Apple's Supply Chain - Why You Can't Be Like Mike
Updated: Dec 22, 2019
Michael Jordan was arguably the best basketball player of all time. Even if you don’t agree with that, it would be hard to find someone who would not place him in the top five or top ten. And, if you took a composite poll across a broad number of people, he would likely end up number one. At one time, and probably still, everyone who played basketball wanted to be like Mike. Gatorade made a successful “Be Like Mike” commercial in 1991. Even Allen Iverson, in his Hall of Fame acceptance speech said he wanted to be like Mike.
In basketball and other sports, it’s relatively easy to spot excellence. There are field goals made, field goal percent, free throws, assists, steals, myriad others, and of course, there are championships won. There is even an entire field of sports statisticians that started with guys like Bill James and became popularized in Michael Lewis’s book Money Ball. This field led to a deeper understanding of which statistics were truly important to winning.
In baseball, when I was growing up, we never heard of a statistic like OPS (on base percentage plus slugging percentage). Someone had to pore over a hundred years of baseball data to determine how important that statistic is. For those people in baseball, it is now easy to see how important OPS has always been (by the way, Babe Ruth is the all-time career leader in OPS).
Ranking Supply Chains – A Popularity Contest?
In the past twenty years, it has become popular to rank supply chains, with the intention of identifying excellence, so that others can emulate excellence and everyone can improve. For the past ten years or so, since it introduced the iPhone, Apple has been ranked at or near the top of such rankings. But what can someone learn from Apple’s supply chain and try to emulate? As it turns out, not much. Apple’s supply chain is unique in many ways, based on the business model that Apple operates, which in turn is based on the characteristics of the products it makes. Let’s examine a few of these and see if there are any that you can or want to emulate.
Apple makes very high gross margin products in high volume, with not very much variety. How many companies can say this?
Because of the high gross margin of its products, Apple can afford to air ship just about all of its product portfolio. How many companies can say this?
Apple exerts strong control over its retail channels, in a manner that other manufacturers have not enjoyed since the 1950s. How many other companies have such control?
As stated earlier, in sports it is easy to rank players based on statistics and championships won. Apple’s statistics are outstanding and it is clearly winning championships in the sport of business. However, comparing supply chains is not as simple as ranking players in sports. Business statistics are tallied every quarter and posted to regulatory agencies in the form of income statements, balance sheets, and cash flow statements. For this reason, most supply chain rankings only include publicly-held companies for which this data is readily available.
What Sport Does Your Supply Chain Play?
There are two very important factors that need improvement in supply chain rankings. First, it is very difficult to compare companies across industries. Is Tom Brady or Mookie Betts the better athlete? Both are at the top of their respective sports, but one plays quarterback in football and the other center field in baseball. Some people say that hitting a baseball traveling at 95 miles an hour is the most difficult thing to do in sports; others would contend that completing passes with 350-pound linemen breathing down your neck is more difficult.
Supply Chain Degree of Difficulty
Second, and more importantly, supply chain rankings have no provision for degree of difficulty. It is relatively easy to compare supply chains based on financial statistics, press coverage, and peer opinions. Comparing based on detailed operation complexity is much harder.
Sports like figure skating and gymnastics were forced long ago to create a degree-of-difficulty scale for use in comparing performances across athletes. A similar approach, or a derivative thereof would be useful in comparing supply chains and making such comparisons much more useful to practitioners. Degrees of difficulty could be applied to planning, sourcing, making, moving, and selling products, along with other factors such as product complexity and volume. In figure skating, for example, there are toe loops, Salchows, loops, lutzes, and axels; each is a category that has a degree of difficulty, along with varying degrees within each category.
In Apple’s supply chain, there are very few quadruple axels or double quads going on. To be sure, Apple’s product is complex – there are microprocessors, cameras, touchscreens, memory chips, and antennas that need to come together to make it happen. But most of this work is the responsibility of a contract manufacturer, which also makes similar products for other OEMs.
And, if you think a smartphone is complex, you should visit an automotive assembly plant where 2000 components must come together to make a product that contains 20,000 detailed parts consumed from virtually every other manufacturing industry (and increasingly from the high-tech industry, which contributes between 50 and 100 microprocessors to every car), all under the close scrutiny of government.
In this case, the automotive industry is doing the equivalent of quadruple axels, while Apple is doing doubles and triples. But most automotive companies have been around 100 years, are boring, and have tons of assets, people, and materials to manage and coordinate. This is the triple whammy for a manufacturing supply chain. There are many other such industry examples.
What about the downstream supply chain? The contract manufacturer assembles the smartphone and then ships it to the airport, where Boeing 747s are waiting to be stuffed to the gills. Each 747 will uptake in excess of 150,000 smartphones. For most supply chains, this is the emergency approach when something goes awry with standard transportation modes. For Apple, this is the standard mode. There are very few other supply chains that can afford such a luxury.
Finally, Apple exerts a high degree of control over its retail channels, including its own retail stores, big box retailers, and telco carriers. It provides incentives (and disincentives) to maintain high prices and price homogeneity, and it controls inventory accordingly. In many ways, this is the way it used to be for all manufacturers. But, as Ving Rhames once said, “not no more.”
Apple alumnus Ron Johnson tried to bring Apple thinking to retailer JCPenney and in the process almost brought the company to its knees. Clearly in this case you shouldn't try to be like Mike. Mike doesn't do discounts and promotions.
Apple is now experiencing the effects of maturing products in maturing markets. In other words, it is joining the real world that manufacturers in established markets know all too well. Sure, it would be great to create a completely new iPhone-like product every 10 years, but the long arc of business history does not bend that way for individual companies. It would be great if Apple could disprove this.
Much can be learned from supply chain excellence rankings. Their main usefulness to the broad supply chain practitioner community should be beyond marketing, parties, and conference therapy sessions. This should come in the form of some level of understanding of what it is that is unique about a supply chain and how others can leverage that uniqueness and move the entire field forward.
Over the years it has sometimes been the fact that it was the leaders that needed to learn from others. Dell, for example, once ran an exclusively direct-to-consumer business for its computers. It took orders over the web, manufactured its own products, and delivered them directly to your doorstep. It was a pioneer in web commerce and was widely lauded as running one of the best supply chains in the world. At its pinnacle, it was turning over inventory more than 100 times per year. For ten years, everyone tried to emulate it.
Then, in the mid-2000s, Dell decided it needed to start emulating other companies by selling through retailers, and thus running a channel inventory-based supply chain. At the same time, it started the process of shutting down all its manufacturing plants and outsourcing everything to original device manufacturers (ODMs), just as other companies had already done.
Apple's Turn to Learn from Others?
Now, it may be Apple’s turn to start learning from other supply chains and not the other way around. Competition in smartphone and related high-tech industries has increased dramatically in the past five years.
If history is any guide, Apple’s iron grip on the retail channel, particularly in new markets, will not last forever. Already, it has been forced to expand its portfolio, by introducing more intermediate products along its pricing scale, something that other companies in other industries have been doing for decades. This is why product innovation is so important to Apple – in order for it to maintain its existing business model, with its unique supply chain, it must create products for which consumers are willing to pay significant premiums. Otherwise, it will have to start emulating other supply chains.
So, the next time you look at supply chain rankings, try to figure out what it is that is unique about each supply chain and determine if any of that is useful to you. Just because you want to be like Mike doesn't mean you can or should be like Mike.