It seems that I’m constantly penning a Supply Chain Matters posting regarding the enviable results that Apple provides from both financial performance and supply chain capability perspectives. My last posting was at the end of July, Yet Again, Apple Sets the Benchmark. 

Earlier this week, Apple reported its latest quarterly and full-year financial and performance results, which were even better, and proves once again why Apple maintains its number one ranking in just about everyone’s top supply chain capabilities listing. While many companies continue to struggle or maintain some form of profitability in this challenging economic environment, Apple defies the economy. The company posted both a 47% jump in profits along with its second-highest quarterly revenue growth on record.

Apple’s earnings press release notes the following unit volumes for the latest quarter:

• 7.4 million iPhones, a 7% unit growth from a year ago, and a 42% increase from the 5.2 million phones shipped in the June quarter.
• 10.2 million iPods, an 8% unit decline from a year ago quarter, but the same volume as the prior quarter.
• 3.05 million Macintosh computers, a 17% unit increase over a year ago quarter as well as last quarter.

The combined 20.65 million units sold represent an average of 229,000 units of daily sales output.  While still maintaining a pace of over a quarter million units sold per day, that figure is slightly down from the previous calendar quarter.  By my calculation, days inventory outstanding (DIO) came in a 4.48 days, which is 3 days less than last quarter. Apple actually increased its inventory investment by $55 million in the quarter, which most likely represents a need to replenish overall inventories prior to the upcoming holiday season.

In the earnings press release, Apple’s CFO notes that for the full year the company grew overall revenues by 12 percent and net income by 18 percent in extraordinarily challenging times. What an understatement! 

In this economic environment, most CFO’s, especially those residing in the consumer electronics sector, would be thrilled to be able to boast of such results.  Sadly, most consumer electronics companies, particularly those that reside in Japan, are continuing to struggle in this current global economy.

Apple once again proves that it sets the global benchmarks in value-chain capability.

Kudos to the entire Apple value-chain team for a job well done.

 The question still remains however, how long can this track record continue?

 Bob Ferrari

This week has brought continued news of positive momentum in the area of green and sustainability efforts across high tech related supply chains.

For the first time, Apple Computer released its first environmental impact study.  To no surprise, actual use of products accounts for 53% of the 10.2 metric tons of greenhouse gas emissions associated with the lifecycle analysis of Apple products, followed by 38% derived from manufacturing.  Interestingly, transportation accounts for 5%, while facilities account for 3%.  Apple attributed much of the progress related to reduction of overall greenhouse gases in its efforts to reduce the amount of toxic materials used in its products as well as more streamlined packaging.  Apple has also extended its efforts to audit more supply chain partners, including 83 facilities in 2008, up from 39 in 2007.  Overall, it was not a bad report.

At the furthest end of the high tech value chain, Taiwan Semiconductor Manufacturing Co. Ltd (TSMC), a significant producer of computer chips for many Original Equipment Manufacturers (OEM”s), announced that it has completed its Supply Chain Carbon Inventory Assistance Plan, the first company in Taiwan to complete such a study.  TSMC not only actively inventories and tracks its own greenhouse gas emissions, but also requires suppliers to do so as well. The current plan includes 36 factories and 20 partner companies in disclosure, representing a wide variety of suppliers of raw material and chemical compounds to semiconductor manufacturing.  TSMC has also embarked on an educational program across Taiwan to share its experiences in conducting a supply chain carbon inventory, in hopes of motivating other companies to initiate such programs.

I believe both companies should be applauded for their proactive efforts in tracking carbon emissions, and making more sound business cases for insuring greener supply chains.

 Bob Ferrari

We have often commented many times about the enviable position that Apple provides in its supply chain capabilities, especially in a more challenged market with altered patterns of consumer-related needs.

Apple reported yet another blowout quarter of sales and profits and we all have to tip our hats.  The company’s latest quarterly results (June fiscal Q3) reported $8.34 billion in revenue and a net quarterly profit of $1.23 billion.  Apple remains in a somewhat enviable position for this economy, in that demand for most of its products continues to exceed available supply, which adds to consumer hype of needing to have that iPhone.

Beyond the quarterly financials is yet another incredible demonstration of supply chain fulfillment capability.  Apple’s press release notes the following unit volumes for the quarter:

• 2.6 million MacIntosh computers shipped, a 4 percent unit increase over last year’s quarter
• 10.2 million iPods, a 7 percent unit decline over last year’s quarter
• 5.2 million iPhones, a 626 percent growth over last year’s quarter, and obviously the soon to be new volume leader in the Apple collection of products.

