As one of the most successful and profitable organisations on the planet, most people in the procurement world want to know how consumer electronics giant Apple goes about its purchasing activities.
We want to know what they do and how they do it but, famously, the company keeps its cards pretty close to its chest and doesn’t give much away.
And so it was with interest that I came across a profile piece in the Wall Street Journal of Tony Blevins, Apple’s VP of procurement, which promised a peek behind the curtain.
Keeping the supply chain on its toes
While the WSJ didn’t get a chance to speak directly to Blevins – he turned down an interview request saying he didn’t have Apple’s permission to speak and that he was “a loyal company guy” – the newspaper talked to a selection of suppliers and colleagues.
Although most interviewees spoke under condition of anonymity, the insights they provided were revealing – especially when it came to the tech giant’s approach to cost savings.
“His job is to Viking a town and get every resource out of it,” said one former Apple colleague said of Blevins, which summed up Apple’s approach to cost savings. The stories of how he and his team accomplish this paint a pretty vivid picture. The best examples reported in the article include:
-Spurning a UPS contract by sending it back to UPS executives by FedEx.
-Blevins being put in charge of negotiating a deal for the glass encircling Apple’s new California headquarters, which was expected to cost about $1bn. He invited several glassmakers to a hotel and went between rooms telling each supplier that a competitor had promised a cheaper price. This tactic reportedly saved the company hundreds of millions of dollars.
-Rotating his procurement team members every few years to keep them from developing supplier relationships that might dilute any kind of focus on savings.
-Adding terms into supplier contracts that give Apple the right to review suppliers’ emails and their executives’ calendars.
The power of Apple
Saving money to boost profits is what the company is all about. Apple CEO Tim Cook, who used to head up the company’s procurement function, is reported to have said saving 10% on the cost of parts would boost profits more quickly than selling more computers, according to former employees who spoke to the WSJ.
If this rings true, procurement is certainly delivering on that and helping the business grow at an exponential rate.
Apple’s phone business alone is said to have a 25% operating margin – far greater than its competitors – and accounts for about 75% of the smartphone industry’s profit, according to data firm Counterpoint Research.
The company’s valuation has topped $1.4tn and so the power it wields over the marketplace and, in effect, suppliers is unlike anything we have ever seen. Apple asks and its suppliers respond.
You only have to look at the reports this week of how the company’s plans to ramp up iPhone production by 10% in the first half of the year might be disrupted as a result of the spread of coronavirus throughout China, which is at the centre of Apple’s manufacturing base.
Mass production was expected to start in early February but those plans may be delayed; at the time of writing, the death toll from the outbreak has reached 213, approximately 10,000 people have been infected and tens of millions have been stranded during the Lunar New Year holiday.
Despite the coronavirus, it is almost certain that Apple will be the number one priority for manufacturers in the country. These suppliers will make it work because the relationship with Apple is so important.
If that market power and influence wains and Apple’s operations are struck by another virus or natural disaster, will suppliers be there for the tech behemoth? Thinking long-term is a must. Collaborative relationships – ones in which buyers and suppliers work together to create value and profit – have proven successful and I would argue that it is these firms that will win in the long term.
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This article originally appeared on Procurement Leaders’ CPO Crunch, a free, weekly resource for CPOs that provides analysis of the latest trends that are shaping the agenda of procurement functions across the world. You can get these direct to your inbox by signing up here.