OM in the News: Apple Believes in Squeezing Its Supply Chain

To understand Apple’s evolving place in the tech world, consider that one of its most important executives today is a guy whose job is badgering suppliers to get costs down. Tony Blevins, VP-Procurement, will stop at little to get a favorable deal. He has paraded manufacturers past competitors in Apple’s lobby and spurned a UPS contract by sending it back to UPS executives through FedEx. He persuaded subcontractors not to pay a chip maker that Apple was in litigation with, depriving the chip company of $8 billion.

The supply chain was always a critical piece of the Apple formula—alongside, if duller than, its magic designs, writes The Wall Street Journal (Jan. 24, 2020). CEO Tim Cook built the supplier network and instilled rigorous frugality in it as he did so. Today the supply chain looms larger than ever at Apple. Slowing iPhone sales, combined with the increasing cost of new features, make the job of hammering down expenses critical.

The result is a company less identified with visionary leaders and more of an operations juggernaut with rich profit margins it intends to keep. Blevins enforces manufacturing deadlines that help the company fill orders on time around the world. He manages semiconductor suppliers, making him the bearer of bad news if Apple sets out to replace their chips with an in-house product. Under Blevins, Apple pays Intel $10 per modem chip, roughly 50% less than Samsung pays Qualcomm. Blevins even rotates staff members every few years to keep them from developing supplier relationships that might dilute their focus on saving Apple money.

Apple believes that saving 10% on the cost of parts could boost profits more quickly than selling more computers, exactly the point we make in the text on page 7 in Table 1.1, “Options for Increasing Contribution.”

Classroom discussion questions:

1. Why is Blevins so important to Apple?
2.  Explain the implications of Table 1.1.