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.