Supply Chain Matters provides added insights to recent financial and operational performance reports from major companies. We reflect on Apple’s latest report of December-ending (Fiscal 2017 Q1) financial and operating results which acknowledged supply constraints as limiting even more sales growth.  Apple Logo

Wall Street headlines were generally positive as the iconic consumer electronics provider reversed three straight quarters of declining iPhone sales. Total revenues grew 3 percent to a record $78.4 billion while net income was reported as $17.9 billion, $400 million lower than the year-earlier period. International sales accounted for 63 percent of total revenues. Total inventories grew by $580 million in the latest quarter.

Overall iPhone shipment volumes reportedly increased by 5 percent. The irony is that sales could have been higher but uncharacteristic supply chain challenges were encountered.

During the company’s management briefing, CEO Tim Cook, whose background DNA includes prior leadership of global supply chain operations acknowledged some planning and operational missteps that could have impacted additional sales. Insufficient supply impacted several product lines, including the newly announced Air Pods wireless earbuds, the iPhone 7 Plus model, and the Apple Watch. The former garnered a lot of visibility early in the quarter, delaying the actual product launch. We venture a guess that many of our readers had first-hand visibility to some of these supply issues.  Cook indicated demand for the larger iPhone 7 Plus was:

the most we’ve ever seen by far and we under-called it. We clearly missed some sales because of that

In other words, Apple’s sales and operations planning process likely planned for higher product demand for the baseline iPhone 7. As early as October, customers placing an iPhone 7 Plus order on Apple’s website were being informed of a wait time of up to eight weeks for the device to arrive, especially for its new “Jet Black” finish. This was also the period of the spillover from Samsung’s Galaxy Note7 product recall due to battery fires, and consumers were trying to substitute their product choice for the iPhone 7 Plus model.

Further, supply chain information leaks leading up to product launch had indicated that Apple had initially planned for three model variants, the largest being a “Pro” model that would include more features and a 5.5-inch screen, offered at a higher price point to compete with Samsung’s now ill-famed and suspended Galaxy Note 7 smartphone. That was later scrapped for the two-model product strategy. and during volume build further pointed to usual volume ramp-up challenges related to new components.

Readers may also recall that a major earthquake struck Taiwan a year ago, in an area that includes major suppliers such as semiconductor fab supplier TSMC and other lower-tiered consumer electronics component providers. Throughout 2016, apple placed additional pressures on component suppliers to reduce prices to boost margins on the company’s iPhone revenues.

Upon reviewing Apple’s performance in the all-important holiday fulfillment quarter, readers can take solace in the takeaway is that even the world’s most admired, most visible, and influential supply chain is not immune to S&OP product forecasting and planning mix challenges, supply disruption and capacity constraints. Even when the CEO has first-hand supply chain leadership experience.

Apple performed well in spite of many challenges but it could have performed better.

Sales and operations planning is a continuous process of product demand and supply balance supported by the most contextual and timely decision-making. That applies to all industry supply chains including the most admired and most visible.

Bob Ferrari

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