Apple – The OM Blog by Heizer, Render, & Munson

OM in the News: Bringing Mac Mini Production Stateside

Apple just announced a significant expansion of its Houston manufacturing operations, confirming that production of the Mac mini will move to the U.S. for the first time as part of a broader investment in advanced manufacturing and AI infrastructure. The move will also see Apple expand AI server production at the Texas site and open a new Advanced Manufacturing Center, initiatives that together are expected to create thousands of jobs.

The decision marks a notable shift in the company’s global manufacturing strategy, writes Yahoo Finance (Feb. 28, 2026). The move follows a wider trend among technology firms seeking to diversify supply chains and expand domestic production capacity, particularly in high-value electronics manufacturing.

Alongside Mac mini production, Apple is ramping up output of advanced AI servers at the Houston site, an initiative that began in 2025. The expansion reflects Apple’s growing investment in AI infrastructure, an area that has become central to both consumer devices and cloud services.

Beyond hardware production, Apple is also investing in workforce development with the launch of an Advanced Manufacturing Center in Houston. The facility will provide hands-on training in advanced manufacturing techniques. The center will train students, supplier employees, and manufacturers in processes used in Apple’s own production lines. Apple engineers will teach how U.S. manufacturers can adopt new technologies and improve efficiency, strengthening the domestic manufacturing ecosystem while building a pipeline of skilled workers.

Apple’s expansion comes amid a broader push to localize manufacturing in North America, driven by supply-chain resilience concerns, geopolitical tensions, and government incentives. Bringing Mac mini production home signals that high-tech consumer electronics assembly—traditionally concentrated in Asia—may increasingly be split across multiple regions. Meanwhile, Apple’s investment in AI server production reflects surging demand for data-center hardware as AI applications expand.

By combining Mac mini assembly, AI server production, and advanced manufacturing training, Apple is positioning Houston as a key node in its global supply chain—while signaling a deeper commitment to U.S. manufacturing capacity. As reshoring momentum continues, Apple’s move could encourage other electronics manufacturers to consider similar strategies, particularly for high-value or strategically important products.

Classroom discussion questions:

Why is Apple reshoring this particular product?
Why is it difficult to bring manufacturing of high-tech products home?

OM in the News: Can Apple Change Its Supply Chain?

President Trump recently demanded Apple and other smartphone makers like Samsung make their phones in the U.S. or face a 25% tariff, reports CNN Business (May 23, 2025). But Apple’s CEO, Tim Cook, says its plan is to manufacture iPhones set to be sold here at newly built plants in India, stating “the majority of iPhones sold in the U.S. will have India as their country of origin.”

Unlike Apple, Samsung doesn’t rely on China for smartphone production. The South Korean giant closed its last phone factory in China in 2019. The vast majority of its smartphone manufacturing takes place in South Korea, Vietnam, India and Brazil.

Treasury Secretary Scott Bessent stated: “I think that one of our greatest vulnerabilities are external production, especially in semiconductors, and a large part of Apple’s components are in semiconductors. So we would like to have Apple help us make the semiconductor supply chain more secure.”

The world’s most valuable publicly traded company is flush with cash and rakes in tremendous profit — more than any company in history. But Apple has long contended that it cannot manufacture iPhones here. It has instead invested billions of dollars training millions of skilled engineers abroad, claiming China and India simply have more skilled engineers–and that they cost significantly less.

In 2010, Steve Jobs, Apple’s late CEO, called America’s education system an obstacle for Apple, which needed 30,000 industrial engineers to support its on-site factory workers. “If you could educate these engineers, we could move more manufacturing plants here,” he told then-President Obama.

So, can Apple reshore iPhone production? The notion is a “fictional tale,” says tech exec Dan Ives at Wedbush Securities. “U.S.-made iPhones could cost more than 3 times their current price of $1,000, because it would be necessary to replicate the highly complex production ecosystem that currently exists in Asia. You build that supply chain in the U.S. with a fab in West Virgina and New Jersey, they’ll be $3,500 iPhones. And even then, it would cost Apple about $30 billion and three years to move just 10% of its supply chain to the US to begin with.”

While moving iPhone production to the U.S. may not be possible, Apple did announce a $500 billion investment to expand its U.S. facilities earlier this year, in an effort to appease the President.

