This week, consumer electronics giant Apple made its long awaited new product release announcements regarding its new iPhone lineup. Given all the implications, Supply Chain Matters believes that the coming quarters will present Apple’s Sales and Operations Planning, supply chain planning and supplier teams their most significant challenges to-date in insuring revenue and profitability objectives are supported. Such challenges are especially pertinent to the upcoming holiday fulfillment period.

Products Unveiled

Unveiled were three new models that included the iPhone8, iPhone8 Plus and the long speculated tenth anniversary iPhoneX, (Sometimes referred to as the iPhone Ten)  the latter, as-expected, introduced with a pricing range of $999 for the base 256GB model and $1149 for the 256GB memory model, the most expensive model ever introduced.

The latter X has already garnered mixed reviews from smartphone reviewers. While the larger 5.8-inch screen and OLED display are viewed as impressive, the lack of a physical home button requires the new Apple Face ID recognition software to verify the user as required. In a prior blog posting, Supply Chain Matters noted reports indicating that Apple’s original product design specs were to utilize the physical home button as a fingerprint scanner that would enable unlocking of the phone. That design reportedly was abandoned in favor of a password and new facial recognition feature. Previous reports stemming from Asia social media sources previously referenced start-up and yield challenges with a new fingerprint design. Even after facial recognition, users reportedly are now required to use finger adroitness to access the home menus.  Another challenge for the X model is that production delays were far more serious than previously speculated, amounting to almost five or more weeks of delay relative to shipping availability. Apple will begin accepting pre-orders for this model starting on October 27, with the phone inventory, whatever is available, in retail channels by November 3rd.

The upgraded and newly named iPhone8 models feature technology upgrades from last year’s model along with new product design and software features. Pricing for the base iPhone 8 will start at $699, a $50 increase from prior released price, while the Plus model is priced $100 more. For Apple’s loyal customers, the hope that the entry level model would be slightly more affordable apparently did not occur. Both models have a pre-order date of September 15 with store availability of September 22, similar to the new production introduction release pattern of prior new iPhone model announcements. We can all speculate aloud whether the tenth anniversary X model was targeted for this same set of milestones.

A further announcement this week concerned the Apple Watch product line with the introduction of Apple Watch Series 3 that will feature an LTE chip allowing connectivity to faster cellular networks and allowing the watch to operate without tethering to a linked smartphone. Pricing for the new device was announced as $399 for cellular connectivity and $329 without such connectivity. Pricing for Apple Watch Series 1 was reduced to $249.

This week’s product launch event did not include any announcements related to Apple iPad and Mac product lineup.

Supply Chain Management Challenges

The obvious near-term supply chain challenge is insuring that the X model’s high-volume production ramp-up meets its new revised scheduling milestones. Once again, that places additional pressures on Apple’s key suppliers and on Foxconn, the sole final assembly contract manufacturer for the premium model. The sole OLED supplier, which is Samsung Electronics plays a potential spoiler role with its other division being a prime competitor in the smartphone market. With in-channel availability scheduled so close to the traditional Thanksgiving and Black Friday holiday shopping events, supply chain teams will likely have all-hands focused on insuring that production and inventory levels across the supply chain are monitored at least daily.  A recent leak of Foxconn reporting data that is circulating in social media has X model output being planned in a range of 21-23 million units over the first two quarters. Depending on consumer initial order patterns, that could present a challenge as to whether all unit’s sellout by availability time, thereby limiting further holiday sales.

In its reporting of the new X model debut, The Wall Street Journal stated: “The pricing of the new flagship phone puts it closer to a major appliance or many PC’s and represents a test of the enduring cachet of Apple products, already the priciest in their field.” That statement best reflects the challenge for Apple’s S&OP and supply chain planners in managing the overall production and inventory mix of four different iPhone models, when the entry level SE model is factored. Many S&OP and supply chain teams are often challenged in balancing product demand model mix with actual required production and inventory levels, not to mention having the decision-making capabilities to assess which model mix comes closest or exceeds expected business metrics for revenue, margin and profitability.  Apple is no exception and many eyes of the investment community will be focused on supply chain information leaks and information.

Finally, to add an ironic twist, after the immediate product announcements, a report indicates that shares of multiple Apple’s suppliers declined overnight on the news of the high-end iPhone.

Indeed, Apple’s operations, planning and key contract manufacturing teams can anticipate their most significant challenges over the coming weeks and months. Foxconn alone has increased its production workforce to upwards of 250,000 workers to insure output goals are achieved. The globe’s most visible supply chain will remain so in the weeks and months to-come and media outlets will be trolling for all sorts of developments.

Bob Ferrari

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