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A report by Portelligent reveals that a typical Apple iPod contains 451 parts made around the world. The hard drives are manufactured by Toshiba, a Japanese company that makes most of its hard drives in the Philippines and China, while the video/multimedia chip and controller chip are produced by Broadcom and PortalPlayer, two U.S. companies (Broadcom makes its chips in Taiwan).

iPods are assembled by several Asian companies, including Asustek, Inventec Appliances and Foxconn, then shipped to Apple distribution centers and on to stores around the world. As such, Apple has to forecast demand for a new iPod, communicating this demand to the companies involved in making parts and assembling the devices. Any break in the chain—that is, if one company doesn't have enough parts to meet demand—causes the supply chain to break down and Apple to lose sales.

It must keep Apple's supply-chain managers up at night, especially given the short shelf life of hot electronics products, the long lead time needed to make and deliver products, and the volatility of demand for electronics gadgets. The system currently in place works pretty well. Apple's obviously delivering millions of iPods a year to happy consumers, but there has to be a significant amount of waste in the supply chain, either in the form of lost, stolen or mis-shipped parts, or in extra labor to ensure these problems don't occur.

Imagine a complex supply chain where the movement of parts is automatically recorded and Apple supply-chain executives and their assembly-company counterparts can see where parts are in real time. This choreographed dance between supply-chain partners would be a lot easier with real-time visibility. Companies would have the ability to see if a batch of parts was shipped late or delayed at customs, and be able to react. They would also be able to reduce stocks of parts that could be obsolete within weeks or months.

In all likelihood, supply chains will become even more complicated as products become more complex and companies seek the most efficient locations for producing goods. Taiwan chip producers might move to even lower-cost countries, while Chinese assembly companies might relocate some of their operations to Vietnam and other low-cost manufacturing centers in the never-ending pursuit of efficiencies. Better, more efficient ways to capture information about the flow of parts can help prevent breaks in the chain—and ensure that hot products reach consumers when those customers want to buy them.

SCM constraints
Thanks for the questions. I’m not an expert on the iPhone, but will try to answer your questions as best I can.

All products face supply chain constraints and these can be greater with electronics products because demand can fluctuate greatly, leaving suppliers unable to meet demand. The typical way that companies deal with the risks associated with not being able to meet demand is to keep large volumes of safety stocks, but there is a cost to carry the extra inventory and there is the risk of it having to be written down if demand falls.

RFID has the potential to help companies manage supply chain complexity by providing better supply chain visibility and one day better matching supply and demand. Ideally, retailers will use RFID to monitor demand in real time and that data will be shared with Apple, so it can see spikes in demand in particular stores and respond. Apple can then better forecast demand going forward and share information with supply chain partners, who can better manage their own inventories by responding to spikes or lulls in demand. If Apple and its assembly partners can see, in real time, the inventory of parts its suppliers have on hand, risk is greatly reduced for Apple. And if partners can see demand in real time from Apple, then their risk is also reduced.

I think having parallel suppliers is a good idea, but it also increases complexity and might not fully solve the problem. Suppliers might use the same part in a subassembly. RFID can help to reduce risk by providing visibility back through the suppliers’ suppliers. And it can help manage the complexity of having more than one supplier for the same part.

Posted By: Mark Roberti 9/26/07 at 9:30 AM

Apple iphone/ipod SCM constraints
Very interesting and informative article.

I am an MBA student currently analyzing Apple's iPhone strategy. Do you see limitations in the Supply chain of the ipod or the iphone such as risk management issues?

What recommendations could you suggest in managing such a complex supply chain?

Would having parallel suppliers from multiple countries potential act to reduce the exposure to risk?

I would greatly appreciate any assistance you could provide.

Ryan

Posted By: Ryan Thomson 9/26/07 at 12:54 AM

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