Apple is famous for innovation and design. However few people know that the way apple handles inventory is also a factor that led to success. One important fact is that since 2010 till nowadays, Apple has the best supply chain in the world. Classification by Gartner ranks. As you can see in the next picture.
Tim Cook, the current CEO of Apple believes that when it comes to technology such as Smartphone, tablets and laptops, inventory deprecates very, very quickly, losing 1-2% of value each week “inventory is fundamentally evil” he says. “You kind of want to manage it like you’re in the dairy business. If it gets past its freshness date, you have a problem.”
Changes that Tim Cook has introduced :
- Cut down the number of component suppliers à from 100 to 24
- Reduce 10 of 19 Apple warehouses to limit overstocking.
- Stock on hand was down from a month to 6 days (at the very beginning 1998)
- Turn inventory every 5 days (2012). It is important to keep as little inventory on hand as possible. “Technology manufacturers can’t afford to keep too many products in stock because a sudden announcement from a competitor or a new innovation could change everything and suddenly bring down the value of products in inventory.”
- 154 key suppliers, kept only one commercial warehouse ( synchronize with the approximately 250 own stores) (2013)
- Foreseeing sales levels accurately and not having excess inventor
Apple’s Secret to Success – Business Quick Tips – Fishbowl Inventory https://www.youtube.com/watch?v=YI9-BoLYmFQ
Comparison made of how companies managed their inventory shows that in 2011, Apple using the Inventory Turnover formula (shows how many times the current inventory balances of a company could be sold and replaced over a specific period. The higher the number here, the better) . Also, being focused on “days of inventory” showing how long it would take for a company to sell through all of its inventory) . In other words, days of inventory indicates how much inventory a company holds. Lower the number here is better, the opposite than in the inventory turnover. These two indicators have made Apple performance:
- 2 times better than Dell
- 5 times better than HP
- 5 times better than Blackberry
- 5 times better than Motorola
Apple is currently clearly the market leader when it comes to the way it runs inventory. Actually, often times when you order online, the product is shipped directly from China, so Apple doesn’t even have to look at it at all. When demand goes through the roof, Apple reacts relatively quickly with huge hiring sprees over at Foxconn.
In the following graph, you can see a comparison, of Inventory Outstanding.
Source: The Motley Fool (http://www.fool.com/investing/general/2012/03/23/apple-lesson-of-the-day-inventory-is-evil.aspx)
Finally, I invite you to see this amazing video about Apple and its Supplain Chain. I believe is a really good video for understand in an easy way all the different elements. https://www.youtube.com/watch?v=YbM_LydRlnM