have walk-ins and have a ‘Genius’ (apple’s technician) interact face-to-face and in-depth with the customer to find out about their needs or current issue. Since customer relationship is vital to Apple, steps are taken to ensure that every visit to the Apple store is pleasurable and a resounding experience in the minds of customers. This involves assessment of customers’ feelings when interacting with staff and collection of data from customers to help tailor recommendations to their specific taste. (EGM, 2014; Apple, 2020). Apple’s CRM aims at fostering long term relationship with customers and increasing their brand awareness and loyalty (EGM, 2014; Expert market, n.d.). These help in retention of customers. CRM analyses the data collected after a purchase by a customer, which is then utilized to help understand the needs of potential customers and tailor advertisement accordingly. Since happy customers mean that Apple will likely experience repeat business from such customers (loyalty), this helps Apple in ensuring steady growth in revenue, for these reasons CRM truly is a vital tool in Apple’s success.

How Apple Manages Relationships with its Suppliers Apple’s main goal is to create an experience rather than just buying selling transactions, and for this reason they create avenues for suppliers to feel comfortable and safe doing business with Apple. Apple utilizes a collaborative partnership approach with its suppliers whereby they treat the employees of such suppliers as their (Apple’s) own. Programs such as health safety and education, new skills and degrees pathways as well as ensuring fair working hours for such employees are core to Apple’s standards (Apple, 2020). All of these creates a sense of belonging in the minds of such suppliers and its employees and as such makes them perform better and deliver better quality products. Apple also partners with suppliers to help them reduce waste in their production processes, therefore helping such suppliers cut costs (Apple, 2020). According to Apple’s website, suppliers undergo a rigorous assessment process to ensure top quality services and standards are met. Between 2017 and 2018, the number of high performers from Apple’s suppliers grew from 59% to 76% (Apple, 2020). Apple’s focus with its supplier relationship is targeted at three things: creating a greener supply chain, combatting forced labor and driving safer chemicals. (Apple, 2020). While Apple is known for its quality products and strong brand, some people argue that when it comes to relationship with its suppliers there is a bit of secrecy (Financial Times, 2017; EPS News, 2018). These reports also go ahead to state that Apple made extreme demands of it suppliers and manufacturers in which they “dare not put a foot wrong” (Financial Times, 2017). This relationship style is common in transactional based relationship, however since Apple selects their preferred suppliers who can streamline those activities to reflect that of Apple, such relationships are usually backed by medium to long term contract agreements and as such are more of a vested business (Outcome based) model. Despite these reports, for any manufacturer or supplier who enters Apple supply chain, they stand a good chance of benefiting from such value creation relationship as Apple will ensure their processes and staff are developed accordingly (Apple, 2020).

Chapter 12 – Global Supply Chain Management (10 Marks)

As previously mentioned, Apple is global company with operations spanning across the globe. Its supply chain consists of over 780 suppliers in 31 countries around the world, and about 350 of them located in China. (AICD, 2015). Apple being the world’s 3rd largest smartphone producer in the world (Business Tech, 2019), has ownership of over 100 foreign firms such as Poly9 in Canada, C3 Technologies in Sweden, Anobit in Israel, Didi Chuxing in China (Wikipedia, 2020); just to mention a few. They also have licensing and exporting rights to do business in numerous countries. China is Apple’s manufacturing hub for several reasons, such as, low manufacturing costs, presence of manufacturing infrastructure, proximity to raw materials, lower wage rate, and an already established trade relationship between China and the US (My Assignment Help, 2020); as a result, Apple enjoys economies of scale. The utilization of multiple suppliers for same components or materials ensures that there is competition among suppliers and this in turn favors Apple, reason being that competition encourages innovation and better products in the long run. Also, such competition ensures that Apple gets the best pricing at any given time (AICD, 2015, My Assignment Help, 2020). Multiple suppliers also provide Apple benefits of curbing disruptions in supply chains, processing pre-orders in large volumes and prevention of competitors from utilizing same production capacity due to exclusive supplier relationships (AICD, 2015). Apple also benefits from tapping into the Asia market to sell it products, particularly products such as iPhone 7 and the now rumored iPhone 9; these products are either in the low budget tier or in the declining lifecycle phase (for iPhone 7), however, due to increased demand for such products in the region, Apple stands a good chance of make great sales on such devices. It is worth noting that outsourcing of manufacturing to suppliers in China and Taiwan does come with some drawbacks, such as: a risk of disruption in production in an event of war or geopolitical crisis in such regions, trade war between the US and China, and natural disasters. Also, the economic situation of certain regions, if there be a depression, poses a threat to Apple’s manufacturing and sales, which could adversely impact its stocks and market share. (ACID, 2015).

