Global Chip Shortage Disrupts Apple’s Supply Chain and iPhone Production

Alex is a major tech enthusiast who recently attended a virtual Apple launch event where he witnessed the capabilities of the all-new iPhone 13 series. Instantly he made the decision to get an iPhone 13 Pro. However, he missed the pre-booking deadline and he’s been waiting for this phone to hit the e-commerce sites ever since.

Customer Faced With iPhone 13 Shortages

After waiting for a long time, Alex visited the offline Apple store where the store representative informed him about an ongoing delay in the production of iPhone 13 Pro due to supply chain inefficiency. Alex then went to a couple more trusted Apple reseller outlets and received the same response.

He then became intrigued about this term “supply chain” and how it affects the production of a big corporation like Apple Inc. Therefore, he began exploring this topic.

Learning How Apple’s Supply Chain Works

Alex spoke with his friend Rachel, who works at Apple Inc, to learn about supply chain management and how the chain is disrupted due to international chip shortage.

Rachel explained supply chain management using Apple Inc’s example. She said “If you order an iPhone from the Apple store, you’ll notice that Apple is not precisely delivering the product on its own. All the iPhones available in Apple store are majorly manufactured at the Shinsen assembly plant in China.”

Apple Relies Heavily on Outsourcing and Partners

“But before that, raw material suppliers from all around the world deliver goods needed to manufacture an iPhone to this assembly site. And once the product is assembled, it gets shipped to the storage warehouse and then to your doorstep by third-party vendors like FedEx or UPS.”

“This means entities such as raw materials supplier, manufacturer and third-party logistics vendor are in consistent communication with each other until the iPhone reaches you. These entities and their communication involved in product manufacturing to product delivery is collectively considered as a supply chain.”

Stages of Apple’s Supply Chain Strategy

After listening to this, Alex asked Rachel how Apple Inc has implemented this supply chain and how one can design a sleek strategy to manage a supply chain that is not overly influenced by external factors.

In response, Rachel explained “Well, there are five stages for building supply chain management and Apple has adopted these stages while building its supply chain management strategy.”

Planning Operational Strategy

“The first stage of building a supply chain is planning an operational strategy. Apple since its inception has had a clear goal to provide the best personal computing devices to consumers. The initiative of Apple to scrutinize each app or program before launching it on the Apple App Store makes all Apple devices more secure. These pre-planned actions or strategies have been the most vital USPs of this organization.”

Sourcing Raw Materials and Components

“The next stage is sourcing. In this stage Apple acquires equipment and materials from suppliers and then ships them to the offshore assembly factory in China. The 120 Hertz screens are exported from Samsung’s Asan plant, Foxconn ships batteries and the processing chips are manufactured and exported by TSMC.”

Manufacturing Products

“Then comes the third stage known as making. This is the stage where Apple manufactures its products. The outsourced Chinese assembly plant majorly assembles all Apple products and ships them to the warehouses or distribution centers spread across multiple continents.”

Delivering to Customers

“After that the next stage of supply chain management, delivery, comes into play. Here the products ordered online get shipped to the doorstep of consumers from storage warehouses. Whereas the distribution centers, on the other hand, send items to retail stores for offline sales. This whole shipping process is carried out by third-party logistics vendors such as FedEx Supply Chain.”

Managing Returns

Supply chain management’s last building stage is returns. Here the faulty or damaged products during delivery get shipped back to the storage warehouses and then to the assembly planned for refurbishment.”

Heavy Reliance on Outsourcing

“Statistically speaking, 97% of Apple’s supply chain is all about outsourcing agreements and collaborations which has helped Apple become the best computing device producer.”

However, due to the recent worldwide chip shortage, Apple’s supply chain has been affected adversely.

Global Chip Shortage Disrupting Supply Chains

“The world was shut down because of the Covid 19 pandemic and many factories also went down with it, leaving chip manufacturing materials unavailable for months. Increased consumer electronic demand in recent times and scarcity of semiconductor supplies has put pressure on Apple’s supply chain, prompting the company to halt production of 10 million iPhone 13 devices.”

After listening to Rachel, Alex learned why there is a constant delay in the delivery of iPhones and became more patient about his desire to buy an iPhone.

Key Takeaways

With the help of an Apple Inc case study, we explored how a supply chain management strategy can be established. This domain of business management is crucial for any product or service based company in the long run.

A well-managed supply chain can lower operational expenses, allowing a firm to gain more profit. It can also improve corporate brand recognition and customer service. Hence companies invest a great deal in their supply chain.

They constantly hire professional supply chain management experts. These professionals are tasked with managing logistics, updating the company’s inventory, and conducting a thorough evaluation of the manufacturing cycle to discover and correct flaws.

That is the reason why these SCM professionals are compensated really well. According to PayScale, the average salary for supply chain managers is $84,000 per annum, whereas in India the average annual salary is around ₹8.5 lakhs.