Which buying approach suits best?

Apple operates in a market supplying complex products having high, and sometimes unpredictable, fluctuations in demand and short lead times to bring new products to market.

As such it requires relationships with its suppliers where information is shared readily in order to meet these rapidly shifting demands and, given the complexities of the product, work together with suppliers to identify cost reduction opportunities and to bring new products to market quickly. To this end Apple’s operating processes and systems are highly integrated with those of its strategic suppliers.

Given the short time to get new products to market Apple must be confident that their key suppliers are capable of managing their own operations and are appropriately integrated with their own suppliers.

Given the risks associated with rapid fluctuations in demand and the finite resources and capacity available from one strategic supplier Apple have made the decision to engage with a second source. This strategy not only minimises the risk of not being able to satisfy market demand but also introduces an element of competition into the equation which can be used to improve performance and further reduce costs.

These strategies employed by Apple are generally in line with those of any company operating in a complex market/product scenario where there are only a small number of suppliers capable of meeting the needs of the customer. Some general approaches available given these conditions are,

• Product improvements and cost reductions through initiatives such as value engineering and the use of standard ‘black box’ items rather than bespoke engineered products and components.
• Collaborative process improvements. Joint working on R & D initiatives leveraging the experience and expertise of both organisations, collaboration around logistics and demand management (forecasting and inventory holding).
• Relationship structuring initiatives such as joint ventures in product development and market entry, open book costing and the restructuring of the supply chain which might involve the development of new suppliers or changing the operating footprint of Apple or its strategic suppliers.

This article, from the Spend Matters website, will help you understand the intricacies of Apple’s procurement strategy. Even though it was written and published in 2013 it is still relevant today.