Classroom discussion questions:

Is it true that China and India have more engineering talent than the U.S.?
Discuss the pros and cons of reshoring iPhone production from an OM perspective.

OM in the News: India Moves Up the Value Chain

The first trade war, in 2018, helped India rise—and this second one could be transformative, writes The Wall Street Journal (April 19-20, 2025). “Is this India’s moment?” says the CEO of a major Indian electronics supplier. “Yes. But the country still needs improvement on the most important quality for a global supply chain: consistency. ”

With most Chinese exporters cut off for now from U.S. consumers by high tariffs, companies are looking for alternative places to produce and export to the U.S.—adding up to a golden opportunity for India. Global high-tech firms and retailers say India is a harder place to do business than China or Vietnam, owing to government red tape, restive labor groups and an often-punitive approach to compliance and taxation. Vietnam, a country of 100 million people, exports $50 billion more in goods to the U.S. than India, whose population is 1.4 billion.

Smartphones offer an example of what India can do when it puts its mind to it.

But now India wants to emulate what has made China the world’s unparalleled manufacturing powerhouse by offering not just manual assembly of goods but also design, parts and other knowhow. “We are looking at building the entire value chain in India itself,” said a government official.

For the moment, most Indian goods face only the 10% tariff the U.S. has imposed globally, and certain exempted electronics such as iPhones have no tariff. The tariff on most Chinese goods is 145% while those electronics items are subject to a 20% rate.

Apple is already moving to export more iPhones to the U.S. from India, and the country currently accounts for about 20% of iPhone production. A decade ago, when India started focusing on building phones, its annual mobile-phone exports were only $250 million. Now the figure exceeds $22 billion.

A second factory operated by Taiwan’s Foxconn is coming on line this year which will add annual production of 20 million phones, rivaling Foxconn’s first Indian plant. Smartphones are benefiting from the government’s attention and support, including manufacturing subsidies and upgrading its freight terminals to address bottlenecks.

A network of suppliers is also growing up to feed the final assembly. New York state-based Corning, which has long made scratchproof glass for Apple phones, plans to start production in India this year.

Classroom discussion questions:

What is needed in India to match China’s manufacturing prowess?
What other companies have made moves to relocate to India?

OM in the News: Is Apple Really Reshoring?

With great fanfare, Apple just announced plans to spend $500 billion (yes–that’s a half a trillion dollars!) in the U.S. and add 20,000 jobs over the next 4 years. Apple, like many of the most valuable U.S. companies, isn’t a major manufacturer. It designs products, writes software and creates chip blueprints, but outsources much of its production and markets the results.

But early in the Trump administration, Apple and other companies are trying to quickly answer the president’s call to rouse American manufacturing, reports The Wall Street Journal (Feb, 25, 2025). To do that, they are turning to investments and job growth. Apple’s new jobs promises are slightly ahead of the company’s recent 4-year pace, and the spending pledge is roughly on track with its recent investments that include previously planned spending or developments already under way.

The company has yet to spell out how many people it will continuously employ beyond saying it will create thousands of jobs. If Apple adds 20,000 jobs, it would mark only a modest increase in hiring over the 19,000 U.S. workers every 4 years since 2013.

Unclear is how much of the planned spending is actually new. Apple has spent about $1.1 trillion over the past 4 years on total operating expenses and capital expenditures, of which about $500 billion was in the U.S. In short, Apple’s announced figure is in line with what one might expect the company to be spending anyway.

While it is still largely dependent on East Asia, and China in particular, Apple has been using more suppliers that manufacture in the U.S. since the pandemic. Its expansion includes a multibillion-dollar commitment to produce advanced silicon in a fabrication facility in Arizona, and a new 250,000-square-foot factory in Houston is slated to open in 2026 and produce servers for AI systems.

Big investment plans don’t always pan out. In 2018, electronics-maker Foxconn—one of Apple’s big suppliers—said it would invest $10 billion and create 13,000 jobs at a liquid-crystal-display plant in Wisconsin. Foxconn later cut investment to under $700 million and 1,450 jobs.

Classroom discussion questions:

Why do such announcements often not result in the advertised plans?
Why is Apple moving some its manufacturing to the U.S. from China?

