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Operations Management Analysis of Apple Inc.
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Operations Management Analysis of Apple Inc.
Apple Inc. is a multinational company established in 1976 by Ronald Wayne, Steve Jobs, and Steve Wozniack. Ronald Wayne later left, but Steve Jobs and Steve Wozniack persisted, and their first computer, Apple 1, was launched (Sutherland, 2012). Apple is an American high-tech company that deals with manufacturing personal computers, computer peripherals, and computer software. Apple is ranked alongside companies like Facebook, Google, and Amazon in the big tech industry. Apple operates in several countries worldwide, including China, Japan, Europe, Asia Pacific, and South America. Apple is famous for products like the iPod, iPad, iCloud, Macintosh computers, and Apple TV. Steve Jobs left the company in 1985 due to constant infighting and rejoined in 1996 as the CEO (Yun et al., 2018). He then promoted a new corporate philosophy related to identifiable and simple design products and is credited with turning around the company’s fortunes.
The introduction of the iPod in 2001 was a huge success and made propelled Apple to a corporate leader, especially in the consumer electronics industry (Green, 2015). Apple is valued at over $740 million with revenue streams of $170. It is regarded as the biggest tech firm globally. Tim Cook took over as the CEO of Apple Inc. in 2011 after the resignation of Steve Jobs. Cook’s leadership has overseen Apple’s supply chain streamlining through outsourcing its manufacturing and reducing inventory levels.
Apple Inc.’s Operation Management (OM)
Apple’s Operations management decisions are related to inventory management, quality management, product design, location strategy, capacity design, among others. The ten decisions related to OM are implemented along its value chain, especially in the supply chain, product design, development, and sales and marketing. The talented team of managers and employees ensures that all the operations management strategies are implemented to maximize efficiency.
Productivity indexes/ratios
The productivity index measures how a business can get more units of output per labor hour or machine. Choosing the right products is the first stage in improving productivity in any business. Apple uses productivity ratios to measure efficiency and evaluate its business model. Apple calculates productivity regularly to allow the company and its employees the opportunity to track and analyze elements of the company’s operation. This analysis allows Apple to make improvements in efficiency, time management, and overall revenue.
Importance of cost-effectiveness indicators
Cost-effectiveness indicators are important because they help increase manufacturing overhead costs and limit their correlation with the direct labor inputs and machine working hours. Cost-effectiveness indicators also help Apple to diversify the products and customer’s tastes.
Positioning strategies
No company or product can be all things for all people. Apple has taken several initiatives to differentiate its products in the market. First, Apple has done market segmentation, which involves dividing the market into groups according to certain characteristics. Market segments need to be accessible, sustainable, measurable, and actionable to be used for marketing. Second, apple positions itself as a multinational technology premium brand offering products and services with advanced functions and capabilities for additional costs. Apple’s target customer segment has people with the following characteristics; appreciating design, quality, and performance of products over their prices (Montgomerie & Roscoe, 2013). Apple Inc.’s overall business approach is made to appeal to the customer segment to a certain extent. Under Steve Jobs, Apple used a mono-segment type of positioning, appealing to the needs of one customer segment, and the products were made to satisfy that segment. Since Tim Cook became CEO, Apple has been increasing its range of products, shifting to multi-segment positioning.
Value chain management
Value chain involves inbound logistics, operations, outbound logistics, marketing and sales, and service. Apple maintains a highly sophisticated supply chain management as it works with hundreds of suppliers around the globe. Tim Cook, the CEO of Apple, is known for his strategy of getting suppliers to compete with each other. The company’s purchase commitments cover their requirements for up to 5 months. The sources of value in Apple’s inbound logistics relate to their scale of business operations and their immense bargaining power in dealing with its suppliers. Apple does not own any manufacturing facilities and prefers to outsource its hardware manufacturing to other companies in other countries. This is advantageous in that focus is on the core competence of the business, such as design and development, research of new products. However, outsourcing to countries with a lower cost of resources is Apple’s main source of value.
