Today’s printed and online editions of The Wall Street Journal feature the report: As Apple Morphs, a Cost-Cutter Rises. (Paid subscription required or complimentary metered view) This report profiles Apple’s Vice President of Procurement, Tony Blevin, and his growing reputation as a tough negotiator and extractor of cost savings.
We recommend to our Supply Chain Matters readership that this article is worth reading.
The report’s sub-title sets the context: “Apple procurement executive Tony Blevins’s job is to stare down suppliers and slash prices to the bone, an increasingly vital role.”
This report essentially indicates that the seeds of the company’s supplier network and reputation for rigorous frugality resides with CEO Tim Cook, and his tenure as Apple’s former senior operations and supply chain executive. At the center of Cook’s legacy is noted as the recruitment of Blevins, earning the internally termed reputational name as the Blevinator.
This report adds to the ongoing debate of best practices in procurement or supplier relationship management (SRM) practices across rapidly changing industry settings. It highlights how the executive has demonstrated adroit capabilities to pit one strategic supplier against another, force unrealistic deadlines, extract large cost savings from what one might consider as strategic suppliers, and actually cut out a supplier when Apple elected to design and produce a key component in-house without disclosure.
A paragraph that sets the report’s perspective reads:
“Today the supply chain looms larger than ever at Apple. Slowing iPhone sales, combined with the increasing cost of new features, make the job of hammering down expenses critical for a company mining its marquee products for profits as it transitions to a future more focused on selling services.”
The above statement should resonate with this blog’s readers in that it reflects the tone of recent Supply Chain Matters streaming commentaries that we have published relative to Apple. The company indeed has lost its recognition as being a top 25 or top tier manufacturing-based supply chain leader. Manufacturing and new product introduction serves to augment more online services and lucrative profitability, yet the company has been increasingly perceived as lagging the industry in leading innovation. A recent corporate leadership change now has product design and new development reporting to Apple’s senior supply chain and operations executive.
Apple’s stock valuation hovers near $1.4 trillion and continues to foster a reputation for product elegance and innovation. The company’s iPhone business operates at a 25 percent operating margin and has a long-deserved reputation for demanding a lot from contract manufacturers in terms of new product introduction and production ramp-ups. The WSJ report cites data published Counterpoint indicating that Apple extracts upwards of 75 percent of smartphone industry total profitability.
In other words, this is not a low margin business but rather a high tech led business that extracts premium pricing for the pleasure of owning an Apple product.
Supply Chain Matters Perspectives and Musing
It was is clear to this Editor that the report will surely trigger continued ongoing debate among the business and supply management executive community as to which approach provides either more short or longer-term value to the business and to a CPO’s management performance bonus.
This ongoing debate as to whether sourcing and procurement serves the role of fostering a collaborative environment of innovation and strategic partnerships, or whether the function serves as the mechanism to squeeze out supplier costs is becoming more prevalent, especially in the times of activist investor influence and private equity leveraged takeovers.
At one time, such debates had industry-specific context.
The automotive industry developed a notorious reputation for beating up suppliers for the last nickel of cost savings. Similarly, certain thin margin consumer product companies had similar profiles which led to 3G Capital led model of zero-based budgeting and the spillover to aggressive cost extraction relative to supply contracts. Kraft-Heinz’s recent financial performance debacle exposed the tradeoff of the model, that being the need for continuous product innovation.
From our lens, what is starkly different is the now inclusion of high-tech supply networks, which often exist to drive continuous breakthrough process and product related innovation. The notion of Moore’s Law of rapid product innovation remains a driving force. The Journal report observes that with the bill-of-material cost of components now becoming much more expensive proposition of today’s more sophisticated devices, extracting cost savings is now essential.
Then again, high tech and automotive supply networks are now converging, and perhaps the argument is that so will be the supply management approach.
We believe that the debate should continue as to which approach is either appropriate, or to whether the Blevinator model is now vogue. While Supply Chain Matters does not wholeheartedly subscribe to the latter, we acknowledge that there will be exceptions when it is required.
However, what remains a reality when the debates end is the realization that collaboration and innovation will more than likely trump extracting cost savings in an industry that exists and expands because of innovation.
We encourage our readers to share their perspectives and inputs in the Comments section below.
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