OM in the News: Apple, Core Competencies, and Electric Cars

In a perfect example of what happens when successful firms decide to stretch beyond their core competencies (see Chapter 2), Apple has just put an end to its decadelong push to build its own electric vehicle. Once seen as an effort having the potential to transform the auto industry, the secret group inside the iPhone giant—known internally as Project Titan—has been shut down, reports The Wall Street Journal (Feb. 28, 2024).

That EV transformation, which has been under way for years without Apple, continuously increased the level of difficulty Apple faced as it spent billions on R&D for the project trying to catch or exceed the capabilities made available during a revolution led by Tesla. The car group inside Apple was the subject of several rounds of restructuring and shifting strategies over the years as Apple struggled to figure out a path forward. Some executives pitched deep partnerships with automakers or even outright buying an automaker, but none of that materialized.

Since the mid-2010s, the specter of Apple introducing a car had rattled auto executives. Cars were becoming computers on wheels, with updateable features and large touch screens—morphing into a sort of device that seemed to play right into Apple’s strengths. “There was a view that if they ever did put out a car, that would be tough to compete with. Still, an Apple vehicle was seen as a distant threat because everybody knew how hard it was to build cars.” ” said a former GM exec.

When the effort kicked off in 2014, Apple imagined a fully autonomous vehicle. Over time, it scaled back those ambitions to where the vehicle automates only some parts of the driving. With these strategic changes, leadership was also in near constant flux.

“Apple canceling this project is a sigh of relief for us,” said an investment manager. “When you looked at Apple’s future initiatives, the car project was always the most far-fetched for Apple. This just isn’t in their wheelhouse. Instead, it is better Apple will be redeploying engineers and investments into areas like artificial intelligence that could help its consumer electronics business.”

Classroom discussion questions:

What is Apple’s core competency?
Apple also tried to enter the TV business in 2014. ( See the Time article on June 1, 2015), What happened in that venture? Compare it to the EV project.

OM in the News: Apple’s Supply Chain and Climate Change

Torrential rains flooded Guangzhou this year, where Apple has 71 facilities.

Few global multinationals have been more vocal and forthright in their ambitions to take on climate change than Apple. Yet Apple’s vast supply chain — comprising more than 400 facilities across 180 regions in nearly 30 countries– stands in the path of some of the most damaging effects of climate change itself, .

Based on global databases of power-generation, extreme weather, flood zones, economic impact and carbon emissions, the very regions most vulnerable to climate change are those with the highest concentration of manufacturers, writes Bloomberg,com (Sept. 26. 2023). This risk isn’t exclusive to Apple. Global companies including Samsung, Sony, and Dell procure from many of the same vendors.

Put simply, the belt of the planet where natural disasters will intensify most rapidly due to global warming — from floods and heatwaves to increasingly powerful cyclones — is precisely the one where Apple has built its manufacturing footprint. It’s most visible in a swath of Asia from India to Japan.

We’ve already seen the damage weather disasters can do to multinational manufacturing operations. Floods across Thailand in 2011 shuttered more than 14,000 businesses, throwing a wrench into global automotive and electronics supply chains that were dependent on low-cost manufacturing. It was the biggest flood disaster in insurance industry history, causing about $55 billion of losses and slowing deliveries of Apple computers as component suppliers were forced to suspend work.

Much of the world has since made efforts to prevent such a disaster. Toyota, a pioneer of JIT, raised the time it held onto its inventory from 30 days to 49 now. Apple’s inventory days increased from 5 to 11 since the 2011 floods. Overall, larger inventories make supply chains more resilient to disaster — but they also cost money because of capital tied up in warehouses. Despite this, the countries in Asia where Apple’s supply chain has been built are also some of those that will be most prone to floods. Power cuts pose similar risks to manufacturers. A heat wave last year left India’s grid on perilously thin margins as coal-fired generators ran short of fuel.

Apple’s plans for greening its manufacturing network illustrate the challenge. The company has called on its suppliers to follow its own path to zero-carbon power by 2030. Yet many of the countries on which it is most dependent have unusually high shares of fossil fuels in their grids, with coal accounting for more than 60% in China and Indonesia, and nearly 75% in India.

Classroom discussion questions:

What can Apple do at this point?
What technique in Supp. 11 in your Heizer/Render/Munson text can be applied to analyze potential natural disasters?

OM in the News: Apple’s Spectacular Failure

In seeking to build a key part for its new iPhones, Apple set out to design a chip that would allow it to cut ties with Qualcomm, a longtime supplier and bitter foe. But the new iPhone models just unveiled are missing a proprietary silicon chip that Apple had spent several years and billions of dollars trying to develop in time for the rollout, reports the Wall Street Journal (Sept. 25, 2023).

