Today, The Wall Street Journal reported what social media and the Internet has been buzzing for weeks, namely that Apple plans to introduce both a refreshed iPhone model, as well as a less expensive new iPhone model sometime this year.  WSJ cites supply chain sources as indicating that the production of a refreshed iPhone, similar in size and shape as the current model, is in-process of ramping-up for a summer launch.  The publication further indicates sources indicating that a less expensive model with a cheaper, plastic casing and a 4 inch screen could launch in the second half of this year, targeted to the emerging market segment.

There seems to be no other company that garners the eyeballs and global wide coverage as Apple, and if we are to believe all that is stated thus far, in addition to the two iPhone product introductions noted above, there is further speculation of an “iTV” like product, complete with a ring accessory, and perhaps an “iWatch” (wristwatch) device also launching this year.

However, it is important to take a step back from all the buzz and note that the market dynamics surrounding Apple are changing rather quickly.  Samsung has mounted both a serious product and global marketing challenge in its Galaxy S smartphones. The newest S4 model is launching this quarter, and it features rather innovative new hardware and software functionality capabilities. Andriod powered devices continue to outpace in unit growth.  Supply Chain Matters has penned previous commentaries noting the fallout of Samsung processor, LCD screen and other components that previous fueled the Apple supply chain and its product innovations.

Apple stock is under enormous pressure, dropping half its market value from its previous $750 per share eclipse in 2012.  Investors are concerned that Apple’s super high product margins may erode, along with its presence as the innovator of the market. Thus, this WSJ article is in our view, too well timed to keep Apple’s product innovation news top-of-mind and to buffer its falling stock price. You see, the same publication speculated in early January about a low-priced iPhone introduction to the market. Our Supply Chain Matters commentary noted the significant supply chain implications related to such a product. 

Thus, from the product management, procurement and supply chain lens, there are two strategic implications to keep an eye on in the coming months.

A lower-cost, higher volume iPhone product strategy has to be far more sensitive to considerations of margin and profit distribution among Apple’s contract manufacturing, channel and retail partners who will be instrumental in penetrating higher volume consumer markets such as China and India. It must deal with the new realities of rising labor costs or be much more dependent on factory automation. As many senior supply chain executives and their teams are all too aware, there are distinct differences in the requirements between a high-volume, high-margin global supply chain strategy vs. a higher-volume, much lower-margin one that must cater to the unique channel distribution requirements of emerging markets.

The second strategic implication follows-on to the above and relates to changing expectations and dependencies on a firm’s supply chain. Apple’s supply chain capabilities have in many tests, provided the agility and resiliency to enable explosive business growth. Suppliers were conditioned to expect multiple product changes at multiple times, and were expected to be able to ramp-up rather quickly to be able to reap the benefits of participating in explosive unit volume growth. However, by our view, the third fiscal 2012 quarter for Apple was the turning point for adding ever more challenges for its supply chain ecosystem. The result is provided by the numerous reports of labor unrest and subtle signs of supply shortfalls rumored to have constrained unit and revenue growth.

Thus, the stage is set for a new era of global supply chain dynamics, one that pits the supply chains of both of these two stellar companies against each other in terms of synchronized execution.

The Apple supply chain must now rally to more variety of products, different supply chain fulfillment models and more frequent product introduction cycles.  A transition to different key strategic suppliers has been underway for weeks, one that does not include Samsung as a strategic supplier.  We may well hear of other new strategic suppliers.

Samsung itself has exercised a supply chain vertical integration model that has served that company well in its ability to continuously refresh innovation in products, quickly ramp products to enormous global wide volumes and deal with multiple channel partners. The February 4th edition of Fortune features an article on Samsung noting that the secret sauce of the company is that it controls the supply chain of many of the building blocks of its phones, supporting the ability to ramp-up production rather quickly. In the U.S. market alone, the company supports 25 unique smartphone models, which takes on more significance when one factors the global-wide market requirements.

In May 2012, Supply Chain Matters coined the analogy of the shiny apple and complex orange. Our analogy related to both of these companies, that the shiny apple, which distinctively sits in the fruit basket and can easily be identified in its familiar image and taste. This apple is very delicious, somewhat tart, but consistently delivers on taste. Sometimes the apple can develop blemishes, but consumers still relish the taste. The orange does not garner all the attention of the shiny apple, but the reality is that it is slightly bigger, and can serve multiple purposes.  The orange serves as a multi-purpose fruit, but perhaps more behind the scenes.

A new phase has now begun where both of these superior supply chains, with different cultures and capabilities have entered a new competitive dimension with far reaching implications.

This will be exciting for all of us to observe over the coming months and years.

Bob Ferrari

 

©2013 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.  All rights reserved.

Disclosure: The author has a small ownership in Apple stock.