Tuesday, January 29, 2013

Apple's Secret Recipe For Success: Inventory Management

If asked, what has made Apple an iconic brand that it is, the answers that one would expect are its innovations and sleek design. Almost everyone would overlook another important factor that has helped in catapulting Apple right to the top, which is, it’s properly managed inventory. Steve Jobs, the visionary that he is, knew from the beginning that designing cool products with cutting edge technology would only create news.  It’s getting those products in the hands of the consumers quickly, which is going to help make money. It wasn’t a surprise that he appointed Tim Cook, Apple’s most influential inventory manager as the Chief Operating Officer. He was later named as Apple’s CEO. Cook's first action plan was to do a total overhaul of Apples’ old supply chain and make it more lean and efficient. This helped the company to reduce inventory levels and increase its margins by many folds.

Looking at the recent Google Nexus 4 fiasco where the manufacturers couldn’t keep up with the demands, how Apple was able to meet the demands, every time for its iconic product becomes all the more important. There were reports about people queuing up in large numbers at Apple stores even from before the launch day and yet could walk out with an iPhone or an iPad in hand. All this could be achieved because of it well planned and managed inventories. 

How well an inventory is being managed is generally gauged by analysts by looking at two factors, ‘Inventory Turnover’ and ‘Days of Inventory’. Inventory Turnover is a measure of how quickly a company’s inventory could be sold and replaced.  Days of Inventory is a measure of how long would it take for a company to sell its entire inventory. A higher inventory turnover and a lower day of inventory is what companies aim for. When compared to its competitors Apple is far ahead in the game and leads the pack by a large margin.  Looking closely at the data we can clearly observe that Apple's inventory turnover figure is close to 5, meaning that every item in the Apple Store stays for only about five days before getting sold.

This amazing feat didn’t go unnoticed and was further proven in a report '2012 Supply Chain Top 25' published by the technology research firm Gartner. Apple was right on top with a composite score of 9.69 out of 10. Others could manage only a measly 5.4 and less.  Thus by reducing inventory holding costs and moving product more quickly from suppliers to consumers, Apple has been able to manage its inventory efficiently, all of which has contributed directly in keeping costs low and margins high. Now the only questions left to think are, till how long Apple would continue to have a fairy tale run in the market before it becomes complacent  like Dell  and loses its edge and can Google, after learning from its current mistake give Apple a run for its money from its next Nexus series and act as a true iPhone/iPad killer.

Source: http://www.gartner.com/newsroom/id/2023116

  1. Niu, Evan. "Apple Lesson of the Day: Inventory Is Evil." (AAPL). N.p., 23 Mar. 2012. Web. 28 Jan. 2013. 
  2. "Newsroom." Gartner Announces Rankings of Its 2012 Supply Chain Top 25. N.p., 22 May 2012. Web. 28 Jan. 2013.


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