Apple iPhone 15 Pro Max and a Qualcomm modem chip.

The 2018 marching orders from CEO Cook to design and build a modem chip—a part that connects iPhones to wireless carriers—led to the hiring of thousands of engineers. The goal was to sever Apple’s dependence on Qualcomm, which dominates the modem market. (Apple paid more than $7.2 billion to Qualcomm for chips last year). But recent tests found Apple’s chip was too slow and prone to overheating. And its circuit board was so big it would take up half an iPhone, making it unusable.

Apple hasn’t publicly acknowledged its modem project, much less its shortcomings. Engineering teams working on Apple’s modem chip had been slowed by technical challenges, poor communication and managers split over designing the chips rather than buying them. Teams were siloed in separate groups across the globe. Bad news from engineers about delays or setbacks– leading to unrealistic goals and blown deadlines–were concealed.

Apple believed, first, it could replicate the success of the microprocessor chips it designed for iPhones. Adoption of those chips fattened profit margins and improved performance for billions of devices. Second, Apple and Qualcomm had bickered and swapped accusations of lying and theft.

Apple had found that designing a microprocessor, a tiny computer to run software, was easy by comparison. Modem chips, which transmit and receive wireless data, must comply with strict connectivity standards to serve global wireless carriers. A brute force of thousands of engineers, a strategy successful for designing the computer of its smartphones and laptops, wasn’t enough to quickly produce a superior modem chip. Three years ago, Apple began replacing processor chips from Intel, used for years in Macs, with a proprietary chip that allowed its laptops to run faster and generate less heat. That Apple chip saved the company $75 to $150 on every computer.

Classroom discussion questions:

Why was it harder to design a modem chip than a microprocessor chip?
What did Apple do wrong?

OM Podcast #1: Sustainability and Supply Chains

Welcome to our newest Operations Management text feature–bimonthly podcasts on topics we think you and your OM students will find interesting.

Jay and I will be creating 8-9 minute podcasts–posted on this blog. They will be tied to specific chapters in the text. Assignable auto-graded exercises using this podcast (in the form of multiple choice questions) are available in our MyLab OM. To learn more about these assignments in MyLab, contact your Pearson rep at https://www.pearson.com/us/contact-us/find-your-rep.html

Today’s topic relates to Supplement 5, Sustainability in the Supply Chain. In it, we talk about new government regulations, the clothing industry, Apple, and greenhouse gasses. Let us know what you think. The next podcast will be released in two weeks on the topic of Blockchains.

OM in the News: Foxconn’s Big India Expansion

Apple has identified India as a prime destination as it seeks to diversify the sites where its products are assembled.

Apple’s main manufacturer, Foxconn Technology, is considering a major expansion in India, including assembling millions more iPhones and setting up new production sites as it seeks to further diversify beyond China, reports The Wall Street Journal (March 6, 2023). It aims to boost iPhone production to 20 million units annually by 2024 and triple the number of workers to as many as 100,000 at its existing plant near Chennai. The plant currently produces 6 million units.

Foxconn also plans to build: a new production facility in Karnataka, where it would make products including iPhones; a new production site in Hyderabad; and a silicon carbide fabrication plant for its semiconductor business. The Indian government has offered billions of dollars of incentives in recent years to lure global manufacturers to India, as part of a major push to boost advanced manufacturing jobs and decrease reliance on electronics imports.

Meanwhile, Apple has been pushing suppliers to diversify beyond China after many of them faced production disruptions in China multiple times during Covid lockdowns. Geopolitical tensions have been growing between the U.S. and China, as well as between Beijing and Taiwan, where Foxconn is based.

China has been the biggest manufacturing hub in the electronics supply chain for years, with Apple a major driver after building much of its supply chain and assembly in the country over the past two decades. Concerns over that reliance heightened after protests erupted at the world’s biggest iPhone production site in central China late last year over tight pandemic control policies and wages. Still, expanding into India won’t mean companies such as Apple and Foxconn leaving China. The supply-chain infrastructure that these companies have built over the past decades there can’t be easily replaced by other countries.