Chapter 13 – Managing Supply Chains in Global Markets (10 Marks)

According to Gartner, an IT research firm, Apple’s supply chain ranked number 1 in the world for the third consecutive time (Market realist, 2019). The reason for this is partly due to the fact that Apple controls virtually every part of its supply chain; from designing to retail. (Market realist, 2019). Going by the global supply chain assessment model, this chapter will be broken down into 4 parts.

1. Background: Apple does a lot of market research and as such took advantage of the data it obtained to strategically locate it business operations globally. Since it already has it procurement team getting materials from various suppliers globally, they are then shipped to China for manufacturing at low cost. Furthermore, China has a huge population of about 1.392 billion people (Wikipedia, 2020), coupled with its available manufacturing knowhow served as a good indicator to Apple of a future market and growth in the country (Wikipedia, 2020). 2. Business Environment: According to Investopedia (2019), China is yet to be considered a developed country and as such companies like Apple take advantage of the favorable interest rates compared to developed countries. Also, the presence of a favorable trade agreement between US and China and lower wages aided the establishment of manufacturing centers in Asia. (India today, 2019). Recently, Apple has started moving its manufacturing of some of its low-cost smartphones such as iPhone XR to India. This would benefit both Apple and its customers, since India has one of the largest global demands for such iPhones and also has the presence of low-cost manufacturing companies such as Foxconn in their country (India today, 2019). 3. Supply Chain Practices and Issues: Apple has always been concerned with the people who make their products and not just manufacturing. This is evident in their supplier employee development programs (Apple, 2020). Apple ensures that the local people in whichever country their operations are situated are actively involved in their business processes, from manufacturing, to material handling or shipping and other services. (Apple, 2020). All of these are done to create a sense of belonging and not an exploitative impression to the local people. They also ensure to protect the environment in which such manufacturing processes take place by ensuring utilization of recyclable materials as seen

in Apple’s 100% recycled aluminum MacBook laptops as well as release of clean water back to the environment from their factories. (Apple, 2020). 4. Logistics Infrastructure: As previously mentioned, Apple’s supply chain is highly regarded due to its involvement in all parts of it supply chain. The logistics is no exception. This ensures that Apple can be efficient with deliveries globally and as such save costs if they were to outsource such services to 3PLS. (Clear spider, 2015). However, in recent times Apple has moved to reliance on 3PLs such as DHL and FedEx. Apple formed collaborative partnership to reputable 3PLs such as FedEx (Engadget, 2013) for its bulk shipping of its products. Apple also uses UPS for its freighting (iClarified, 2020). When Steve Jobs became critically ill and Tim Cook was appointed Chief Operating Officer, Cook took the responsibility of clearing up Apple’s supply chain and got rid of about 10 of Apple’s warehouse as he thought inventory were “fundamentally evil” (Clear spider, 2015). This left Apple with its current single warehouse in the USA.

Figure 1: Apple’s Global Supply Chain (Apple, 2020)

Chapter 14 – Strategic Supply Chain Network Design (10 Marks)

Apple’s supply chain network design comprises of numerous factors. These include Incorporation of lean management practice and continuous improvement aimed at reducing costs of production and maximizing customer satisfaction levels. (Apple, 2020). Apple ensures that the produce more output with less input and in a sustainable manner. This is evident in their recycle and reuse manufacturing processes which involves the use of 100% aluminum for their laptops. This ensures that less time, money, and labor is spent on mining for new materials, while protecting the environment (Apple, 2020). Apple also designed their supply chain to empower employees, thereby increased productivity levels (Apple, 2020). They also foster strategic partnership with suppliers to maintain timely deliveries and services. Reverse Logistics is also crucial in Apple’s supply chain as they improve customer satisfaction levels by offering free deliveries across all their offerings as well as free disposal or recycling of used devices from customers (Apple, 2020). The use of transportation management systems also ensures that active tracking of products at any given time is possible. While it is difficult to ensure 100% accuracy in manufacturing, the way and manner a company handles defect goes a long way in creating a positive impression to the public. Recently, Apple had to admit that their butterfly mechanism keyboard was faulty and had caused a lot of complaints from customers. To combat this issue, they rolled out a free keyboard replacement program for all eligible laptops for the next 4 years, while this may cost the company some money, retaining their customers is of greater importance to Apple’s business, as more customers mean greater bottom line in the long run (AICD, 2015). Apple’s collaborative partnership with suppliers also ensure that they (suppliers) continually get business as Apple’s market share expands. Apple also uses an omnichannel distribution channel whereby customers have the flexibility to be serviced online or in a physical store; but ensures to maintain their quality standards in either channel (AICD, 2015; Apple 2020). There is also a bit of amazon factor in Apple’s delivery to customers whereby they ‘under promise and over deliver’ to customers; all of these factors have contributed to why Apple consistently maintains a high level of customer satisfaction.

