Supply chain lessons from the iPhone

Sure it's cool, but the secret behind the iPhone's success just might be the supply chain.

By Bob Trebilcock, Editor at Large -- Modern Materials Handling, 7/27/2007

Before the first unit was sold, Apple’s iPhone was judged a triumph of design and functionality, not to mention the cool factor.

As with other hot consumer electronic products—think the Xbox, PlayStation 3 and the Wii—analysts expected big shortages when the phones finally went on sale a few weeks ago. But according to The New York Times, that hasn’t happened.

That’s why the iPhone is also a triumph of supply chain management, according to Michael Levi, director of solutions strategy, for i2 Technologies. In fact, the importance of getting the supply chain right might be the real lesson for Apple’s competitors, or any company trying to get a hot product to market.

“A killer product is only successful if it gets to the right customer at the right price at the right time,” says Levi. “Apple’s supply chain technology is the really the silent contributor to the company's success in executing the product innovation.”

Bringing together all the components of the supply chain, from design to manufacturing to distribution and transportation, is more challenging today. “Ten or 15 years ago, a company like Apple owned its R&D and manufacturing processes from soup to nuts,” says Levi. “With specialization, Apple has divided up all of the tasks associated with getting the product from concept to market, collaborated on the demand signal to determine how many units to manufacture and then synchronized the delivery of the products.”

There are at three steps to making all of that happen, each enabled by software solutions.

1. Establish synchronization: “The first step is to establish a synchronized communication layer so you can share a single version of the truth with your partners,” says Levi. “You want everyone forecasting what they have to do based on your forecast.”
2. Execute as efficiently as possible: “Initially, you just want to get your product out there because you can command a premium for a hot product for a short period of time, because your competitors haven’t caught up,” says Levi. “But soon, you’re going to see your margins erode and you have to concentrate on controlling and reducing your expenses.” The more you can synchronize your supply chain, the lower your operating costs.
3. Use the supply chain to address problems: A coordinated supply chain will not only get your product to market, it will also enable you to take care of problems. “A month or two after the Nano came out, there were problems with screens cracking,” says Levi. “Apple rectified the problem by putting a comprehensive returns process in place. They had to receive the Nanos at a repair center, fix them, ship them back in short order and do it all while controlling costs. That’s supply chain.”

Ultimately, getting the supply chain right leads to increased sales and market share. “If you look at those companies that are really succeeding in the marketplace, they understand that supply chain management is huge to their business, and they’re using it to their advantage,” says Levi.