Despite strides in local automobile and smartphone production in recent years, India has long trailed regional rivals in advanced manufacturing due to concerns over the country’s challenging bureaucracy, protectionist rules and underdeveloped infrastructure. India, alongside Vietnam, has already been identified by Apple as a prime destination with the company seeking to diversify the sites where its products are assembled. Apple has told its suppliers to plan more actively for assembling its products beyond China.

Classroom discussion questions:

Why India and Vietnam? Why not the U.S?
Chapter 8 lays out key success factors that affect location decisions (see page 337). Which of these factors is Apple considering?

OM in the News: Why Apple Plans to Move Beyond China

Apple and China have spent decades tying themselves together in a relationship that, until now, has mostly been mutually beneficial, writes The Wall Street Journal (Dec. 3-4, 2022). But in recent weeks, Apple has accelerated plans to shift some of its production outside the long the dominant country in its supply chain. It is telling suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, and looking to reduce dependence on assemblers led by Foxconn.

Protesting workers being beaten at Chinese iPhone factory in November

Turmoil at a place called iPhone City helped propel Apple’s shift. At the giant city-within-a-city in Zhengzhou, China, as many as 300,000 workers work at a factory run by Foxconn to make iPhones and other Apple products. At one point, it alone made about 85% of the Pro lineup of iPhones.

The Zhengzhou factory was convulsed by violent protests and running at only about 20% capacity last month. Coming after a year of events that weakened China’s status as a stable manufacturing center, the upheaval means Apple no longer feels comfortable having so much of its business and supply chain tied up in one place. In the past, China has excelled at building hundreds of millions of gadgets, heavily due to its concentration of production engineers and suppliers.

Two causes threaten China’s historic economic strength. Some Chinese youth are no longer eager to work for modest wages assembling electronics for the affluent. They also seethe because of Beijing’s heavy-handed Covid-19 approach, itself a concern for Apple and many other companies. And 5 years of U.S.-China military and economic tensions and U.S. tariffs have come into play.

The risk of too much concentration in China has long been known to Apple, yet for years it did little to lessen it. China supplied a diligent workforce, political stability and a huge local market. Apple’s goal is to now ship 40% to 45% of iPhones from India. Vietnam is expected to shoulder more of the manufacturing for other Apple products such as AirPods, smartwatches and laptops. American companies’ confidence in China has fallen to a record low, with about a quarter saying they have at least temporarily moved parts of their supply chain out of China over the past year.

Classroom discussion questions:

What are the benefits and risks of Apple’s move?
Figure 8.1 in your Heizer/Render/Munson text (see page 337) lists 20 factors that affect location decisions. Which concern Apple operations managers?

OM in the News: Apple Tries to Make Its Suppliers Sustainable

Apple is adding pressure on suppliers to get on board with its carbon-neutrality goal, highlighting the difficulties in tackling greenhouse-gas emissions from global supply chains, reports The Wall Street Journal (Oct. 26, 2022). The iPhone maker said that it would review the work of suppliers to specifically decarbonize their Apple-related manufacturing, such as by running on 100% renewable energy, and track their yearly progress as it strikes supply agreements. Apple already requires suppliers to report overall emissions from their operations and energy purchases, respectively known as Scope 1 and 2 emissions.

Close to 30% of Apple’s suppliers haven’t committed to using 100% renewable energy in the production of the company’s goods. In 2020, Apple set a goal to reach carbon neutrality across its entire business by 2030, aiming to cut emissions by 75% and develop carbon-removal projects for the remaining 25% of its footprint. The gap underscores the challenge large companies face in getting their supply chains in line with their climate change goals.

Scope 3 emissions, which cover suppliers and the use of a company’s products, account for the overwhelming bulk of a company’s carbon footprint. A big problem facing companies like Apple with global supply chains is that their suppliers are largely dependent on countrywide sustainability goals. For instance, most energy available to Apple’s Chinese suppliers comes from coal. “The truth is, no company or their suppliers are on track to reducing all three scopes of emissions. Current environmental circumstances require efforts most companies cannot humanly meet,” said one industry expert.

Still, Apple said that more than 200 suppliers have said they would power all Apple-related production with 100% renewable energy by 2030. Among the suppliers to make the commitment is Foxconn, which is the biggest assembler of iPhones and has operations in China, India and other regions. Others include Corning, Nitto Denko, STMicroelectronics and Taiwan Semiconductor Manufacturing.