The majority of Apple products are outsourced to manufacturing units in Asia. Apples’ outbound logistics involve warehousing and distribution of the company’s products. Finished products are shipped to Apple stores, normally found in high-end spaces. E-commerce is a huge source of value because of its cost-effectiveness compared to sales via the Apple store. The penetration of Apple into the Asian market is an additional source of value as it will not involve massive outbound logistics. The company’s net sales through direct sales are increasing consistently (Yusoff & Hosnina, 2018). The 2020 financial report by Apple showed that the company’s sales through direct and indirect distribution account for 34% and 66%, respectively. Apple is also famous for its exceptional customer service quality.
Importance of quality standards
Apple Inc. aims to offer a high-quality product to its customers. Quality standards help Apple to maintain safety, deliver quality products to meet customer expectations. Quality standards are also important in increasing profitability and reducing losses.
Sourcing management
An important factor in the success of Apple is in the selection and management of its suppliers. According to their website, Apple has notable top tiers such as Toshiba, Samsung, and Foxconn. Foxconn has gained recognition as an assembler of iPhones. Apple has 334 suppliers in China, 131 in Japan, 73 in the USA, 36 in Taiwan, and 34 in South Korea. Among these suppliers are second and third-tier companies that are suppliers to the bigger companies on behalf of Apple (Pavia, 2021). However, Apple controls every part of this complex network, leveraging its scale and power to provide the best products at the best prices to consumers promptly. When seeking new suppliers, Apple rates quality, technological ability, and scale as priorities. Cost is not considered a priority. Apple’s supplier approval has been deemed an endorsement of manufacturing prowess, and competition is intense. Apple insists on watching the supplier make the samples in a factory test. It is the responsibility of the supplier to make investments in technology for making materials to supply. Apple has its engineers on the ground to maximize efficiency and fix any production problems. Apple also increases its control on inputs, yields, and costs by recommending firms from which suppliers should buy materials. The use of multiple suppliers for one component is a notable aspect of Apple’s supply chain.
Apple uses prepayments to negotiate favorable pricing terms, guarantee high production volumes, secure strategic raw materials and has several exclusive long-term deals with its key suppliers. The supply chain of Apple has also been diversified by including new manufacturing partners in Taiwan and China. Apple also invests in milling technology, automated assembly, and customized manufacturing equipment in addition to diversification. Recently, Apple, with its manufacturing partners, announced environmental programs to reduce carbon emissions and utilize more clean energy (Arocha, 2017). Apple’s CEO, Tim Cook, is credited with streamlining the supply chain.
Inventory management control
Apple has obsessive control over its inventory. This has led to massive success as Apple has found that the best way to meet customer needs and manage costs is to find the right balance of inventory in locations worldwide. Inventory depreciates quickly in technology companies. Currently, Apple is the market leader in inventory management control. The two indicators of apple’s dominance are days in inventory and inventory turnover. The company uses inventory management strategy by revamping the organization structure to implement more streamlined inventory practice that leads to the company’s growth. In Apple Inc., product assortment, sourcing, and advancement are managed by the selling department. They then work with the art department for promotions. The inventory control department oversees the previous season’s group and item history, working with various dealers on various planning, estimating, acceptance planning, handling the inventory, retailer communication, sale assessment, and acceptance planning. The company keeps track of its product development and sale through a series of metric approaches. The company uses a method such as top-line and bottom-line growth approach, gross margin on investment approach, and maintained gross margin approach.
The investment management control strategies help the company to know which market sections to sell its products. This has led to the company having astonishing increases in sales, returns, business ratings, and incomes. Apple also has an inventory control strategy that involves creating a product for each use. The company can also ignore prospective buyers who are unwilling to pay the right price for their product using this investment management control strategy.
Importance of inventory management
Apple’s products have a life cycle of about twelve months, with 1-2% depreciation every week. Tim Cook decided to treat inventory as if all of their products had an expiration value with this in mind. Therefore, Apple Inc. keeps as little inventory as possible to ensure that they sell everything they produce. Apple also uses inventory management to reduce shipping costs, wastage, and storage costs.
Management control
Organizational effectiveness is one of the goals of Apple Inc. Apple used traditional organizational structures until the reentry of Steve jobs as CEO. The traditional structure was not appropriate for the implementation of Apple’s control systems plans. However, the company partially shifted to innovation and differentiation strategies. These strategies were in line with product-based, functional-based, and spoke-and-wheel hierarchies on its existing organizational structure. Apple also works on new products in secrecy.
