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Kudos to Apple for an Incredibly Efficient Supply Chain

The most impressive aspect of the iPhone 5 might just be its supply chain — which could be its most alarming aspect, as well.

Sure, there were improvements in the phone, but what I find most astonishing is that {complink 379|Apple Inc.} announced the new phone on Sept. 12, started shipping on Sept. 21, and by Sept. 24, had sold and shipped 5 million phones. That's 5 million in three days . Has anybody ever shipped that many end-user consumer electronics in 72 hours?

Rather than recognizing what may be the fastest-moving, most innovative supply chain in the industry, analysts are grumbling about the iPhone 5 launch. Even though 5 million represents 25 percent more first-weekend shipments than the iPhone 4S last year, some analysts expected Apple to ship a much higher volume, with estimates ranging from 6 million to 10 million. When Apple issued a press release on Sept. 24 announcing it had sold out of the iPhone 5, industry watchers sniffed that the company was not well prepared, especially since Tim Cook is a supply chain guy. Wall Street punished Apple's stock, driving it down from around $700 to about $671, as of October 3.

Meanwhile, {complink 2125|Foxconn Electronics Inc.} factory workers in China were rioting, at least partially because of the enormous amount of overtime they were being asked to work to meet the demand for the iPhone 5. The riots made the comments from analysts seem petty and insensitive.

Apple may have one of the most innovative supply chains in the world, but when it comes to the hand-assembly work that's still required, humans may have reached their limit.

Although it didn't seem too sure, The Wall Street Journal reported that this event “appeared to be the first time Apple said it had entirely sold out of initial supplies of a new iPhone,” which “raised questions about why the company hadn't been able to supply more of the new model.”

Gee, maybe its workers just got too tired?

Analysts speculated that another possibility for the sell-out was the shortage of some components. One likely culprit, according to a report from Bloomberg, was the new thin display, which combines the glass and touch sensor into a single part. Even though Apple had brought on a third supplier, Sharp — in addition to LG Display Co. and Japan Display Inc. — Sharp was still working to reduce defects and was unable to start shipments of the display.

The Bloomberg report also wondered if another problematic component could be the new LTE (long-term evolution) baseband chip for the new 4G wireless networks. {complink 4505|Qualcomm Inc.} said supplies of those chips were constrained as it ramps up a new manufacturing process.

In both of these cases, the parts in question are newly-designed. Given that fact, I find it just short of miraculous that Apple was able to ship so many phones so fast with no major problems. At least not yet.

What's more, this is the first iPhone that Apple released to multiple major markets around the world, not just in the United States. According to a press release issued by the company on Sept. 24, at launch, the phone was available in Australia, Canada, France, Germany, Hong Kong, Japan, Singapore, and the UK. On September 28, it was available in 22 more countries, and will be available in more than 100 countries by the end of the year. Think of how complex those logistics must be, particularly because different geographic markets have different technology requirements for 4G LTE band frequencies, not to mention varying regulations.

The spoiled-brat reaction of Wall Street to the iPhone 5 launch is way off base, in my opinion. We not only need more realistic expectations of how quickly any company can manufacture and deliver a cutting-edge product, but must also pay attention to the most important elements of a company's supply chain — its human workers.

11 comments on “Kudos to Apple for an Incredibly Efficient Supply Chain

  1. Barbara Jorgensen
    October 3, 2012

    All of Apple's latest products ran short in the first few days, so I don't know why anyone was surprised. It really is a massive number of devices when you take a step back. I really think everyone has come to expect perfection from Apple–no surprise — they set the bar themselves. But when Apple stumbles, the fall always looks worse than it is.

  2. _hm
    October 3, 2012

    It is just a mobile phone. Why can not people wait for few days or few weeks?

  3. SP
    October 4, 2012

    As the saying goes “An apple a day keeps the doctor away”, Apple Inc. with their correct business strategies, autonomy and being always trendy and knowing exactly what consumer wants, has made a great impact in this industry. Completely agree on kudos to Apple for incredibly efficient supply chain. But couldnt understand on topic of Sharp's defective displays. Do they have so much production issues that its affecting their customers?? I guess since they are not the sole suppliers for displays, Apple could meet their targets.

    On Foxconn issue, dont know when they would address or fix the labor overtime and other related stuff. Why they would want to be in the news always for the wrong reasons.

  4. Barbara Jorgensen
    October 4, 2012

    My thoughts exactly! Not just that, but it's a mobile phone that is going to need a completely new and expanded data plan. oooooo, I can't wait to shell out more cash to my carrier. Those poor guys are practically operating as non-profit agencies…

  5. Barbara Jorgensen
    October 4, 2012

    @SP: Displays have been named as the culprit in the last few product releases, but nobody has really proved that beyond a reasonable doubt. Several display makers, including Sharp,  manufacture the Retina displays that are on the most recent iPad. The iPhone 5 is using a cellular display technology that I don't entirely understand but I believe is manufactured by LG. Sharp is having revenue related problems, but I don't think Sharp is the sole cause of any shortfall in iPhone 5 production

  6. SP
    October 5, 2012

    Thanks Barbara. Just googled about the display technology Apple is using.Its  in-cell screen technology, which merges display components and touch sensors into only one part. That's one reason why the iPhone 5 is Apple's thinnest smartphone.

  7. Tam Harbert
    October 8, 2012

    I think the issue with Sharp was just that it was new to this particular display technology. My impression is that the other two suppliers were up and running, but Apple wanted to bring in a third supplier in anticipation of the huge demand for the iPhone 5, and that Sharp simply wasn't able to bring up their manufacturing of this new component quickly enough.

  8. Barbara Jorgensen
    October 8, 2012

    Thanks SP! I knew the word “cell” was in there. (Had a brain cramp.) At any rate, it does eliminate several layers in the display so makes it thinner….I think there are also some power-savings as well.

  9. SP
    October 9, 2012

    @Tam, And also Sharp is facing some economic concerns as an organization. That may or may not be the reason for production slowness.

  10. Tam Harbert
    October 15, 2012

    A friend just sent me this SNL link, which is apropos of this post:

    http://www.nbc.com/saturday-night-live/video/tech-talk-iphone-5/1420759/

     

  11. Ariella
    October 15, 2012

    @Tam I've seen links to that on a number of place on the internet. It just may be on the verge of viral status. 

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