Monday, February 10, 2014

Apple Changing the Dynamics of OEM

     Apple Inc. has been hailed as the leader in supply chain management for the past few years and the new strategy it has implemented in its supply chain network will make it more effective and efficient. To produce its unique and high quality products Apple relies on a network of suppliers and manufacturers. It's manufacturers in China has two responsibilities, they are responsible for procuring the raw materials from suppliers and manufacturing the product itself. Due to the relationship that the manufacturers have with the suppliers of the raw materials, they are able to mark up the price of those materials and charge it to Apple. For the past few years Apple was okay with this arrangement, however in recent years due to the increasing cost of supplies and manufacturing, Apple has change its tone. CEO, Tim Cook, known as a supply chain genius decided to tighten up the costs of manufacturing its products and this involved changing the status quo of suppliers and manufacturers.
        There are pros and cons to Apple's new strategy of taking away the responsibility of its manufacturers to buy the necessary materials to build the products. The cons are that manufacturers no longer have the leverage to negotiate their own prices anymore, however Apple will allow them to increase their prices 3-5% to save their profit margins. For Apple, this is a con because they will not only have to find the suppliers themselves but also pay the price hike from their manufacturers. The pros of this strategy are that the manufacturers no longer have to worry about inventory cost, since they won't be responsible to storing the necessary materials. As for Apple, they stand to benefit from more control over their supply chain and transparency in the cost.
         Overall, Apple's new strategy will gain more control over their supply chain network. By being responsible for finding suppliers, they will be able to control cost and gain a competitive advantage over their competitors. This strategy will no doubt start a trend in the OEM industry.

Question: As Apple begin to implement this strategy, will it eventually lead Apple purchasing the materials directly from the suppliers and producing the product themselves and phasing out their manufacturers?

Link: http://www.supplychain247.com/article/changing_supply_chain_strategy_will_make_apple_more_efficient_effective/IHS

1 comment:

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