Apple’s Scope 3 emissions stood at 23.1 million metric tons of carbon-dioxide equivalent in 2021, declining from 27.3 million in 2017. In 2021, the company’s Scope 3 emissions accounted for more than 99% of its carbon footprint. Since many of the lagging suppliers are in emerging markets where there is a lack of access to renewable energy or affordable contracts, companies with sprawling supply chains like Apple need to encourage collaboration. “Engaging low-maturity suppliers requires close partnership and collaboration, all while supply-chain organizations grapple with conflicting priorities such as supply disruption and inflation,” said another industry leader.

Classroom discussion questions:

Why is it hard for suppliers to meet the standards Apple is setting?
Will Apple be able to reach carbon neutrality by 2030?

OM in the News: The Logistics Disarray in China

For decades, the world has depended on China as a massive factory floor and market. As the country’s economic growth crumbles, the pain is spreading globally. Lockdowns aimed at stamping out Covid-19 are throttling activity in the world’s second-largest economy. Overseas demand for China’s exports is fading as economies wrestle with surging prices and rising interest rates.

Workers lined up to get tested for Covid-19 at the Foxconn factory in Wuhan, China

The effects of China’s slowdown are showing up everywhere from German factories to Australian tourist spots. Car sales in China have collapsed, hitting auto makers including BMW, VW, and Tesla. Tesla sold just 1,512 cars made at its Shanghai plant in April, down 98% from the more than 65,000 it sold in March.

Foxconn, the world’s biggest iPhone assembler, faces logistics disruptions and other challenges in China stemming from the country’s stringent Covid measures, reports The Wall Street Journal (May 13, 2022). Most of Foxconn’s factories in China have been running under a bubble-like system. The manufacturer has relied on its supply-chain management expertise to keep production going even during Covid outbreaks.

Apple, Foxconn’s biggest customer, said that the Covid outbreaks in China threaten to hinder this quarter’s sales by as much as $8 billion. Apple’s supply constraints mainly stemmed from Shanghai, much of which has been under a lockdown for more than a month, and the nearby regions, where logistics have been disrupted.

Foxconn has been following a closed-loop system to keep tens of thousands of workers in or around the factory, a system that has become the standard among manufacturers in China to continue manufacturing during Covid outbreaks.

In March, Foxconn had to suspend operations at its factories in Shenzhen, another site where it produces Apple products, after a virus outbreak there. Hit harder than Foxconn is rival Pegatron, the second-largest assembler of iPhones, which suspended production at its factories in Shanghai and nearby Jiangsu province last month.

Others in the electronics sector also face fallout from China’s anti-Covid policies. Sony faces delays in procuring parts from Shanghai and nearby areas. Panasonic warned that the impact from the lockdowns in China would start to manifest in its performance over the coming months.

Classroom discussion questions:

What are the advantages and disadvantages of Foxconn’s “closed loop” system?
What can Apple and other manufacturers do to mitigate the shutdown damages?

OM in the News: Apple’s “Goldilocks” Product Strategy

Apple this year released 5 new iPhone models, the most in the device’s history. Apple started in 2007 with one iPhone but soon established a “good-better-best” strategy, where budget and premium products flank “Goldilocks” options.

For years, the company did this by keeping older models around at slashed prices, writes The Wall Street Journal (Dec. 7, 2020). But recently, it has introduced more new options at various price tiers. This year’s lineup ranged from the $399 late-adopter-targeted iPhone SE to the feature-packed $1,099 iPhone 12 Pro Max—with a “just right” iPhone 12 in the middle. The company also gave Apple Watch shoppers 3 tiers of options for the first time.

While it may be more confusing for consumers to navigate the price and quality differences between the models, this kind of price ladder is strategic and ubiquitous—from airliner cabins to gas pumps.

The trick with offering multiple versions of a product is to offer enough to help people identify their own strike price but not enough to overwhelm them. “Apple is best at this,” said one industry expert, “creating variation between models in the number of camera lenses and the different levels of storage capacity. The ‘good’ option gives firms the opportunity to keep customers within the brand, for those who face economic pressure to downsize their lifestyle.”

