The discussion on Apple’s case was exciting. We attributed Apple’s success to various factors: the founder Steve Jobs, the design, the product, the innovation, and perhaps even the advertisement. These are the glamorous headline stories news like to tell. One thing I was still curious after the discussion was that why did Tim Cook became Apple’s CEO after Steve Jobs and how does he compare to Steve Jobs. The research leads me to discover a secret of Apple’s success–Tim Cook, the supply chain guru. The day-to-day operation may seem unsexy compared with other things discussed in the case study, but it may be your first time hearing this part of Apple’s story.
Not a manufacturing company…anymore
When in class, we described Apple as a product company, a design company, a luxury/premium-pricing company, and an advertisement company. No one thought of it as a manufacturing company. It is true because of Tim Cook. Tim Cook left IBM and joined Apple in 1998 with 1 critical mission–fix Apple’s broken supply chain. Before Cook, Apple’s supply chain was scattered and inefficient. Since the beginning of his time at Apple, Cook wanted to pull Apple out of manufacturing. Even today, he has an eagle eye on Apple’s supply logistics and probably understands the supply chain better than most other CEO in the tech world today.
He reduced the number of Apple’s key suppliers from 100 to 24, and forced them to offer better deals. To implement the Just-In-Time logistic strategy (an advanced supply chain strategy first implemented by Japanese manufacturing companies), he also convinced many suppliers to locate next to Apple’s plants. He closed 10 out of 19 Apple warehouses and cut inventory from one month to 6 days, which means inventory turnover became much faster.
What is astonishing was that by September 1999, he managed to bring down inventory further to 2 days, and cut the production process for making an Apple computer from 4 to 2 months. It is to overlook the importance of supply chain management, but Tesla’s struggle with production at scale shows the difficulty in balancing smooth operation and cutting-edge innovation.
“Inventory is fundamentally evil,” said Cook when interviewed by Fortune.
Cook’s focus on logistical discipline has turned Apple inventory management from a mess to the gold standard for computer-manufacturing efficiency.
Apple is known for its slick design and advertising campaigns, but it is the state-of-art cost control that makes Apple the biggest cash generator in Silicon Valley. By cost control, I don’t mean cost-cutting. Cook strategically spends on suppliers to ensure Apple’s competitive position in the market.
Shortly after he joined Apple, he booked $100m worth of holiday season air freight months in advance. This ensured expedited delivery for the new iMacs while leaving Compaq and other PC firms with air cargo (slower). This may not look like a big deal, but delivering in time was crucial in making a new product mainstream.
In 2005, Apple introduced iPod Nano. What I remembered about it was it came in more colors and has more storage than the iPod clip but less bulky than the iPod classic. In retrospect, it was a revolutionary music play because it used more flash memory than existing products on the market while maintaining a small size. Cook’s team accurately predicted tremendous demand for the Nano, and prepaid $1.25 billion to big suppliers such as Samsung and Hynix to effectively corner the market through 2010 on a specific kind of memory.
Cook helped apple to transform not only in logistics but also in customer experience. In the early 2000s, Cook led Apple to replace salespeople in Best Buy with Apple’s own well-trained employees. Eventually, it became the “Geniuses Bar” in Apple stores we see today.
New Records of R&D Spending
Cook was never hesitant when it comes to R&D spending. He spends on R&D much more than Jobs, and he continues to break his own record.
Since Apple’s design is always ahead of its competitors, often it needs to invent manufacturing equipment as well. In 2013, Apple worked with key suppliers to customize robots to manufacture new iPhones and iPads, and spent about $10.5 billion to create these special tools. Apple engineers often spend weeks at facilities in Asia to make sure that parts and equipment are working properly. Although Apple itself is not a manufacturing company, it has tight control over the production line to ensure perfection in the details.
Without Steve Jobs, Apple would not be a tech giant like it is today. After I read about Tim Cook, I was amazed by these less known but impressive stories. I admire his operation savviness, and the new tax bill certainly poses a new challenge as well as an opportunity for him.
I am curious about whether Apple employees see a change in company culture after Tim Cook has become the CEO, and how would Apple today describe themselves. And of course, I am interested to see what Apple is going to do with its cash both within the company (employee benefits) and outside the firm.