Replicating Apple’s supply chain strategy may seem impossible given their dominance and deep coffers, but here’s distilling their approach down to a few simple rules to emulate:
Operational expert as CEO
Steve Jobs was world-renowned for his design leadership and obsession with making beautiful products. But Tim Cook is the leader that designed the operational superpower that Apple is. Cook joined Apple in 1998 as Senior Vice President of Operations. Over his first few years, he led efforts to close company-owned factories and warehouses and moved all manufacturing to contractors. This not only lowered costs but also reduced inventory on hand from months to days. Tim Cook as Apple’s CEO has helped further build Apple’s supply chain into one of the most powerful and efficient supply chains.
Supplier relationships as a superpower
While Amazon has hundreds of thousands of suppliers, over 90% of Apple’s product parts are sourced from their top 200 suppliers. On a similar consolidation vein, over 50% of apple’s sourcing costs are spent in China and over 90% in Asia. While this consolidation could also be risky, it has proven so far to be a very successful method in building stable relationships with suppliers, and the resulting purchasing power has allowed Apple to negotiate competitive prices thereby moving up its margins significantly.
Lower SKUs, and lower on-hand inventory
Extending the Amazon-Apple comparison, Amazon has over 150 million SKUs compared to Apple’s 25 thousand. Apple has far fewer core products, a huge advantage in furthering its purchasing power with suppliers. This base of relatively low core products allows Apple to keep minimal on-hand inventory. Most products are assembled to ship post-purchase. It does not hurt that Apple has incomparable brand value and insatiable demand – customers are happy to wait for the short window to receive their products.