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. The Masters list was created by Gartner for companies that have continuously shown supply chain excellence. In particular, Apple has put in place excellent inventory management practices that have allowed them to lower inventory costs, reduce waste, streamline inventory processes, and eliminate obsolete stock.

How do they do it?

Let’s turn back time 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, who would later become the CEO of Apple after Steve Jobs became critically ill. Tim Cook cleaned up Apple’s mess-prone supply chain, completely reorganized manufacturing, distribution, and the way Apple managed its inventory. The view that Cook brought to Apple was that inventory is “fundamentally evil”, and shut down Apple’s warehouses and manufacturing plants. By September that year, Cook had shut down ten of Apple’s warehouses, with only nine remaining. Currently, Apple has only one central warehouse in the United States, and approximately 154 key suppliers worldwide. By reducing their number of suppliers, Apple was able to develop strong and strategic relationships with their vendors.

Cook outsourced Apple’s production facilities to make the company leaner, cut down on costs, and reduce inventory overstocks. Apple’s products have an approximate life cycle of twelve months, depreciating in value from 1-2% every week. Keeping this in mind, Tim Cook decided to treat Apple’s inventory as if all of their products had an expiration date, keeping as little inventory as possible to ensure that they sold everything they produced.

By 2011, Apple’s days to inventory, the number of days it took until they would sell their entire inventory, was 3.2 days. Apple achieved this by only having one central warehouse in the United States, with most of their inventory stored at their retail stores.  In addition, Apple began to take advantage of drop shipping, when products are shipped directly from the manufacturer to the customer, for online purchases. This eliminated shipping costs, wastage, and storage costs from Apple’s supply chain.

What’s next?

Apple announced earlier this week that they are going to be expanding their renewable energy goal. Currently, the majority of Apple’s facilities are run off of renewable energy sources, making up 87% of their energy used worldwide. Apple wants all of their facilities running off of renewable energy, and will begin implementing renewable energy sources 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 to this, Apple made a big announcement about its commitment to sustainability. Apple has 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.