Chapter 16 – Supply Chain Performance Measurement and Metrics (10 Marks)

To ensure improvement in business processes, supply chains, customer service and satisfaction levels, it is pivotal to create an avenue to monitor and score performances in these areas. This is done by establishing certain metrics which will help a company know how well they are doing compared to their target goals and objectives. For Apple, several supply chain measures and metrics are currently being utilized to determine performance levels. These include: 1. Cost savings metrics: Apple ensures waste reduction by ensuring optimum inventory levels thereby reducing carrying cost of excess inventory. This coupled with strategic supplier collaboration and partnership with logistics companies like FedEx allows for Apple have products all year round. (Apple, 2020). Lean manufacturing is another cost saving technique employed by Apple. In addition, Apple in the past would fiercely negotiate for better pricing for its numerous suppliers to get the best value. (Cult of Mac, 2018). 2. Customer satisfaction metrics: since service and customer satisfaction are core to Apple’s values, they always strife to ensure customers have a great experience when utilising their products. (Apple, 2020). This is one of the reasons Apple always protects customers privacy as is famously seen in their software (iOS, MacOs, watchOS). According to The Next Web (2013), Apple was ranked number 1 in customer satisfaction on JD Power’s semi-annual study for the 9th time in a row. The high level of customer satisfaction is also evident in the increased sales of products to customers. 3. Employee performance: Apple’s continuous training and development of employees and also suppliers’ employees help to drive improvement within their supply chain, as it fosters cost savings and increased customer satisfaction levels in return (Apple, 2020). Alignment of employees to the mission and vision of Apple is ensured to yield better results. Staff are usually rewarded based on innovation, increased productivity, and performance (Apple, 2020). 4. Environmental impact metrics: In 2019, Apple was award UN Climate Action award for environmental work due to its move to utilize renewable energy in its manufacturing processes (Apple Insider, 2019). Apple was also rewarded top ranking in greener supply chain by the Corporate Information Transparency Index for the 5th year in a row (Apple, 2020). They also provide clean water to local

supplier community in China from their industry effluents; reporting a 39% water reuse rate in 2018 (Apple, 2020). 5. Returns on investment and assets: There is a saying, “happy customers mean bigger profit margins”, this is certainly true as Apple’s high quality customer satisfaction ratings has impacted the companies bottom-line. In 2019, Apple’s revenue showed an 8.91% ($91.81bn) increase from the previous year (Macro trends, 2019). Trends were already suggesting an even bigger margin for the year 2020; however, this may likely not be achievable due to the recent pandemic (COVID-19).

Increased Revenue/Bottom Line Metric: Increased ROI Customer Satisfaction Metric: Increased Sales and Ratings Internal Business Processes Metric: Lean manufacturing Employees’ Training & Growth Metric: Increased Productivity Figure 2: Apple’s Balanced Scorecard (Adapted by Author)

Explain in your own words, how the Coronavirus affected your company selection (10 Marks)

The novel coronavirus—COVID-19—is currently hugely impacting global economies and livelihood. Supply chains around the world are experiencing disruptions like never seen before. Apple Inc. being a global company had to force a closure of all retail stores worldwide; while this was done to limit physical human interactions, it has had a huge impact on sales of Apple’s hardware and services. Although operations online are still available, deliveries of items purchased now take longer than usual days to reach consumers. In the first quarter of 2020 Apple reported $91.8 billion revenue which was about 9% more than the previous year (Apple, 2020); however, the impact of the COVID19 pandemic will likely hurt its sales and thus revenues in subsequent quarters of the year may see a decline. There were also reports of new product launches such as iPhone 9/SE 2020, and mobile tracking device (Airbags) slated for March 2020, but they had to be delayed to further notice. In addition, there are reports that the annual iPhone event which usually holds in Fall may be delayed due to delay in finalizing on design prototype as Apple’s executive cannot travel to China to vet the processes due to travel restrictions. Also, shutdown of manufacturing plants across the globe is expected to affect production. (Apple, 20...