The following commentary is the author’s weekly guest blog appearing on the Supply Chain Expert Community web site.
The Supply Chain Matters blog has provided previous commentaries reflecting on the battle of the electronic tablet wars and the dominance of Apple and its associated supply chain capabilities within this product segment. Our commentaries have pointed out the important significance of a supply chain supporting lower price and leveraging higher volumes of tablets as a means to gain a platform for future sales of higher margin electronic content vs. a supply chain that supports high margin, high profit product. Just like smartphones, this is a battle for numbers of installed devices that can be leveraged for future products and services. Once more, in today’s high tech and consumer electronics segment, a matter of weeks can equate to significant change in the competitive landscape.
In a Supply Chain Matters commentary in mid-February, we highlighted published reports of indications among some Apple’s suppliers that the company was working on a smaller screen sized variant of the highly successful iPad. An obvious question Supply Chain Matters raised related to how serious Apple wanted to compete for the hearts and minds of price conscious tablet consumers by pricing a smaller screen version tablet as a serious competitive alternative to current lower cost offerings. Also, was Apple willing to forego its current fat and highly profitable product margins to enter a battle of volume?
This Sunday’s New York Times featured an article (paid subscription or free metered view) which notes how the electronic tablet race has heated up with the recent entry of the new Nexus 7 from Google, the new Surface from Microsoft, and indications that Amazon is working on a larger display version of its Kindle. The Times also reports that Apple “is developing a new tablet with a 7.85-inch screen that is likely to sell for significantly less than the latest $499 iPad.” The article goes on to quote analysts and technology industry executives who speculate on the reasons why Apple has embarked on this lower-cost version of the iPad, mainly “to lure customers who want different sizes of tablets into the iPad product family.” Also noted was that Apple previously followed a similar successful product strategy with its iPod product family, ultimately dominating the MP3 music player market, and more importantly, leveraging the iTunes web property as a dominant and highly profitable source of electronic content distribution.
The Times article also cites NPD analyst Stephen Baker indicating that this smaller tablet can help Apple seize the majority of the market by widening the audience for this device. Supply Chain Matters has a similar viewpoint and in a Supply Chain Expert Community commentary posted in mid-March, we speculated whether Apple’s supply chain strategies will take a new turn, and whether Apple has reached a crossroads concerning its strategic supply chain strategies and future capabilities. The sheer visibility and brand image of Apple has placed the company supply chain practices under the looking glass and it now faces a challenge to shift its supply chain strategy to a higher cost model to fund more social responsibility practices. A lower-cost, higher volume product strategy demands more consideration for the profit considerations of Apple’s channel and retail partners who will be instrumental in penetrating higher volume consumer markets such as China and India.
As noted, which direction Apple eventually takes is up to Tim Cook and his senior supply chain team. As a supply chain community, however, we should anticipate that some strategy changes may be forthcoming. We would not be surprised if clearer signs of supply chain segmentation become more visible in Apple’s supply chain practices. The need to support high feature, high margin products should not be mingled with the needs to penetrate new, untapped consumer markets where the main objective is numbers of devices that can tap more profitable electronic content distribution.
It will be interesting to observe how Apple navigates this new chapter of upcoming supply chain capabilities and whether a new model of supply chain segmentation comes forward. We also include Apple’s competitors in the electronic tablet product segment, who must also counter any Apple shifts in strategy.
The dynamics of the consumer electronics market segment undergoes significant changes in a matter of weeks and short months, and supply chain related strategic and tactical business processes, along with fulfillment capabilities will be the ultimate differentiator to the dominants of this market.
