OK...I cheer to so many things Apple does regarding operations. But when I read
Apple [..] sometimes doesn't pay until as long as 90 days after it uses a part [...]
I think only "lame". With $80B and 40% margin, company with that reputation...
Manufacturing is hard. And very expensive. Organize processes, buy machines and raw materials, pay the labor. And then comes Apple and gives itself a loan (basically, it's a loan) from a manufacturer.
No, sorry. It's lame.
PS - Just as a perspective: I help part time in a company my father and brother own (retail and manufacturing company). Even thou other businesses in the industry and the country do the same thing as Apple, they don't. I'm disgusted by that practice here...so, why not be disgusted by it when Apple does it?
Welcome to business in the real world. Try consulting for any Fortune 500 company sometime, and see how long they take to pay you after you invoice them. If 90+ days is the norm for paying small consultancies, it's hard for me to feel too sorry for multi-billion-dollar electronics suppliers.
At this size, I don't really feel like it's an issue. Manufacturers for Apple will all employ financial analysts whose job is to price the 90-day payment terms into their prices. If you're going to pay me tomorrow, I'll quote you $1 a widget. If you're paying in 90-days it's $1.04 a widget.
Incidentally, I know a wholesaler [1] in London which sells at almost cost price. It makes most of its profits from sitting on the cash it takes for 60 days, before paying it to suppliers.
I read in the 90s that Microsoft's suppliers appreciated that MS never went the 'net 30' or 'net 90' route like other Fortune 500 corps and just paid as soon as they got the bill.
It's priced into everyone's models. I worked in the ad industry fo a while where our clients (ad agencies) paid 50% up front and then the rest up to six months later. Meanwhile the artists lived hand to mouth and waned to be paid weekly in checks made out to cash. Meanwhile our hardware was all leased on multi- year terms despite becoming obsolete within 18 months.
Without knowing anything else, 90 days sounds like the amount of time sellers extend credit to Apple (30 and 60 days are also common). Usually such terms come with slight discount for early payment. Good cash management practice requires that they pay on the last day they get a discount or wait until the last day to pay.
Weigh that with times that they pay in advance. It's a case by case bases and I'm sure they're not late with payments. If they wait as long as 90 days, I bet it's because that was part of the business agreement they made with the manufacturer.
I think Apple's supply chain management is a greater competitive advantage than their product design.
There are many factors beyond the quality of product that go into a purchasing decision - things like hype, accessibility, and most importantly, price.
Apple never had much a problem with great design or building hype, but the real reason for their success over the last 15 years has been their ability to provide customers better access to their products and to provide them at more competitive prices.
The iPhone is ( by most accounts ) a superior product to the Blackberry. However, no one was going to buy an iPhone for $900, and without this impressive supply chain, Apple wouldn't be able to get the profit margins they want at $600 ( or $200 subsidized, which is also supply chain management ).
Product is important, and as a culture that builds things, HNers tend to focus on that ( the green light conversation in these comments being proof of that ), but all the logistics of how a product is delivered are just as important as the product itself - and maybe more so - in building a successful company.
The same ethos provides similar results on the customer service side. For example, letting users go to the website and schedule a 15-minute window of time in which Apple calls them is huge. Letting users go to the website and schedule an appointment to go talk to a real live human is huge. And making them walk all the way through a retail outlet full of your products to get there doesn't hurt, either.
Every other company in their space is still stuck on figuring out how to distribute tech support resources to customers by asking them to wait on hold for an hour. That's an hour worth of time doing absolutely nothing productive that shows up on the 800 number's bill. That's a bunch more call center hardware to maintain in order to manage the queue of people on hold. That's less productivity per operator, because customers who are pissed off about being on hold for an hour are harder to work with, and because dealing with that for 8 hours a day is an excellent way to lose your own motivation. Let alone that a bad support experience is a good way to make sure a customer doesn't become a repeat customer.
Thinking about them separately is a mistake. Apple is able to execute many of their designs because they can lean on their suppliers & manufacturers. Similarly apple is able to deliver high margins, price iPads at 500 etc because they make design decisions with the supply chain in mind.
The irony was that there was a time when Apple was absolutely HORRIBLE at this. They really only got it fixed after they nearly bankrupted the company.
> Most of Apple’s customers have probably never given that green light a second thought
Most, I'm sure. But personally the first time I saw light shining through my metal laptop, I was amazed, a little delighted, and slightly confused about how they were doing it (because, as the article mentions, the holes are too small to see).
