Addressing Supply-Chain Complexity

An analysis of how Apple iPods are manufactured shows just how complex supply chains have become.
Published: July 1, 2007

Those of us who are consumers, not makers of electronic gadgets, have little appreciation for all that goes into making cell phones, PDAs, portable DVD players and the like. We wait online outside our local electronics store, hoping to be among the first to get the latest technological marvels and immediately start showing them off, without a thought to how many companies, in how many countries, had a hand in making them.

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.