The WSJ article also looked at a $275 bread-baking appliance sold by Williams-Sonoma. When the retailer added a second model, similar to the first but larger and more expensive at $429, sales of the cheaper model doubled. Peloton employed a similar strategy with its new 2-tiered bike offering. When the company released a new stationary Bike+ for $2,495—with a bigger screen and more powerful software—it marked its original bike down to $1,895, from $2,245. Covid-19 has led to an explosion of demand for connected bikes as gyms closed–and Peloton’s sales jumped 172% compared with last year.

Classroom discussion questions:

In Chapter 5, we discuss product life cycles (see p.164-5). Where do the Apple 6 Plus, 8 Plus, 11, and 12 Pro fall?
Why does Apple launch new products so frequently?

OM in the News: Apple Gains Control by “Insourcing”

“Apple built its gadget empire by outsourcing production to a vast ecosystem of chip makers and other component specialists. It is now taking a lot of that business back,” writes The Wall Street Journal (June 24, 2020). The company, which released its first iPhone processor in 2010, plans to ship Macs this year with custom chips, a move that ends a 15-year technology partnership with Intel. (Intel stands to lose about $2 billion in laptop chip sales annually). Apple said the custom-designed chips are more efficient and offer higher-performance graphics.

The plan fits into Apple’s broader strategy of replacing many third-party parts with components designed in house. Apple’s built-for-purpose parts now account for 42% of the costs of core iPhone components, up from 8% five years ago. Custom components have cut costs, boosted performance and increased Apple’s control over future releases. The new Mac processors will shave $75 to $150 off the cost of that computer.

The strategy springs from Apple’s philosophy—fostered by Steve Jobs—that owning core technologies provides a competitive edge. Customized chips and sensors can help its iPhone, iPads and Macs leapfrog rivals in battery performance and features. It also can protect Apple from Chinese rivals that buy universally available parts. Apple relied on third-party components for years while it built the engineering depth and expertise it needed to design more components itself. Apple’s chip division has mushroomed over the past decade to thousands of engineers.

The initiative—called insourcing—can give Apple a 2-year jump on competitors in device performance because Apple can plan how multiple chips work together to limit power consumption and free up space inside iPhones and iPads for other components. Many companies continue to supply Apple, which provides substantial revenue, even as they fear Apple will start making the very components they provide it.

Classroom discussion questions:

What are the reasons Apple chose to “insource?”
How is Apple achieving competitive advantage through OM? (Hint: See pp. 36-39 in your Heizer/Render/Munson text).

OM in the News: Coronavirus Tests Apple’s China Dependency

Coronavirus has given new meaning to something Apple executives have been saying for years: Apple needs another China. The rapid spread of the virus and the disruption it has caused is the latest test of Apple’s dependency on China as its manufacturing base for most of the iPhones, iPads and Macs sold world-wide.

To curtail the virus’s spread, local governments have asked people to stay away from work. Shipments of parts and components to the Apple assembly plants are curtailed, and workers who went home to celebrate the Lunar New Year may not return, out of caution. Foxconn, Apple’s main manufacturer, is contending with a strict quarantine in Zhengzhou city, home to its largest iPhone plant.

Apple has successfully weathered a number of challenges involving China in recent years, writes The Wall Street Journal (Feb. 8, 2020). But it is among the foreign companies most vulnerable to the outbreak because it hasn’t diversified its manufacturing. Though it looked at assembling iPhones outside China, it found the costs of facilities and training too high and opted to keep exporting from China. Apple’s leaders have long considered its reliance on China-based manufacturers as both a strength and a vulnerability. Apple worried more about a disruption in exports from the country than loss of sales inside Greater China, a market that accounts for 1/5 of revenue.

Samsung, the world’s largest smartphone maker, wound down production in China last year as part of a years-old strategy of diversifying its manufacturing base by shifting production to India, Vietnam and elsewhere.

Apple is known for its operational prowess and has a record of navigating supply-chain challenges. After an earthquake triggered the Fukushima nuclear crisis in Japan in 2011, Apple quickly created a new factory to maintain production of optical drives it needed for its devices. When monsoons flooded factories in Thailand later that year, Apple turned to the Thai Navy to load boats with the heavy equipment necessary for production. But those events only affected a sliver of Apple’s supply chain. Coronavirus affects the very heart of it.

Classroom discussion questions:

Referring to Supplement 11 in your Heizer/Render/Munson text, draw a decision tree for Apple’s disaster risk.
What can Apple do at this point if it thinks the virus will have a 6-month impact on supply chains?