"Most of Apple’s customers have probably never given that green light a second thought"
I did. I used microscopic lens to see how they are made, you will see concentric holes that are microns wide.
I was amazed too, I knew it only could be made by lasers but I was delighted how someone could have that original idea. It is brilliant, and so elegant.
The first time I saw that I actually took my laptop apart to see how it was done. It was just one of the simple features that I really enjoyed about my laptop. It just showed an attention to detail that no other manufacturer has yet to follow.
The first time I saw it I pulled out a triplet magnifier to see what was going on. I've got a few great shots of the laser pattern if anyone is interested.
Very reminiscent of the anecdote about an early Mac version: The final design had a tiny hole on the front of the cabinet where the speaker was. Steve went ballistic and in spite of huge time pressure and added expense forced a redesign in favor of a completely concealed speaker.
Same here. Once I figured it out, I wondered why they don't ever use the same technique to expose the Apple logo on the lid of the laptop - so that the lid is perfectly flush/clean when the screen is closed but the Apple logo is shown during use.
...now I know the answer: the lasers are so expensive and in such short supply it would presumably create a bottleneck in the production - esp given the surface area of the logo and thus the amount of holes needed.
"Each machine typically goes for about $250,000. Apple convinced the seller to sign an exclusivity agreement and has since bought hundreds of them[...]"
That's ~$25 million for just 100 of those lasers. If they bought hundreds of them, that means they paid tens of millions or even over $100 million just for that light effect.
Actually, I think that the sleep-light on the MacBook Pros came first. The small bar of light that's right next to the IR receiver on the front-right of the body.
That bar is actually a series of those small holes to let the light through. The green light for the metal casing came later IIRC.
> When the iPad 2 debuted, the finished devices were packed in plain boxes and Apple employees monitored every handoff point—loading dock, airport, truck depot, and distribution center —to make sure each unit was accounted for.
When I went to WWDC10, I was struck by the small detail of the conference security wearing black polos with the Apple logo and "Security" under the logo. At most conferences, the security is wearing jackets straight out of action movie central casting (e.g. "SECURITY"). I thought that was a nice small detail - to attire the rent-a-cops in Apple gear. But, now, reading this, I think they may have been full time Apple security staff. Security is paramount.
Seems to me to be an extension of the 'People who are really serious about software should make their own hardware.'.
Say 'People who are really serious about making and selling a product should make their own production, supply and store chains' or 'People who are serious about their product should take ownership of all stages of that product.'
This is a great proof of the strategic advantages of totally controlling your operations. In the start you are at disadvantage, but if you manage to gain steam you end up with a competitive advantage that is almost unfair.
In Apples case this strong position is not only visible in the supply chain management but it is clearly present in all their stack. Another example is their supremacy in software.
I think that this is one of the great lessons from Steve Jobs, takin your time to control and develop everything internally it is feasible competitive approach.
Apple do a nice combination of controlling operation, with open(relatively) ecosystem.
They use the rapid response of a huge open ecosystem of software developers, while still having a lot of control.They do it this way because in software , time to market is very important.
For the hardware part, which normally changes less often(slower phone buying cycle,phones are integrated and not modular like PC's, relatively long time before new electronic components become mass market) and time to market is less important(relative to software) , they use a closed ecosystem, in order to extract most of the profit.
I very highly recommend listening to a couple of episodes of Critical path if you care about Apple's supply chain strategy. I was amazed at the level of detail in which this was discussed (and going through this article I couldn't help but think that part of the information in it is due to the analysis on that podcast):
Inventories are buffers, in an idealistic scenario(perfectly efficient) we don't need them. I order something, they make it and they give me instantly, no need to store it).
In reality we need them, but Apple have very efficient logistics that make them minimal, compared with other companies, that can't control as much as the supply chain as Apple does, or can't use air planes to send their devices(so their products arrive weeks or months late, infuriating their customers).
This is an oversimplification of course, there is way more about it, like demand-offer time lag problems, any operations research or logistic book will support you if you are interested.
Nope. Apple agrees to buy 1 to 5 million ipod screens from a supplier, at a $10 per screen (totally made-up figure). They say they want boxes of 100,000 units, delivered within 1 week of whenever they feel like asking for them. So Apple doesn't need a warehouse, they get their supplier to pay for that.
They also have an identical deal with another supplier, so they can play them off against each other if they need to renegotiate. Most companies would just go with whichever supplier was cheapest, but Apple may find it cheaper (in the long run) to keep the competition going.
These kinds of articles were novel 10 years ago when Apple was coming back and was doing so while beating Dell at supply chain optimization and that was, justifiably, a huge story. Ironically, I read them in BusinessWeek back then, too.
