This week, The Wall Street Journal validated what those in Apple supply chain ecosystem had already suspected, that the global consumer electronics icon has scaled back supply chain requirements for iPhones.
Citing three informed sources familiar with the Apple supply chain, the report indicates that order forecasts to iPhone suppliers have been pared back in the past several months. According to this report (Paid subscription required): “Component suppliers that rode the iPhone’s boom are now bracing for lower sales.”
Further noted was that iPhone factories had some idle capacity in the final two months of the calendar year when they typically would be all-out. That situation surprised this author since Apple has consistently been good at product demand forecasting.
Major contract manufacturer Foxconn Technology reportedly began dismissing some employees earlier than usual from its Zhengzhou China facility that employs upwards of 200,000 workers. The Provincial government reportedly promised Foxconn $12 million in subsidies to minimize layoffs.
In late June-early July, the WSJ indicated that Apple was planning for a larger initial production run of the next iteration of iPhones, requesting suppliers to support between 85 million and 95 million iPhones for the all-important end-of-year holiday buying season. In 2014, Apple planned its supply chain output for a range of 70-80 million phones, and actually shipped 74.5 million smartphones during the holiday quarter. What was unusual for the forecast numbers related to iPhone6S models were the lack of any significant hardware changes it its release, thus the larger numbers would have indicated expectations for increased global demand or additional customer upgrades this past holiday season. In October, Digitimes reported that integrated circuit suppliers were indicating concern for iPhone chip orders.
Based on this latest WSJ report, we logically assumed that Apple’s supply chain planners and Sales and Operations team members are dynamically managing product demand and supply alignment. As readers participating in S&OP process know quite well, sometimes sales and marketing can have rather exuberant expectations regarding product sales volumes for a key quarter, only to change such expectations when actual order volume patterns are known.
With so many global investor eyes on Apple, and with so many supplier fortunes pegged to business volume concerning Apple, the stakes are obviously high and far reaching. This is especially pertinent to newer iPhone suppliers brought in to diversify supply sources and balance supply risk. As we have concluded in many prior Supply Chain Matters commentaries, there are few supply chains that garner wide visibility as that of Apple. So much so that information leaks are actively nutured.
Apple’s upcoming report of financial results related to this past holiday quarter are therefore a rather important indication of the consequences of iPhone focused supply chain activity in the first-half of 2016.
In these end-of-year Supply Chain Matters commentaries, we wanted to update our readers on certain news and developments that occurred just prior to the Christmas holiday.
On December 17th, Apple realigned its senior executive ranks for the coming year and promoted its existing worldwide operations and supply chain executive to chief operating officer. Senior vise-president Jeff Williams, a longtime trusted lieutenant to CEO, Tim Cook was promoted to the COO position, once occupied by Cook when Steve Jobs was CEO. With this appointment, Williams becomes fourth C-level executive at Apple which includes chief financial officer Luca Maestri, chief design officer Jony Ive and of-course, Cook.
Williams joined Apple in 1998 as head of procurement and has steadily increased leadership responsibilities among Apple’s various supply chain operations, administration and global initiatives, including efforts to improve global supply chain transparency and social responsibility. In 2013 he was designated to oversee the development and ongoing product management efforts of the Apple Watch. Williams came to Apple after procurement and operational leadership roles at IBM.
This announcement came amid other new executive assignments that included Phil Schiller, senior vice president of worldwide marketing, expanding his role to include leadership of the App Store® across all Apple platforms and Johny Sroujii who led semiconductor engineering being appointed senior vice-president for hardware technologies. Tor Myhren, who will be joining Apple in the first calendar quarter of 2016 was appointed vice president of marketing communications, reporting to CEO Cook.
In its press release announcing the COO role CEO Cook cited Williams as being “..hands-down the best operations executive I’ve ever worked with”
Supply Chain Matters extends congratulations to Mr. Williams on his new leadership role.
It is yet another example of how supply chain leadership experience is a doorway to broader C-level roles.
Global commercial real estate firm CBRE Group Inc. has released a research report indicating that over the next decade, 20 markets worldwide—including South Florida; Santiago, Chile; Bajio, Mexico; and Philadelphia—are set to emerge as global logistics hubs.
The concept of emerging global logistics hubs was brought forward to in the book, Logistics Clusters, Delivering Value and Driving Growth, authored by Yossi Sheffi at MIT’s Center for Logistics and Transportation.
According to the CBRE research report, while global hubs will continue to best meet the needs of companies with international supply chains that encompass the sourcing, manufacturing, distribution and sale of goods, there are 20 specific regional hubs that are poised to become major players in the network for global trade. Although they currently serve as central processing locations for regional supply chain networks, the report cites a number of factors are shifting the dynamics of international distribution and catapulting some regional hubs into the supply chain spotlight. We have attached the report’s infographic that names these various hubs.
The CBRE research points to significant logistics investments, such as the ongoing expansion of the Panama Canal, regional industry production cluster, such as those manifested in the automotive sector, the ongoing impacts of Omni-channel and E-Commerce, and evolving trade agreements as major impetus factors for these new emerging logistics centers.
In the latter, the report cites The Trans-Pacific Partnership (TPP) as a potential trade agreement that will have drastic effects on global trade routes and manufacturing demand in Asia. Supply Chain Matters has recently published our initial impressions of the impacts of TPP.
