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Apple: Apple Case Of Three Supplier Hubs Essay

1. What strategy is Apple pursuing to remain competitive? What role does Apple’s materials management organization play in making Apple successful? What performance measures should Apple use with respect to materials management? Apple focuses on two strategies – R&D investment to generate a steady stream of product introductions & Cost reduction to maintain or improve margins while reducing prices. Apple’s Material Management Organization contributed towards its success by continuously trying to reduce inventory costs, thus, helping it reach the cost reduction goal. Performance measures of Materials Management: Accuracy of forecasts, Availability of right parts in right quantities at right time and cost.

2. Analyze the hub process at Fountain, Colorado a. What changes were made as part of the hub implementation? The changes that were made as part of hub implementation were the following: Raw material was stored outside of Apple’s site Logistics handling was the responsibility of Fritz The supplier and not Apple owned raw material stored at the hub b. What role does Fritz play in the hub? Fritz coordinated materials flow and information flow and acted as customs broker. Transportation from the supplier to the hub and from the hub to Apple’s site was the responsibility of Fritz. c. Could Apple have made any of these changes without implementing a supplier hub? What alternative solutions could have been implemented? The main issue to be resolved for Apple was the clearing of space utilized by storage on-site to free up space to ramp up production. This issue could also have been resolved by the implementation of the following: i. Establishing a company-managed warehouse near the site ii. Contracting for warehousing with a logistics company iii. Having suppliers establish a local source of supply and thus supplying using a Kanban/JIT system

d. What effect did each change have on suppliers, Fritz, and Apple? Quantify the costs and benefits. What risks are being assumed by each entity? Effects: Suppliers – As raw material was stored outside Apple’s site and was not owned by Apple, inventory carrying cost was borne by them Fritz – To seamlessly coordinate the and successfully implement the hub system, Fritz had to implement an IT system of the sort it had not created before Apple – Apple could now clear its site space and ramp up production Benefits: Suppliers – Suppliers could use the hub not only for the distribution of raw materials to Apple, but also to other manufacturers since the inventory was owned by the suppliers themselves.

This, thus, reduced transportation and warehousing costs for the suppliers. Fritz – Fritz used this as an opportunity to build its IT infrastructure and gain experience at the implementation of the hub system, which it could then suggest to other firms and industries. Apple – Apple could now ramp up their production. Also it reduced the inventory on books. Inventory carrying cost was also eliminated. Risks: Suppliers – As the inventory was carried by the suppliers, the risk of obsolescence was of the suppliers. Fritz – Fritz had made a huge investment for the IT infrastructure for the hub system. Had the system failed and not continued with, it would have incurred financial loss. Apple – By not interfering at any stage of the procurement process, Apple has risked the possibility of failure of availability of raw materials which will affect its production schedule.

e. Why was the supplier hub option chosen by Apple Fountain? Was it successful? Reason for opting supplier hub by Apple Fountain: i. Clearing space on site to increase production ii. Reduce owned inventory iii. Reduce inventory carrying cost iv. Lower prices for components v. Implement Kanban/JIT successfully The supplier hub system can be said to be successful as it could accomplish all its objectives stated previously.

3. Should Apple implement a supplier hub for its Sacramento site? Why or why not? If yes, what components should flow through the hub? Should the process differ from that implemented at Fountain? How much material should flow through the hub? Though the conditions at the Fountain and Sacramento plants are very different, the supplier hub system in principle is a highly efficient and advantageous method of distribution and warehousing for all parties concerned. Thus, Apple should implement a supplier hub system for its Sacramento site albeit some modifications as per the changed conditions. Such a system is best suited to be applied where the lead time in transportation is high. Thus, in case of Sacramento, components that are procured from outside the U.S. – Monitors, PC Assemblies, Power Supplies and Mass Storage – should flow through the hub. 4. What are the differences between the Cork and Fountain hubs? Fountain hub has Fritz as its sole logistics controller. Cork insisted its suppliers to use Irish Express as its logistics controller, but the choice was left up to the suppliers.

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