Now, the ODM/OEMs have become brands and the folks who once were the main participants in Apple's supply chain are now directly competing with Apple. Breathless articles aside, are we really sure that Apple's supply chain is much shorter/faster than those of Lenovo, Dell, HTC, Sony or, holy hell, Samsung?
I also have a hard time seeing how $25M worth of lasers is a supply chain innovation; most other manufacturers would probably prefer to make the laptop for $6 (amortization) less. I have a ThinkPad T520 [with Linux] because it's rugged, comfortable (no wrist razor), has a TrackPoint (I know, I know, but I love it) and about $1200-$1500 less than a comparable Macbook Pro. Clearly, the majority of hackers disagree with me, so I'm convinced that 90% of Apple's incredibleness is their marketing (not ads, but understanding how to design and build excellent products which are very well targeted at their audiences).
>I also have a hard time seeing how $25M worth of lasers is a supply chain innovation; most other manufacturers would probably prefer to make the laptop for $6 (amortization) less
It looks like Apple's supply logistics chain is similar to WalMart's supply chain. WalMart has deep connections with their suppliers, requiring suppliers to hand over financial records, dictating factory processes, and demanding yearly cost reduction.
The difference (and it is the major difference) is that Apple focuses their relationships with suppliers on quality of process and availability by locking up supply years ahead of time. WalMart just focuses on cost reduction.
The innovation is that Apple willing to pay high upfront costs years in advance to design efficient manufacturing processes so that later it would be able to get both cheaper component rates and a guaranteed supply. Jonathan Ive has said that most of his time is spent designing processes rather than products. Check out this excerpt from the [Objectified](http://en.wikipedia.org/wiki/Objectified) documentary: [Youtube](http://www.youtube.com/watch?feature=player_detailpage&v...)
>Clearly, the majority of hackers disagree with me, so I'm convinced that 90% of Apple's incredibleness is their marketing (not ads, but understanding how to design and build excellent products which are very well targeted at their audiences).
That last sentence there doesn't make much sense at all.
How is "understanding how to design and build excellent products which are very well targeted at their audiences" part of marketing? That's straight up design and engineering.
Speaking as a contractor, I have a bias/tendency to eventually "fire" any client that takes too long or is too sketchy about paying me. Too much risk on my part. I work, I get paid. With all bullshit set aside, it should only take on OOM of about 1 minute to write a check, put in envelope, put stamp on it, and put in outbound mailbox. Anything longer than that is self-imposed bureaucracy, not physics.
Interesting article, but this quote is absolutely sickening:
> Because of its volume—and its occasional ruthlessness—Apple gets big discounts on parts, manufacturing capacity, and air freight. “Operations expertise is as big an asset for Apple as product innovation or marketing,” says Mike Fawkes, the former supply-chain chief at Hewlett-Packard (HPQ) and now a venture capitalist with VantagePoint Capital Partners. “They’ve taken operational excellence to a level never seen before.”
Crediting a company that until very recently employed slave labour with "occasional ruthlessness" and "taking operational excellence to a new level" is just disgusting.
There is still no excuse for that. They should be grovelling on the ground begging for forgiveness, not being commended for it!!
At least thanks to this article we know how that situation came to being... Just a little harmless "occasional ruthlessness".
Slave labour? Really? Since Apple products are made my Foxconn, which also make products for a number of other manufacturers, aren't they then complicit too? How about Foxconn?
[+] [-] binarray2000|14 years ago|reply
Apple [..] sometimes doesn't pay until as long as 90 days after it uses a part [...]
I think only "lame". With $80B and 40% margin, company with that reputation...
Manufacturing is hard. And very expensive. Organize processes, buy machines and raw materials, pay the labor. And then comes Apple and gives itself a loan (basically, it's a loan) from a manufacturer.
No, sorry. It's lame.
PS - Just as a perspective: I help part time in a company my father and brother own (retail and manufacturing company). Even thou other businesses in the industry and the country do the same thing as Apple, they don't. I'm disgusted by that practice here...so, why not be disgusted by it when Apple does it?
[+] [-] tptacek|14 years ago|reply
[+] [-] AlexMuir|14 years ago|reply
Incidentally, I know a wholesaler [1] in London which sells at almost cost price. It makes most of its profits from sitting on the cash it takes for 60 days, before paying it to suppliers.