Importance of senior management support
Apple has project managers who have a team that works under them. Project managers monitor their work and take corrective actions when necessary. Project managers also guide workers directly, or they might direct several supervisors, who directly manage the workers to meet their objectives.
Importance of having clear goals and objectives
Apple’s success is driven by having clear goals, which lead to being focused and minimizes distraction. These goals articulate in clear terms what the metric of success will be. Having clear goals and objectives helps increase productivity as they provide direction and energize employees.
Forecasting and aggregate planning
One of the most important steps Apple has taken is forecasting the product for their product. Suppliers, manufacturers, and retailers conduct forecast analyses of Apple’s products. This is to determine the quantities the company should manufacture. One approach used by Apple is the judgmental approach which addresses the forecasting subject by assuming the consumers are aware of the high quality of the company’s products and can recommend others to buy the same products. While using this approach, the company gathers opinions and knowledge of people. Surveys are carried out in the judgmental approach. Consumers give their opinions that make up the final forecast useful in developing cell phones, music players, and personal computers. Tentative approaches are used to estimate the potential demand rate of the product. Customer surveys are conducted with the use of phones by the company. New products are displayed and described by the company, and potential clients are questioned if they would be interested in buying one. Apple Inc. uses consumer panels during the early stages of manufacturing to assess a product’s future performance in the market. Test marketing is a forecasting technique used to measure product awareness and market penetration.
Tim Cook has reduced the number of strategic global suppliers, thus making the management of these suppliers easier. This kind of aggregate planning practice has made Apple one of the best supply chain management companies worldwide. Tim Cook also brought about the giving of out longer contracts, thus reducing the prices of key components and putting more terms on vendors. Apple also has only one central warehouse in California and outsources the manufacturing to China. Apple also recently announced its strategy to implement renewable energy sources, making up 87% of its energy used worldwide.
Importance of budgeting
Apple prepares and manages a budget primarily to achieve its objectives subject to financial issues. This is because Apple has high operating costs due to the technological and innovative advancement that the company undergoes. Budgeting helps Apple Inc. prioritize its expenditure, enabling the company to deliver competitive and innovative products to the market (Cheng, 2019). Moreover, Apple Inc. uses the budget to plan for future growth concerning sales volume and market penetration. Effective budgeting leads to cost-effective operations implying economies of scale, which gives the company a competitive edge against its opponents. In addition, effective budgeting enables Apple to save capital for innovative and expansionary operations.
Conclusion
The operations management strategy of Apple Inc. helps the company to produce quality products. This has made Apple Inc. become one of the biggest tech companies worldwide. Apple has the best supply chain management strategies, fuelled by outsourcing products to manufacturing based in other countries. As a result, the company has gained a competitive edge in the market over its opponents. Over the years, the company’s consumers have gradually increased. The company has been able to meet market demand in the industry through rapid innovation. Without efficient operational management, this success would not be possible.
References
Arocha, J. B. (2017). Getting to the Core: A Case Study on the Company Culture of Apple Inc.
CHENG, X.(2019) Evaluation of the Reliability of the Company and Suggestion of Optimal Way of Financing.
Green, S. (2015). Apple. Bellwether Media.
Montgomerie, J., & Roscoe, S. (2013, December). Owning the consumer—Getting to the core of the Apple business model. In Accounting Forum (Vol. 37, No. 4, pp. 290-299). No longer published by Elsevier. Retrieved from https://doi.org/10.1016/j.accfor.2013.06.003
Pavia, A. (2021). The role of suppliers management in the implementation of sustainable supply chains: Apple’s policies in a global context.
Sutherland, A. (2012). The Story of Apple. The Rosen Publishing Group.
Yun, J. J., Jung, K., & Yigitcanlar, T. (2018). Open innovation of James Watt and Steve Jobs: Insights for sustainability of economic growth. Retrieved from https://doi.org/10.3390/su10051553
Yusoff, M., & Husnina, N. (2018). Determinants of Risks and Performance in Apple Inc. Available at SSRN 3181705.Pavia, A. (2021). The role of suppliers management in the implementation of sustainable supply chains: Apple’s policies in a global context.
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