Sunday, September 22, 2013

What the lead-times of Apple's new iPhones shows about their strategy

I know this is my second post where I talk about Apple, but why try to search for a needle in a hay stack when a needle is poking me in the arm?  This past week, I’ve been following a series of articles that have been tracking the lead-times of the new iPhone 5S and the iPhone 5C.  

In the readings for this week, the Matt Hudgins article talking about ‘Just In Case’ manufacturing speaks to how companies have been adding distribution hubs to decrease lead times.  He mentions how a company in the steel industry is adding distribution factories to bring delivery time to less than 24-hours because a 3-day lead time is no longer acceptable due to the competitiveness in the steel industry.  He also mentions how Amazon (yes, I am mentioning them again too…) added 3 fulfillment centers in Texas totaling about a million square feet to allow for rapid delivery time to customers.  

I am arguing that Apple however it not subject to the type of competition where shorter lead times are necessary.  I would even say that Apple deliberately decreases their supply to create a sense of exclusiveness for their top-tier products.  For example, a article states that the lead-time for the iPhone 5C is less than 24-hours while the lead-time for the white and silver iPhone 5S is 1-2 weeks while the wait for the gold iPhone 5S is 3-6 weeks for most carriers.  This variation in lead-times brings 2 different thoughts about Apples strategy:

1.       They are trying to push their new iPhone 5C model by creating scarcity for the iPhone 5S
2.       They missed on their forecast of the demand of both new iPhone models

As shown in class, Apple has had many supply shortages following the release of new products.  Even though supply tends to be much lower than the demand immediately following the release of a new product, the nature of the smartphone market shields Apple for the brute competitiveness seen in most markets.  Apple customers are loyal to the brand.  A 1-2 week lead time is not likely to cause a customer to choose an android device over and Apple product.  This loyalty gives Apple to the opportunity to create a sense of exclusivity for their “luxury” product by limited the initially quantity produced instead of flooding the market and allowing everyone who wants one to be able to purchase one immediately.

The second thought though tends to have more evidence.  It is hard to believe that Apple was able to predict the demand for the iPhone 5C but not for the iPhone 5S.  For starters, the variability for the iPhone 5C is much higher.  This product is offered available in 5 different colors, with two different memory options, and is offered in more than a dozen countries.  Given all of this, any consumer can obtain the color and memory option they want in whatever country they are in in less than 24-hours.  On the other hand, it takes anywhere form 1-6 weeks to get your hand on the iPhone 5S of your choice, which only has 3 color options.  For a supply chain as tight as Apple’s, this difference in stock is likely not to be planned.  They over-forecasted the demand for the iPhone 5C and severly under-forecasted the demand for the iPhone 5S.  Evidence of this is seen in another article that states Apple is increasing the production of the gold iPhone 5S.
My question is how much of this supply differences do people think is attributed to “creating demand” by limiting quantity and how much is due to simply bad predictions?

This link show’s the loyalty of Apple customers.  Also, even this guy knew the gold iPhone 5S would be hard to find so why didn’t Apple?

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