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Apple seen spending over $7.1 billion on supplies in 2012

updated 12:45 pm EDT, Fri November 4, 2011

Deals, bulk buys cutting competitors out of market

Apple should be spending about $7.1 billion on its supply chain in 2012, not including another $2.4 billion in prepayments to suppliers, says BusinessWeek. In a profile of Apple's approach to supplies, the publication cites interviews with Apple workers, supplier executives and management experts as evidence that Apple has used deals and bulk prepurchases to ensure a constant flow of cheap parts. The strategy has also reportedly interfered with the ability of competitors to operate, however.

One example is in 1997, when many computer makers were still using sea shipping for parts to save money. Apple CEO Steve Jobs wanted new iMacs to be on sale for the following Christmas though, and had Apple spend $50 million booking all available air shipping to ensure fast delivery. This hurt competitors like Compaq, which shortly ended up needing to book airplanes as well.

As a case of how far Apple is willing to go, BusinessWeek mentions a more recent incident in which Apple's lead designer, Jonathan Ive, wanted a green light to shine anytime a MacBook's webcam was turned on. To get light to shine through metal Apple experts settled on the idea of a custom laser. This required buying special laser machines, each normally costing $250,000 each, but with the seller signing an exclusivity deal. The lights are now standard on Apple devices like MacBook Airs, keyboards, and trackpads.

Much of this strategy is attributed to now-CEO Tim Cook, who as COO was directly responsible for many supply matters. His skill in the area is said to have earned the trust of former CEO Steve Jobs. Cook allegedly gives colleagues copies of Competing Against Time, a book which specifically addresses the idea of using supply chains as a business weapon.




by MacNN Staff

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  1. Makosuke

    Joined: Dec 1969

    +1

    Getting Bigger

    It's interesting that Apple's approach to not using off-the-shelf parts is probably going to become an increasingly big competitive advantage the bigger and richer they get, and could (theoretically) even reverse the fate of PPC and earlier era Macs getting stuck in a niche hardware ghetto.

    Right after the Intel transition, the argument could be made that they were just another OEM. But now they're one of the top-5 phone makers, the top tablet maker by a huge margin, and an increasingly big and influential laptop maker.

    Easy example that may actually happen within a year: Apple wants a retina iPad. Manufacturers can't currently build panels for that at scale.

    So, let's say that the tooling to build such panels in bulk costs $4 billion, and the panel maker needs it upfront to buy the equipment, before any product has shipped. Every other tablet manufacturer is going to wait until the industry gets to that point, and then start buying them.

    Apple, on the other hand, has the money in the bank to say "Sure, we'll order 4 billion dollars worth of high-resolution 10" screens right now, paid up front, so long as you get the factory up and running and make sure we get every panel that comes off the line." And they have the influence to be pretty darned confident that they'll actually sell enough iPads to be worth it.

    At which point you end up with an iPad with a high-pixel-density panel that is available to NO ONE else in the industry until eventually the manufacturing prowess trickles down or the original OEM manages to ramp up to the point they have excess production capacity. Giving Apple a 1-2 year hardware lead over everyone else. The same thing could theoretically happen with Apple's ARM chips--at minimum, performance on the A5 is looking awfully favorable to any competing tablet.

    I'm not saying it's definite Apple will pull something like this off, but there is every indication that they have done so on a smaller scale, and have the cash hoard and (hopefully) bravado to do so again (particularly if it was Cook who previously orchestrated the strategy).

  1. joesporleder

    Joined: Dec 1969

    +2

    Sad lady

    The lady that MacNN uses as their stock photo for suppliers, especially their Asian suppliers and factories, seems so, so sad.

  1. thinkman

    Joined: Dec 1969

    0

    Cheap vs. Inexpensive

    Though cheap and inexpensive can mean the same thing, the reality is that cheap connotes, in a word, c*** - as in cheaply made. Time to find some journalists with a better command of the English language, and the idiom!

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