Apple announced the much anticipated iPhone 5 last week. According to Techcrunch, within one hour of the website’s opening to accept pre-orders, Apple announced that shipments would be delayed due to overwhelming demand. How does something like this happen?
Considering that every previous release of the iPhone has been met with delays in shipments due to manufacturing/production setbacks, one would expect Apple to have taken measures to ensure that production would be able to keep up with the overwhelming demand. Clearly, history repeats itself.
There is a possibility that Apple is purposefully orchestrating this havoc as part of some genius marketing scheme. However, given that this is a blog about Supply Chain and Business Operations, let’s focus on some of the more concrete elements of Apple’s situation.
1. Apple has diversified their manufacturing.
From a supply chain flexibility standpoint, diversifying manufacturers is a very smart decision. Production is not dependant on a sole source and the risk of one manufacturer experiencing a disaster does not necessarily lead to disaster in production timetables of the iPhone. However, a more mature supply chain would ensure adequate sharing of manufacturing capabilities across all manufacturers. It’s publicly known that the iPhone 5 screen display uses three known manufacturers: LG Display Co. Ltd., Japan Display Inc. and Sharp Corp. Hiring three different display vendors means Apple is not constrained to the whims of one display vendor, but a vendor who can manufacture glass AND have the capability to manufacture circuit boards can be THAT much more valuable to the supply chain.
2. Apple manufactures components in Asia.
This is an economic decision, and many other companies have been manufacturing products in Asia for years due to competitive cost of labor in that area of the world. For all of the first five generations of iPhones, North America was the first market to get the iPhone. All other markets around the world had to wait, even Asia. The risk of manufacturing goods across the ocean means longer lead time and longer delivery time. It’s possible to mitigate long lead times resulting from overseas manufacturing by simply manufacturing goods closer to your market. It’s more difficult for Apple to respond to overwhelming demand when the iPhone factories are located 8,000 miles away.
3. Apple has ample historical data for forecasting future demand.
Previous generations of iPhones have sold out in pre-sales in progressively shorter periods of time. The iPhone 4S sold out faster than the iPhone 4, which sold out faster than the iPhone 3GS, and so forth. It should not have been a surprise that the iPhone 5 would also sell out. Additionally, the iPhone 5 is the first iPhone to be simultaneously released in major markets around the world – not just the US. This was a decision that practically ensured all iPhone 5 devices would sell out in record time. Pre-sales can be used as a mechanism for gauging market interest (in the manner of Kickstarter), but Apple is in a much better position to forecast demand and having to announce delays in shipments within one hour of pre-sales really disappointed their iPhone loyalists.
4. Concurrent Release of iPhone 5 in multiple markets introduces Supply Chain Complexity
Different markets have different technology requirements for 4G LTE, band frequencies, shipping, manufacturing, and regulatory needs. It’s the logistics equivalent to a bowl of spaghetti. Managing their supply chain complexity is certainly something that Apple can focus on to better handle future releases of the iPhone.
Apple may very well be optimally managing the complexity in their supply chain, but if it is acceptable for Apple to delay shipments on pre-sales of iPhones, I’m scared to imagine what a poorly managed supply chain would mean.
To learn more about some of the topics we discussed, check out our resources page which lists case studies on complexity, segmentation and flexibility in the supply chain.
Written by Justin Wong, a consultant at OPS Rules Management Consultants