[1] http://www.dhamecha.com/
[+] [-] herdrick|14 years ago|reply
[+] [-] Tloewald|14 years ago|reply
[+] [-] lemma|14 years ago|reply
[+] [-] MichaelApproved|14 years ago|reply
[+] [-] padobson|14 years ago|reply
There are many factors beyond the quality of product that go into a purchasing decision - things like hype, accessibility, and most importantly, price.
Apple never had much a problem with great design or building hype, but the real reason for their success over the last 15 years has been their ability to provide customers better access to their products and to provide them at more competitive prices.
The iPhone is ( by most accounts ) a superior product to the Blackberry. However, no one was going to buy an iPhone for $900, and without this impressive supply chain, Apple wouldn't be able to get the profit margins they want at $600 ( or $200 subsidized, which is also supply chain management ).
Product is important, and as a culture that builds things, HNers tend to focus on that ( the green light conversation in these comments being proof of that ), but all the logistics of how a product is delivered are just as important as the product itself - and maybe more so - in building a successful company.
[+] [-] bunderbunder|14 years ago|reply
Every other company in their space is still stuck on figuring out how to distribute tech support resources to customers by asking them to wait on hold for an hour. That's an hour worth of time doing absolutely nothing productive that shows up on the 800 number's bill. That's a bunch more call center hardware to maintain in order to manage the queue of people on hold. That's less productivity per operator, because customers who are pissed off about being on hold for an hour are harder to work with, and because dealing with that for 8 hours a day is an excellent way to lose your own motivation. Let alone that a bad support experience is a good way to make sure a customer doesn't become a repeat customer.
[+] [-] adamtmca|14 years ago|reply
[+] [-] cbsmith|14 years ago|reply
[+] [-] nailer|14 years ago|reply
Most, I'm sure. But personally the first time I saw light shining through my metal laptop, I was amazed, a little delighted, and slightly confused about how they were doing it (because, as the article mentions, the holes are too small to see).
[+] [-] forgottenpaswrd|14 years ago|reply
I did. I used microscopic lens to see how they are made, you will see concentric holes that are microns wide.
I was amazed too, I knew it only could be made by lasers but I was delighted how someone could have that original idea. It is brilliant, and so elegant.
[+] [-] X-Istence|14 years ago|reply
[+] [-] idspispopd|14 years ago|reply
[+] [-] johnyzee|14 years ago|reply
[+] [-] dotBen|14 years ago|reply
...now I know the answer: the lasers are so expensive and in such short supply it would presumably create a bottleneck in the production - esp given the surface area of the logo and thus the amount of holes needed.
[+] [-] MichaelApproved|14 years ago|reply
That's ~$25 million for just 100 of those lasers. If they bought hundreds of them, that means they paid tens of millions or even over $100 million just for that light effect.
[+] [-] davidjohnstone|14 years ago|reply
[+] [-] jvdh|14 years ago|reply
That bar is actually a series of those small holes to let the light through. The green light for the metal casing came later IIRC.
[+] [-] gbog|14 years ago|reply
[+] [-] wallflower|14 years ago|reply
When I went to WWDC10, I was struck by the small detail of the conference security wearing black polos with the Apple logo and "Security" under the logo. At most conferences, the security is wearing jackets straight out of action movie central casting (e.g. "SECURITY"). I thought that was a nice small detail - to attire the rent-a-cops in Apple gear. But, now, reading this, I think they may have been full time Apple security staff. Security is paramount.
[+] [-] spleeyah|14 years ago|reply
And believe me, they take every aspect of security into account.
[+] [-] philwelch|14 years ago|reply
[+] [-] gujk|14 years ago|reply
[+] [-] atnan|14 years ago|reply
[+] [-] yassim|14 years ago|reply
Say 'People who are really serious about making and selling a product should make their own production, supply and store chains' or 'People who are serious about their product should take ownership of all stages of that product.'
[+] [-] antics|14 years ago|reply
http://www.quora.com/Apple-Inc-2/What-would-be-a-good-use-of...
[+] [-] irrationalfab|14 years ago|reply
In Apples case this strong position is not only visible in the supply chain management but it is clearly present in all their stack. Another example is their supremacy in software.
I think that this is one of the great lessons from Steve Jobs, takin your time to control and develop everything internally it is feasible competitive approach.
[+] [-] ippisl|14 years ago|reply
They use the rapid response of a huge open ecosystem of software developers, while still having a lot of control.They do it this way because in software , time to market is very important.
For the hardware part, which normally changes less often(slower phone buying cycle,phones are integrated and not modular like PC's, relatively long time before new electronic components become mass market) and time to market is less important(relative to software) , they use a closed ecosystem, in order to extract most of the profit.
