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iPhone 6, the Apple Watch and the supply chain

By Philip Stoten & Riverwood Solutions’ Ron Keith

Sep 12, 2014

Remember when cellphones got smaller and smaller each year, I miss those times.  Now they're getting bigger.  In this short blog we explore the new launch and Apple's impact on the supply chain.

This is 'the' launch of the year, eagerly awaited, predicted and even leaked.  It may not have been as revolutionary or exciting as the first iPhone or iPod, but it seems to have delivered many of the features people want, such as the bigger screen size, more memory, a better camera, better reception, health and fitness and home control apps.  Tim Cook is not yet as charismatic as Steve Jobs on stage, but then he is also the next version, rather than something new and exciting.  Perhaps the more exciting, and thus trending higher on social media, was the Apple Watch, interestingly not the iWatch, which although launched isn't available yet.

Anyway, I suspect that the iPhone 6 will, as its predecessors did, sell well.  What does it all mean for the supply chain and for the many vendors involved?  I asked Ron Keith, Founder and Chairman of Riverwood Solutions and below are his comments along with mine.

In Gartner's 2014 Supply Chain Top 25 Apple comes first, ahead of McDonalds and Amazon.  They represent the largest player in the outsourcing market and they have been linked with the world's largest contract manufacturer's growth and success for some time.  They also work with many other tier one and below suppliers.  Their success is clearly important to the entire outsourced ecosystem and with innovation and quality at their core they need to have partners that understand how they operate. 

Supply chain issues have been reported leading up to the launch, is that to be expectd?

Ron said:
  Apple is such a large consumer of various components and technologies that a major product launch like the iPhone 6 can consume meaningful portions of industry capacity.  We always hear rumours about larger companies struggling to hit the launch date volumes, such as the recent issue with backlights impacting display shipments from Sharp and LG.  But there are dozens of smaller companies out there under enormous pressure like sapphire crystal maker GT or lens maker Largan.  Apple is definitely the most demanding customer in the electronics supply chain today.

My comment:  What doesn't kill us makes us stronger.  It is good, in my opinion, that these challenges from demanding customers constantly push the industry.  In many ways Apple's demands reflect the voice of the consumer and that is the voice that should help shape and develop our supply chain moving forward.  If it drives supply chain development and creativity then that's great for Apple, other OEMs and the outsourcing industry.
What impact/implication does such technology innovation have on the manufacturing process?

Ron said: 
There are three main sources of innovation that make an iPhone 6 possible: software/firmware; material; and manufacturing process.  So much of what enables the iPhone is evolutionary, and sometimes revolutionary innovation in manufacturing process technologies allowing for faster, cheaper, smaller, smarter - or even enabling a new innovative feature.  Apple has had a more significant impact on the manufacturing processes for housing, casing and enclosures over the past five years than everyone else in the industry combined.  It's interesting to see how much impact a non-manufacturing company has on the global roadmap for certain manufacturing process technologies.

My comment:  Also good news.  Widespread outsourcing has moved OEMs away from manufacturing process development and allowed them to focus on product development, good news for them, but who takes care of the processes?  The EMS industry works on famously paper-thin margins, which doesn't leave a lot of investment for manufacturing R&D.  This is an area of concern for an industry that needs to automate to remain competitive and meet the demands of the consumer for shorter product cycles and mass customization or build and configure to order.

Does innovation create or develop new markets, such as wearables, accessories, etc? 

Ron said: 
Without a doubt.  This ubiquitous device of today was largely conceptual ten years ago and not much more than science fiction 25 years ago.  That cycle repeats itself with new innovations.  Real, meaningful innovation is not about incremental improvement in features and functions - it's about meeting a need that is not met today.  GoPro, Open Table, Facebook, Apple, Linkedin, Uber - all of these companies largely created markets or even industries through groundbreaking, behavior changing innovation.

My comment:  Innovation, innovation, innovation, let's have more of it.  This is what keeps our industry moving, changing and developing.  Science fiction becoming science fact is exactly what we need to keep consumer demand growing.  Wearables, driverless vehicles, perhaps even Marty McFly's hover board are all things that will make the industry grow and in many cases such as health and fitness device will genuinely improve lives.  The nurturing and encouraging of innovation is key to sustained success for the electronics industry and for the supply chain that supports it.  It is great to see the major EMS companies put real emphasis on innovation, developing strategies that support start-up inventors and accelerate their products to market.

What are the implications for global supply chain of a global launch? 

Ron said:
  The two happiest days in a supplier's life are the day they find out they won the next iPhone deal, and the day of that iPhone's launch.  Every other day is filled with high pressure, borderline unrealistic expectations, and the constant scrutiny of the world's toughest customer.

My comment:  Great supply chains are global and designed to meet the demands of aggressive product ramps.  This is when outsourcing is at its very best, performing the role it was designed for.  The utopia is to be able to design the perfect supply chain for a product, then drop that model onto the global footprint of an EMS company with a complete focus on the needs of the customer and the consumer and not to fill the available space at a company's factories.  A global launch with a rapid ramp is about as exciting as it gets in the supply chain management world.

I hope the iPhone 6 and Apple Watch are big successes and Apple and their competitors continue to innovate and demand more and more from the supply chain.  I believe this is evidence of the validity of large-scale outsourcing from a supply chain that will rise to any challenge in any market.

Vive l'évolution...

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