1. Supply Chain Management Relationships
By Luke Cairns

2. Overview of Apple American multinational company.
Designs and markets innovative consumer electronics, computer software and personal computers.
Products sold worldwide through its retail stores and online stores, as well as wholesalers, retailers and value- added resellers.
357 retail stores worldwide.
In 2011: $108.2 billion revenue and $25.9 billion of retained profit.
Apple is an American multinational corporation that is committed to delivering the best user experience to its customers through its innovative hardware, software, peripherals, and service. The company’s best-known products include the Macintosh line of computers, the iPod, the iPhone and the iPad. 
Apple sells its products worldwide through its retail stores and online stores, as well as through wholesalers, retailers, and value-added resellers.
The Company has 357 retail stores worldwide. By operating its own stores the Company is better positioned to ensure a high quality customer buying experience and attract new customers.
In 2011 Apple generated billion dollars’ worth of revenue with a retained profit of 25.9 billion dollars

3. Focused Product Line-up
Apple has very few products compared to other large companies e.g. Samsung has hundreds of products.
Predominately sells just five different gadgets – iPad, iPhone, iPod, Mac and Apple TV.
Focused product line-up allows Apple to fine tune their sourcing strategy.
As there are relatively few components, Apple need a small amount of suppliers in their supply chain.
Having small number of suppiers allows Apple to focus and build strong long term relationships.
Focused Product Lineup
Compared with other large companies such as Hewlett-Packard, which sells hundreds of different products, Apple has remarkably few products. Apple predominately sells just five different gadgets -- iPad, iPhone, iPod, Mac and Apple TV. That small handful of products share many components that are common to all the devices. Because it has such a small product line-up, Apple's sourcing strategy can be much more finely tuned than other companies. As there are relatively few components, Apple need a small amount of suppliers in their supply chain. Having few suppliers allows Apple to focus build strong long term relationships.

4. Apple Annual Revenue
This graph shows how Sales of Apple's devices have risen rapidly over the past several years, and the company has grown to become one of the world's biggest component purchasers.  By the end of 2011, Wall Street analysts expect Apple will be the second-largest tech company in the United States by revenue, behind only Hewlett-Packard.

5. Kraljic’s Supply Positioning
Components such as the
battery and charger units
Components such as the
iPad screens and the processor chips
Low
High
Supply risk
Leverage products
Alternative sources of supply available
Substitution possible
Bottleneck products
Monopolistic market
Large entry barriers
Routine products
Large product variety
High logistics complexity
Labour intensive
Strategic products
Critical for product’s cost price
Dependence on supplier
Tough competitive stance by buyer
Competitive systems tendering + E-commerce
Performance based partnership
Secure supply +
search for alternatives
Buyer
Strength
Supply’s impact on financial results
Looking at Kraljic’s Supply positioning matrix, the majority of apples more important components, such as the iPads touchscreen and the processer chips fit into the Strategic products section of the matrix. Other components such as the battery and charger units may fit into the leverage products section of the matrix.  
Number of available suppliers
ES4c9: Supply Chain Management – Lecture 11 Relationships

6. Buyer-Supplier Reciprocity
Apple Relationships
Power Balance
Buyer Dominance
Buyer-Supplier Reciprocity
Supplier Dominance
Arms-length
Short-term operational relationship
Buyer appropriates most of the value
Supplier is non-adversarial
Buyer accepts current market price + quality
Supplier accepts normal (low) market returns
Adversarial commercial relationships
Buyer pays whatever is required
Supplier appropriates most of the value
Collaborative
Long-term operational relationships
Buyer and supplier share value relatively equally
Both agree price and quality trade-offs
Both are non-adversarial
Buyer is non-adversarial
Way of working
Foxconn
Samsung
From this chart I would say that most of the relationships Apple develop with their suppliers tend to be collaborative and highly buyer dominated, with Apple appropriating most of the value. For example Foxconn, Apples supplier who assemble the iPhone, only make a $7 margin compared to Apples $368 per iPhone, however just how much apple spends on software development, R&D, marketing etc is unclear. Relationships that involve some of the more advanced components however, such as the processer chips supplied by Samsung would probably fit into the Collaborative, Buyer-Supplier Reciprocity section of the chart.
ES4c9: Supply Chain Management – Lecture 11 Relationships

7. Apple Buyer Dominance
With more then $80 billion in cash and investments Apple are able to commit to very large orders, have a lot of power and bargaining tactics.
Low profits and margins for suppliers compared to Apple.
Apple’s negotiation tactics sometimes lead to them losing out on suppliers.
Large orders limit options for competitors e.g. rivals HTC could not purchase as many screens as they needed.
As Apple have more than $80 billion in cash and investments, they are able to commit to large orders, this gives Apple a lot of power and their bargaining tactics tend to exert downward pressure on prices, leading to lower profits and margins for suppliers. However not every supplier gives in, an executive who works with a major parts manufacture claims that the company declined a $1billion payment from Apple that would have required the supplier to commit much of its manufacturing capacity to Apple products. The company did not want to be too dependent on Apple and didn’t want to help it deflate prices.
By committing hefty prepayments to suppliers and placing such large orders, Apple limits options the options for its competitors. For example before the release of the iphone 4 in 2010, rivals such as HTC couldn’t buy as many screens as they needed because suppliers were too busy filling Apple orders.

8. Recommendations
Do the participants in this supply chain trust each other?
Apple is paranoid about leaks from suppliers.
Apple has taken lawsuits out against suppliers Samsung related to patent infringement.
Apple should reduce their reliance on outsourcing by becoming a vertically integrated company.
Less suppliers mean less opportunity of leaks within the supply chain.
By addressing the following question from the relationships lecture I am going to make some recommendations.
Do the participants in this supply chain trust each other?
Apple is so paranoid about leaks from its suppliers, it once shipped products in unmarked tomato boxes so outsiders wouldn't know there were Apple products in them. Apple have to trust suppliers such as Samsung, that supple and are also in direct competition with Apple not to copy their product, this had lead to Apple taking patent and design-related lawsuits to prevent Samsung from selling its Galaxy Tab Apple could reduce theirL reliance on outsourcing and perform many more of its operations inhouse, becoming a vertically integrated company. Apple already has the cash and investments to purchase many of the companys supplying them. By outsourcing less components Apple will reduce the amount of relationships they have and therefore reducing the opportunity for leaks within the supply chain.

9. Any Questions?