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How Apple Watch shows supply chain best practices

Posted: 06 May 2015     Print Version  Bookmark and Share

Keywords:Apple Watch  supply chain  OEM  Taptic 

While customers waited for their Apple Watches last week, the Wall Street Journal reported that a faulty part was the cause of a supply chain boo-boo. However, Apple's supply chain strategy likely saved the day.

"Apple's supply chain issues around the Apple Watch should serve as a major wake-up call for all companies," said Gary Meyers, CEO of supply chain analytics company FusionOps. "Apple has the world's best supply chain, and has incredible brand loyalty, so they'll weather this fine, but this would be catastrophic for most companies."

Apple, of course, is in a position that few OEMs find themselves. "With the Apple Watch launch, Apple is introducing a new product, already a big undertaking considering the volumes they are dealing with, but is also creating an entirely new category, so there's no way to forecast demand," Meyers told EBN in an interview.

Apple Watch

Into this mix, a potentially faulty component was introduced. Taptic engine components manufactured by AAC Technologies Holding, when tested, showed degradation over time and Apple chose to throw the products away rather than risk a black eye to the product or the brand, according to the Wall Street Journal.

Of course, problems can't always be avoided—and then risk mitigation becomes the key. "Although Apple has the best supply chain in the world, they have highlighted how new technologies, such as Big Data and cloud-based supply chain analytics, can de-risk supply chains and give companies the confidence to deliver new products to customers on time," said Meyers.

In at least a handful of ways, Apple's supply chain policies and practices helped them avoid making a potentially big problem even bigger. Meyers highlighted the best practices that other electronics OEMs should emulate:

1. Identifying multiple suppliers for key components. By waiting to go into production until two suppliers had been identified, Apple could toggle production of the part to a different supplier when the quality issue was uncovered. "It's about getting good upstream information from your customers," said Meyers. "They could have been more aggressive and launched ahead of multi supply strategy but they didn't and can take aggressive action now."

2. Refusing to ship potentially faulty products to customers. By implementing adequate testing and inspection, Apple was able to discover faulty product before it ever got into the hands of customers. Product recalls are expensive, time consuming and brand eroding, Meyers said. Through testing, Apple avoided having to recall the watches.

3. Taking online orders initially. Although customers were frustrated by Apple's decision to take orders rather than put product on Apple store shelves, in the end, it proved to be a smart strategy. "Frankly, this is a way that the company can moderate demand while they get supply chain up and operational around what that forecast looks like," Meyers said. By skipping its retail channels in the initial launch phase, Apple avoided building up inventory of the faulty product as well—a huge cost savings.

4. Considering adding additional assemblers to meet pent up demand. Apple may add a second assembler in addition to Quanta Computer of Taiwan to assemble the watch and meet demand more quickly, according to a MacRumors report released this week.

Today, Apple predicts that Apple Watch orders placed today will be fulfilled in June or even later. However, with smart supply chain management, it's possible the technology giant will be able to get the watches into customer hands even sooner.

- Hailey Lynne McKeefry

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