With today’s increasing adoption of advanced technology in all forms of products, especially consumer electronics devices, the tight integration of product design and supply chain management teams becomes ever more critical. That notion applies even for what is recognized as the globe’s most watched supply chain.

The Wall Street Journal, citing knowledgeable sources, is today indicating (Paid subscription required) that Apple’s soon to announced new premium anniversary edition iPhone (being termed the iPhoneX or Ten) has been dogged by production glitches early in the current manufacturing ramp-up process. Apple has planned a product announcement for next Tuesday, and the premium model iPhone is widely speculated to be priced in the hefty $1000 range. 

According to the report, the ongoing glitches have led to a production setback estimated to be about a month in the manufacturing schedule. The iPhone8 design includes the use of a newer OLED type display, a similar technology now included in Samsung Galaxy phones. Other sources we have reviewed, indicate that there is only a single supplier of OLED displays for this phone, that being, you guessed it, rival Samsung. The difference in component design is that Apple has a two-layer design that includes both the display and the touch screen. Samsung utilizes a single-layer design in its OLED phones. The production yield has apparently not been as expected because more steps, adhesive and protective film are required in the overall volume manufacturing process.

A separate published report by Bloomberg Technology indicates that Apple has been in ongoing talks with existing LCD electronic screen provider LG Electronics to be an alternative OLED supplier. In July, a report in Korea Economic Daily indicated that the Apple supply agreement was estimated to be $2.6 billion in advanced payment. If such talks amount to a long-term supply agreement, LG will reportedly not be ready for full-fledged shipments until 2019. That could limit Apple’s ability to feature OLED screens in other iPhone models next year.

Another design issue cited was Apple’s original intent to utilize the physical home button as a fingerprint scanner that would enable unlocking of the phone. That design reportedly has been 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 the new fingerprint design.

Another concern circulating among equity analysts and investors is whether enough existing iPhone customers would be willing to plunk down $1000 for the new premium model. Apple is also expected to introduce two other iPhone models at next week’s event which adds to concerns as to which phones will gain the most market traction.

Quantitative smartphone market data and analysis from some market research firms indicate that both Apple and Samsung have been losing market share, due to consumers opting for lower-priced models with competitive features.  With Asian sources with inside contacts indicating that production build numbers currently range in the 35-40  million range for the premium anniversary model, and 50 million for other models, a lot is at-stake. The WSJ notes that in June, Foxconn’s Zhengzhou China final assembly facility had employed upwards of 250,000 people in preparation for iPhone assembly. Picture any manufacturing complex with that size and magnitude of direct labor, enough to fill a good sized metropolitan city.

Such Apple focused events are indeed another reinforcement of the critical importance of design for supply chain. Integrated planning among product design, product marketing, procurement and supply chain management is tough but essential business. The best, most market unique designs must be able to meet consumer needs and expectations as well as the needs for high-volume production.  In the case of Apple, dating back to the era of Steve Jobs, there has also existed such tensions, often with supply chain dealing with the reality of that is the design and now make it all happen. Meanwhile, marketing is all too happy to foster reports of production shortages add to the product demand hype. The question is always when does such a cycle falter.

We all get to know come early next year.

Bob Ferrari

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