For the implication of e-commerce’s impact on customer fulfillment and supporting logistics, the report indicates:
“In the past, a network of regional centers that fed into the local supply chains with 3-4 day delivery time coverage of the region was sufficient to meet service standards. However, compressed service times—in many cases, to overnight or same-day delivery—has reshaped the supply chain and has often resulted in distribution direct to the consumer from a global or large regional hub. The Eastern Pennsylvania region, anchored by Philadelphia but fueled by the growth of the Lehigh Valley, is an example of a hub that has been transformed by this new technology. This mid-Atlantic location enjoys access to over100 million people within a one-day drive, including key metropolitan areas such as New York, Washington, D.C., and Boston.”
“E-commerce shipments are smaller in size and require more technology and expertise to execute efficiently. As a result, modern logistics facilities are being developed in the traditionally strong logistics hubs of Tokyo, Seoul and Taipei. Brick-and-mortar retailers are entering the online sales market, resulting in strong demand for modern logistics in Tokyo, as logistics networks must be upgraded to accommodate the higher volumes of package movement. Additionally, the online trend is strong in Taiwan and South Korea, where 83% and 73% of shoppers, respectively, go online to avoid going to a physical store.”
There are many other insights and observations regarding rapidly shifting patterns of logistics which are impacting commercial real estate investment. However, what should be of concern to supply chain and Sales and Operations teams are the implications to existing distribution fulfillment networks that were formed under far different business process assumptions than today’s Omni-channel and global production strategy world.
The report itself can be accessed at this CBRE hosted web link. Please note that registration and account sign-up is required to download this complimentary report.
Hewlett Packard Now Operating as Two Separate Companies: Supply Chain Test Comes in the Coming Weeks
Today marks the official first day of high-tech firm Hewlett Packard operating as two separate and distinct companies. One company, Hewlett Packard Enterprise Company will oversee operations of the former HP Enterprise division, a $55 billion dollar entity. The other, HP Inc., will oversee operations of the former HP Printer and PC divisions, of equivalent revenue size. Supply Chain Matters commented on this proposed split, along with supply chain implications in a July commentary, as we envisioned a very busy summer across the company.
The massive HP split involved separating balance sheets, facilities, IT systems and applications, including those related directly to the support of HP’s end-to-end supply chain. Purchase agreements among various suppliers would have to be recast foe each new company along with various special agreements.
A published article from the San Jose Mercury Times provides perspective on the scope and efforts that went into this split, which overall involved 300,000 employees among 651 global locations. Formal planning began last February and initially involved a flow chart that consumed a 40 foot length, 10 foot high wall. Approximately 60,000 employees had to be moved to separate locations, along with a reported 2700 bank accounts and IT systems.
An interesting perspective brought out in the article was the planning could not be a consensus-driven decision-making process. Instead, a small group of executive decision-makers were supported by a separation project team that grew to about 400 people.
The real-test of this separation comes over the coming weeks as the spilt processes and systems begin efforts as two separate enterprises. From a supply chain and product management perspective, key sensitivities will be seamless uninterrupted operation of both order fulfillment, supply chain planning and execution systems. A further perspective will be how inbound direct material and indirect materials contracts are structured, implemented and managed under the split. The Mercury Times report indicates that HP Labs will remain as a separate research and development center shared by both companies.
Obviously, the good news here was that the November 1st separation milestone was completed as required. The systems shakeout period will hopefully occur without major snafus.
The Wall Street Journal reports that two major Apple suppliers are locked in a fierce battle for control of Taiwan based Siliconware Precision Industries, known as SPIL. (Paid subscription required) This skirmish places Apple as having to be attune to its ongoing relationships among two rather important key suppliers.
The battle centers around a new component-packaging technology termed system-in-package or SiP which is essentially a number of integrated circuits enclosed in a single module (package). SiP can support all or most of the functions of an electronic system, and is typically used inside a mobile phone or consumer device such as Apple’s iPhone.
According to the report, SPIL currently supplies SiP services in small volume and is seeking to roll out this technology on a far broader scale in 2017. The report cites Bernstein Research as indicating that Apple alone will account for $3.1 billion in SiP component orders this year, and that amount could double by 2017.
The two existing Apple suppliers vying for control of SPIL are Advanced Semiconductor Engineering (ASE) and none other than contract manufacturing services provider Foxconn, through its parent, Hon Hai Precision Industries.
ASE is noted as the world’s biggest chip assembler, recently acquired a 25 percent stake in SPIL. In late August, SPIL announced a deal to collaborate with Hon Hai Precision that included a share swap that would afford the contract manufacturer a bigger equity stake and more voting clout than ASE. The WSJ opines that because Foxconn has an existing close collaborate relationship with Apple and its product design teams, SPIL has a better chance for leveraging expanded Apple business. Further noted is that collaboration with SPIL aides in Foxconn’s goals to diversify into lower tiers of the high tech supply chain including semiconductors.
From our Supply Chain Matters lens, we concur with the WSJ that this ongoing battle for emerging supplier control very much underscores the importance that Apple’s scale and business potential has for key suppliers. It further underscores how existing close relationships with key suppliers can influence future strategic supply decisions, particularly when such influence extends to the influence of future product design. In this specific case, individuals within Apple’s strategic sourcing and iPhone product design teams will have to eventually play the role of peacemaker.