Two of the largest and most successful companies in the world achieved and maintain their success by mastering the supply chain. Wal-Mart took logistics to new heights, bringing big city, low prices and convenience to rural areas. Apple dominates its chosen markets through innovation but also benefits greatly from a single-minded focus on operational excellence.
Before Wal-Mart, small towns in rural areas had few shopping alternatives for basic household goods and supplies — mostly independent “mom and pop” stores with relatively high prices because their small size and remote location kept their costs high. Wal-Mart used high-efficiency logistics to cut costs and bring a wider selection of products at lower prices to these remote areas, creating the brand that dominates the retail space today. Superior logistics, in addition to the economies of scale that naturally accompany being the world’s largest retailer, continue to allow Wal-Mart to be the low-price leader.
Apple excels at design and innovation, but even the best products cannot be successful if they are not delivered to the stores and the customers. Apple is known within the manufacturing and logistics worlds as a smart and fierce competitor that will do whatever it takes to get its products built and delivered to meet market needs.
Have you ever wondered how Apple can sell literally millions of units of a brand new product on the first weekend of its availability? Sure, the product’s merits account for the demand, but Apple has to build those units and get them to the appropriate distribution points in time for the release. This takes planning, commitment and money.
Every product has a life cycle that includes an initial introduction and growth phase where the product is essentially alone in its market before other companies have a chance to introduce competitive products. Once competitors enter the market, competition drives down prices and profits; but before that happens, margins can be considerable. Apple can afford to spend more on manufacturing and distribution to get more product into the pipeline during that all-important early and exclusive high-margin window. But they must spend that money wisely to get the benefits.
Often, Apple will contract for a lot of air cargo space in anticipation of a new product’s initial release. Yes, air transportation is a lot more expensive than using ships, but six weeks on the water is simply untenable in these fast-changing markets. Apple will also buy up manufacturing capacity and lock up supplies of certain components and materials that may have limited availability. This strategy has the added advantage of “drying up” the supplies of these components and delaying competitors’ efforts to bring competing products to market.
Great product design and slick marketing can create demand for a new product, but you can only sell what you make available to your customers.
Getting the right quantities of the right products to the right places at the right time is the result of good planning and execution, and that’s the job of operations management and supply-chain management professionals.
Reprinted from Portsmouth Herald / Seacoastonline.com – November 28, 2011