Inventory Management Leaders: Apple Inc.

Apple Inc. is not just well-known for their innovative products and sleek design. Apple is a leader in supply chain management, taking the top spot on Gartner’s Supply Chain Top 25 list for the past four years. This year, Apple Inc. and Procter & Gamble (P&G) have been taken off of the Top 25 list, and have been moved onto a Supply Chain “Masters” list. This list is for companies that have continuously shown supply chain excellence. In particular, Apple’s practices have resulted in lower inventory costs, less waste, streamlined inventory processes, and eliminated obsolete stock.

How do they do it?

Let’s turn back the clock to the year 1998. Steve Jobs was recently been hired back by Apple after being pushed out of the company in 1985. When Jobs was rehired, he asked Tim Cook to be the Chief Operating Officer. Cook would later become the CEO of Apple after Jobs became critically ill. As COO, Cook cleaned up Apple’s mess-prone supply chain, completely changing the way Apple manages its inventory.

The view that Cook brought to the table was that inventory is “fundamentally evil.” By September that year, Cook had shut down ten of Apple’s warehouses, with only nine remaining. Currently, the company has only one central warehouse in the US and about 154 key suppliers worldwide. By reducing their number of suppliers, Apple was able to develop strong and strategic relationships with their vendors.

By outsourcing production, Cook made the company leaner. He was able to cut down on costs and reduce overstock. Apple’s products have life cycle of about twelve months, depreciating in value 1-2% every week. With this in mind, Tim Cook decided to treat  inventory as if all of their products had an expiration date. His goal was keeping as little inventory as possible to ensure that they sold everything they produced.

By 2011, Apple’s days to inventory was 3.2 days. This means that it would take 3.2 days to sell their entire inventory. How did they accomplish this? With only one central warehouse in the US, most of their inventory is at their retail stores.  In addition, Apple began to take advantage of drop shipping. This is when products ship directly from the manufacturer to the customer for online orders. As a result, this reduces shipping costs, wastage, and storage costs.

What’s next?

Apple announced earlier this week that they are going to be expanding their renewable energy goal. Currently, most Apple facilities run off of renewable sources, making up 87% of their energy used worldwide. The next step is all of the facilities running this way. Also, Apple plans to bring  renewable energy into their supply chain. Tim Cook commented, “We are excited to work with leaders in our supply chain who want to be on the cutting edge of China’s green transformation.”

In addition, Apple has a big commitment to sustainability. They have partnered with the World Wide Fund (WWF) to protect approximately 1 million acres of forests that provide pulp, paper and other wood products.  “Apple’s support for this project and its environmental leadership show that protecting forests is not just good for society but important for business,” said the WWF China CEO Lo Sze Ping.