There is little doubt that relationships among sales and marketing and supply chain teams can be tested at times. Both organizations are often driven from different objectives or performance goals.
Sales and marketing can be focused on product and sales performance goals, market share domination, or product pricing strategies they feel will bring revenue growth. Supply chain management teams are often caught in the middle of this dynamic. On the one hand, senior management expects the supply chain to enhance customer responsiveness and attain customer service and fulfillment goals. On the other hand, there is an expectation that supply chain teams must continue to contribute to either cost efficiency or cost reduction goals.
A classic case study of this dynamic is now playing itself out at Apple.
Readers will recall that in September, Apple announced its latest editions of new smartphones, both the iPhone 5s and the iPhone 5c. The belief of many, including Supply Chain Matters, was that Apple’s product and market share strategy, and its consequent supply chain strategy, would shift into two dimensions, one of continuing to provide the most innovative smartphone model that consumers would desire to buy. That effort continues with the current introduction of the iPhone 5s. However, Apple’s premium pricing strategy has created barriers for emerging market consumers, such as those in China. Thus all indications, including supply chain related, were that a lower-cost model, which many pegged to be the iPhone 5c, would be Apple’s response to the market. Apple’s announced pricing for the 5c squashed that premise, and Wall Street and the rest of the industry did not seem all that impressed. Our commentary at that time concluded that Apple had now placed its supply chain with enormous challenges.
Initial information leaks and business media reporting are now uncovering the dimensions of these challenges. A Supply Chain Matters commentary noted recent IHS teardown analysis indicating that the 5c was essentially last year’s iPhone 5, with an enhanced communications processor in a plastic casing available in five colors. That conclusion is now echoed in other business and social media outlets.
This week, The Wall Street Journal published a headline article, New Doubts on iPhone Strategy. (paid subscription required or free metered view) The opening sentence tells it straight-forward: “Apple Inc. hoped to broaden its appeal with a cheaper version of the iPhone. But that effort appears to be faltering, after a few weeks.” The article continues to describe how in essence, Apple’s supply chain teams are now adjusting the supply pipeline for both models, including the reduction of initial 5c production pipeline, and increasing initial 5s forecasts based on current product demand data. It cites sources indicating that contract manufacturer Pegatron was requested to cut 20 percent of this quarter’s orders for the 5c model, while contract manufacturer Foxconn (Hon Hai Precision) was requested to cut 30 percent. A separate China based web site indicated a 50 percent overall cut in 5c production, most likely because the WSJ notes that a component supplier was notified that 5c parts would be cut by that amount. At the same time, current quarter’s supply orders for the 5s model have been increased at Foxconn. The WSJ cites employees at several Best Buy retail stores in the eastern U.S. reporting: “ample supplies of 5c’s but thinner stockpiles of 5s.” We have read of various other web published reports that indicate lead times for a 5s model now average 2-3 weeks for customers and good luck finding the gold casing model.
Thus, the effects of sales, marketing and pricing strategy that is driven by product margin growth has impacted original product forecasts, in the crucial holiday buying quarter. That has got to create some tension in Apple’s supply chain ranks. But, these types of challenges are common for many supply chain planning and execution teams.
However, more supply chain related challenges are on the horizon. Apple has scheduled another product launch event later this month with lots of speculation surrounding new and improved models of iPads and Mac computers, just in time for the soon to be holiday buying season. There are lots of separate rumors surrounding component or product availability of these new models, hence the delay in the product launch announcement.
This week, Apple also announced that the former CEO of fashion apparel maker Burberry, Angela Ahrendts, will assume the senior leadership role for both Apple’s retail and online stores, and Apple CEO Tim Cook was quick to note her new emphasis will be on further enhancing the customer experience.
Tensions among sales, marketing and the supply chain can indeed be rather dynamic and if our community needed a fresh study, keep your eye on Apple and its supply chain planning, response and operations management team’s performance over the coming months.
What makes this real-time case study ever more interesting is the fact that Tim Cook’s management DNA stems from operations and supply chain management, having previously led Apple’s efforts in these areas during the leadership of Steve Jobs. There is some speculation as to whether Jobs appreciated the needs or capabilities of supply chain, or that his expectation was that timely production innovation reigns, and the supply chain must react and respond. By our view, the open question is whether that culture sustains.
How do you weigh in?
Bob Ferrari