[+] [-] fredoliveira|14 years ago|reply
http://5by5.tv/criticalpath/10 and http://5by5.tv/criticalpath/11
[+] [-] endlessvoid94|14 years ago|reply
[+] [-] bravura|14 years ago|reply
Could someone explain what that means more specifically? That they don't have to have a large stock?
Doesn't this controvert the earlier statement: "Because of its volume ... Apple gets big discounts on parts, manufacturing capacity, and air freight."
[+] [-] forgottenpaswrd|14 years ago|reply
Inventories are buffers, in an idealistic scenario(perfectly efficient) we don't need them. I order something, they make it and they give me instantly, no need to store it).
In reality we need them, but Apple have very efficient logistics that make them minimal, compared with other companies, that can't control as much as the supply chain as Apple does, or can't use air planes to send their devices(so their products arrive weeks or months late, infuriating their customers).
This is an oversimplification of course, there is way more about it, like demand-offer time lag problems, any operations research or logistic book will support you if you are interested.
[+] [-] wisty|14 years ago|reply
They also have an identical deal with another supplier, so they can play them off against each other if they need to renegotiate. Most companies would just go with whichever supplier was cheapest, but Apple may find it cheaper (in the long run) to keep the competition going.
[+] [-] CoffeeDregs|14 years ago|reply
Now, the ODM/OEMs have become brands and the folks who once were the main participants in Apple's supply chain are now directly competing with Apple. Breathless articles aside, are we really sure that Apple's supply chain is much shorter/faster than those of Lenovo, Dell, HTC, Sony or, holy hell, Samsung?
I also have a hard time seeing how $25M worth of lasers is a supply chain innovation; most other manufacturers would probably prefer to make the laptop for $6 (amortization) less. I have a ThinkPad T520 [with Linux] because it's rugged, comfortable (no wrist razor), has a TrackPoint (I know, I know, but I love it) and about $1200-$1500 less than a comparable Macbook Pro. Clearly, the majority of hackers disagree with me, so I'm convinced that 90% of Apple's incredibleness is their marketing (not ads, but understanding how to design and build excellent products which are very well targeted at their audiences).
[+] [-] pinwale|14 years ago|reply
It looks like Apple's supply logistics chain is similar to WalMart's supply chain. WalMart has deep connections with their suppliers, requiring suppliers to hand over financial records, dictating factory processes, and demanding yearly cost reduction.
The difference (and it is the major difference) is that Apple focuses their relationships with suppliers on quality of process and availability by locking up supply years ahead of time. WalMart just focuses on cost reduction.
The innovation is that Apple willing to pay high upfront costs years in advance to design efficient manufacturing processes so that later it would be able to get both cheaper component rates and a guaranteed supply. Jonathan Ive has said that most of his time is spent designing processes rather than products. Check out this excerpt from the [Objectified](http://en.wikipedia.org/wiki/Objectified) documentary: [Youtube](http://www.youtube.com/watch?feature=player_detailpage&v...)
[+] [-] kooshball|14 years ago|reply
That last sentence there doesn't make much sense at all. How is "understanding how to design and build excellent products which are very well targeted at their audiences" part of marketing? That's straight up design and engineering.
[+] [-] zdw|14 years ago|reply
[+] [-] mkramlich|14 years ago|reply
[+] [-] unknown|14 years ago|reply
[deleted]
[+] [-] CWIZO|14 years ago|reply
[+] [-] pchristensen|14 years ago|reply
[+] [-] datsro|14 years ago|reply
[+] [-] 2muchcoffeeman|14 years ago|reply
[+] [-] swombat|14 years ago|reply
That's a bit of a floppy ending for an otherwise excellent article.
[+] [-] tripzilch|14 years ago|reply
> Because of its volume—and its occasional ruthlessness—Apple gets big discounts on parts, manufacturing capacity, and air freight. “Operations expertise is as big an asset for Apple as product innovation or marketing,” says Mike Fawkes, the former supply-chain chief at Hewlett-Packard (HPQ) and now a venture capitalist with VantagePoint Capital Partners. “They’ve taken operational excellence to a level never seen before.”
Crediting a company that until very recently employed slave labour with "occasional ruthlessness" and "taking operational excellence to a new level" is just disgusting.
There is still no excuse for that. They should be grovelling on the ground begging for forgiveness, not being commended for it!!
At least thanks to this article we know how that situation came to being... Just a little harmless "occasional ruthlessness".
[+] [-] Synaesthesia|14 years ago|reply
[+] [-] ceejayoz|14 years ago|reply