Consumer electronics icon Apple held its hotly anticipated yet delayed iPhone new product announcement event this week, held as a streaming online virtual event. In this Supply Chain Matters commentary, we address both the potential product demand and supply network challenges related to this launch.
Unveiled was four new iPhone 12 models with starting price points ranging from $699 to up to $1099. Each includes 5G faster cellular network support. This week’s announcement was delayed as a result of the COVID-19 coronavirus outbreak earlier this year, which impacted final design and production start of these models.
Apple CEO Tim Cook opened the announcement event with the statement: “Today is the beginning of a new era for iPhone.” His reference was to the company’s first 5G network support offerings, as well as a reality that the company’s iPhone unit sales growth had plateaued over the past few years, and investors anticipate a product rebound.
Product Line-Up
Announced was a total of four new models:
The smaller iPhone 12 mini, the least expensive of the line-up, features a 5.4-inch screen, is available for pre-ordering today with an inventory availability date of November 13.
The iPhone 12l, has a starting price of $699 and features a 6.1 screen. Pre ordering starts today, with an initial shipment date of October 23.
The iPhone 12 Pro also features a 6.1 screen, has a starting price of $999, and is also available for pre-ordering, with an initial shipment date of October 23.
The iPhone Pro Max, features the largest screen ever offered at 6.7 inches, has a starting price of $1099 and an initial ship date of November 13.
From a product design lens, these new models are powered by the first application of 5 nanometer chip processor technology featuring a 16-core neural engine. Other noteworthy design features include sophisticated LIDAR imaging technology, a termed Ceramic Shield, which is a new substitute for glass and a magnetic device charging scheme.
With these design changes, Apple wants to convince existing iPhone customers that these are the models with the most compelling new technology.
In the above light, the company investors have reportedly high expectations related to revenue and unit sales volumes. The Wall Street Journal cited a Morgan Stanley analyst’s prediction for shipment for as many as 240 million units this year, boosted by a perceived large amount of Apple users who have not upgraded for several years, and for the attraction of 5G connectivity speeds. Regarding the latter, business media reporting has noted that few countries, with the exception of China, have widescale 5G networks deployed with the connectivity speeds promised by 5G. Further, a resurgence of infections and continuing subsequent economic fallout across parts of the Eurozone sector, the United States and India could be an unknown factor related to new smartphone demand levels.
Product Demand and Supply Network Challenges
In a Supply Chain Matters blog commentary published in April which we titled as: Apple Leveraging Clout and Influence to Attempt Aggressive New Product Introductions; we set the context of this week’s announcements.
When the initial news that the virus spread from its epicenter in the city of Wuhan, to broader provinces of China, leading to the country-wide lockdown mandates, international media was abuzz about the specific impacts to Apple and the company’s planned new product introductions this year.
Our commentary speculated that Apple would use all of its clout and supplier influence to piece together the delayed product launch strategy, complete with ground breaking features and functions that the market expected. We further stated the following:
“For all of those Apple cult followers out there, hang on to your bonnets since this strategy looks to push many of the boundaries of supply chain risk and customer fulfillment management.”
Now as Apple makes final preparations for the all-important holiday fulfillment quarter, it must execute a synchronized supply network and product demand fulfillment response.
Some Specifics
Planning and managing iPhone product demand actually involves five different models. The refresh design of the lower cost, 4.7-inch model iPhone SE was announced in the direct shadows of the pandemic’s effect back in March, and now remains offered at a $399 starting price.
Now added is the four new iPhone 12 models, at separate price points, and in four different color choices. Equity analysts seem joyous of the company’s broad pricing strategy designed to attract multiple consumer segments.
Respective supply chain management teams might have another view.
Our readers experienced in supply chain demand planning know very well that forecasting and managing demand across such products variations requires skills and customer demand intelligence relative to expected buyer profile intentions. A further aspect is that iPhones are sold among various global network carriers, online via Apple’s web site and physically at Apple’s owned stores, as well as authorized retailers. Pegging product demand by buyer segment, purchasing channel and model variation is a challenge in itself. Add the one-month delay in the formal announcement, and early November for actual availability of what might be the most popular models, and one gets the specific challenge ahead for Apple’s sales and operations planning teams. There is little margin for inventory planning miscues as occurred with the former launch of the iPhone X, which also had a November initial availability.
On the supply network end, all roads lead to the critical role of the company’s contract manufacturing providers, especially Foxconn, Apple’s premiere partner in crunch times.
Back in the March and April time periods, Foxconn was challenged in assuring that workers who had traveled far and wide for the traditional Lunar New Year holiday period could logistically return to work given extended lockdowns and travel restrictions. By April, Foxconn’s main iPhone assembly facility in Zhengzhou, China, commonly referred to as “iPhone city” was cutting staff. The facility itself is believed to be able to accommodate upwards of 250,000 workers at peak period.
This week, the South China Morning Post reports that Foxconn is now on a hiring spree, with one recruitment center alone processing upwards of 2000 work applications a day as migrant workers arrive en masse. Noted is that eager workers arrive at dawn and many are put to work on the assembly line on the same day. New hires reportedly receive a 10,000-yuan ($1.488) bonus if they work at least 55 days during the first three months of employment. The report cites interviews with several workers indicating a starting hourly rate of roughly 30 yuan ($4.50), described as a hefty increase from before the new iPhone 12 launch. Workers reportedly work 10-hour shifts
The publication reports that the need for workers is insatiable in the throws of this week’s product announcement, while expected demand will require the factory to run 24/7.
Another factor are previous indications from Foxconn that new iPhone assembly is also being sourced in India as well as Taiwan. India itself is now experiencing explosive rates of coronavirus infection.
Compounding this year’s iPhone product release refresh are the extraordinary challenges occurring among global logistics and transportation providers, especially the airlift segment. The effects of the pandemic for increased priority shipments of medical supplies out of Asia, and now, late-stage holiday fulfillment focused products has met the reality of decreased air capacity as international air carriers have had to cut back on international flights. While Apple has obviously contracted ahead of time for airlift capacity, air freight operations are running with little flexibility for delays or unexpected aircraft operational disruptions. Beyond airlift, ground transportation and logistics have been continually challenged by higher online order volumes, and this week, Amazon added to the challenge with its delayed Prime Day online shopping holiday. By many accounts, parcel logistics and transport networks will be put to another test in the coming weeks leading up to the end of the year. Watch for which retailers and which manufacturer’s can successfully navigate constrained capacity. From our lens, this is the area to really watch.
Commentary Takeaways
The bottom line is that Apple’s own and it’s supplier and trading partner supply chain management teams are now under the looking glass to ensure that this iPhone 12 product launch is successful.
Indeed, Apple’s product management and supply chain management aggressiveness culture seems alive and well, willing to test what others may be reluctant to do.
Once again, while all of this is occurring, coronavirus infection rates increase, and workers will be called upon to make added sacrifices.
Let us all observe how Apple responds over the coming weeks.
Bob Ferrari
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