These combined unit shipments equate to a total of 10.0 million total units sold, reflecting an average of 277,000 units of daily sales output. Every day, Apple has been selling over a quarter million end-item products, and the company’s value-chain processes continue to consistently rise to the challenge.

Whether by design or shortage, Apple reduced its overall inventory levels by $125 million over the nine months from September to June. The company had an average of 39 inventory turns, and by my calculation, just less than 7 days of inventory sales outstanding.  That is a true reflection of running a lean and continuous replenishment of supply. In other words, if you visit your local Apple store or retailer, and you don’t find what you want, chances are good that you might find it again in a week.

But the fact that new models of the 3GS iPhone were only released in early June, and sustained these levels of sales does trigger curiosity as to whether Apple can continue to stay ahead of demand. In a previous post, I commented on Apple’s supply chain efforts to be able to support the recent weekend launch that yielded over one million 3GS iPhone units sold.   And as noted in a recent Computerworld article, Apple has launched an inventory tracker tool to assist consumers in finding out which store has available inventory for sale.

It’s no wonder that Apple remains on the top of nearly everyone’s benchmark list of best in class for supply chain capability. Sadly, Apple refuses to boast or allow disclosure of the specifics related to their supply chain business processes,  Can we really blame them?

Bob Ferrari

Apple launched its latest 3G version of the iPhone over the weekend, and the company announced that it sold one million units by Sunday, June 21, the third day after its launch.

When it comes to excellence in all around supply chain capability we have to place Apple on the top of the benchmarking list.  Year after year, and product launch after product launch, the ability of this company to execute on product supply availability is just something to be admired.

A related article in The Washington Post (free sign-up required) points out the ” rising all boats’ effect in the market, namely all the market buzz around the iPhone has raised consumer demand for other smartphones such as the Palm Pre, in spite of a severe recessionary economy.

I recently commented on Palm’s challenge with the Pre, in the attempts of its supply chain to maintain availability of product during this peak demand where consumers now have more competitive choices in which phone to buy.  The Post article indicates that analysts believe that 100,000 Pres were sold the first weekend of its June 6^th launch, a far cry from Apple’s performance, but none the less, encouraging.

Consistent supply chain execution by Apple will seem to be the biggest obstacle for its competitors, and a benchmark for all to try to emulate.

 Bob Ferrari

It seems one of the most repeated business stories these days has involved the health of Apple’s CEO, Steve Jobs.  Apple and Silicon Valley fanatics have been consumed for weeks with wanting to know the status of Steve’s health.  How can one individual have such a profound impact on one company? Yesterday’s announcement that Mr. Jobs has elected to take a six month leave of absence sent Apple stock into a tailspin, and has fueled even more buzz. Included in this latest announcement is a statement that Tim Cook, Apple’s current COO will assume the role of CEO while Steve recuperates. Over on the CNET Apple blog, Tom Krazit pens that media and bloggers have crossed the line regarding speculation of any individual’s health.  I totally agree.  Rather than add one other Steve Jobs commentary to this litany, let’s a supply chain perspective of this situation.

It’s no secret that Apple has risen to the top of most every industry analyst’s rating of most innovative supply chain.  I myself began to cite Apple’s excellence in 2005, before AMR Research’s recent anointment of Apple as number one rating in its latest Top 25 Supply Chains Rating.  In 2008, I’ve penned six different posts citing Apple’s supply chain competencies. From my perspective, the fact that Tim Cook, an experienced supply chain executive, will be the interim leader should be no concern whatsoever.

An article penned by Brandon Bailey in SiliconValley.com summarizes a consensus view that Mr. Cook has the right qualities to lead Apple for the next five months. Mr. Cook was recruited in 1998 to overhaul the company’s manufacturing and distribution processes, which had many challenges at the time.  He has been widely credited with successfully transitioning production to contract manufacturers, streamlining production systems, and driving today’s efficiencies that we observe in Apple’s highly outsourced supply chain.  Tim Cook’s management competencies lie in operational and supply chain excellence, and what’s wrong with that?  The path of Apple’s product innovation is already set, and I would argue that in this unprecedented turbulent economy, a focus on execution and cost effectiveness may be just what Apple needs over the coming months.

It will be great to observe a solidly grounded supply chain executive lead Apple.  The secret of Apple’s ongoing success is not only in the marvelous creativity of its products, but also the capabilities of its supply chain.  If you believe as I do that cutting your teeth in supply chain is a great proving ground for “C-level” success, than rest easy.  All will be fine.

Bob Ferrari