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Apple: The Supplier Nightmare Is Real

Feb. 12, 2020
The tech giant relies on a winner-take-all approach.

A recent column in the Wall Street Journal described the strategy Apple is using to maintain profits despite softness in their sales and revenue. Specifically—quoting the article—"Apple procurement executive Tony Blevins' job is to stare down suppliers and slash prices to the bone." Hmm.

My 1 February column, Individuals Can Drive Company Culture, discussed how sometimes what is ethical is the opposite of what companies claim as corporate culture.  Apple’s ethics statement includes the following:

“To conduct business ethically, honestly, and in full compliance with applicable laws and regulations.”

When you read the following summary of this article—or better yet, the whole article-- can make your own decision whether Apple operates in an ethical way.

I have no inside information on Apple's business agreements with their contract manufacturers but can say that in the electronic industry as a whole, margins are 2.5%, plus or minus.  So there is not a lot of give from the bulk of their supply base. But again, the article states that Apple's supply chain strategy is primarily reduce purchasing costs "to maintain company profitability." 

That's a pretty hard sell, I imagine, to a supplier whose profits are marginal at best. This is akin to asking suppliers for higher price reductions than their own internal cost-reduction goals. A philosophy of do as I say, not as I do is not ethical.

The Wall Street Journal article gives further background of Mr. Blevins’ past record in supply management, and it seems clear that in negotiations, he relies on a strictly positional "win-lose" approach. For instance, he isn't shy about conducting Dutch auctions, as he did in sourcing for Apple’s new corporate headquarters. I don't know about you, but if a customer of mine put the products I sell up for bid in a Dutch auction, I would refuse to participate.

Here's a couple more quotes from the article about Mr. Blevins;

  • “ ‘I know the agreement says what it says, but in the spirit of the partnership you should give us more,” he told Qualcomm executives during a call.’”
  • “Blevins rotated staff members every few years to keep them from developing supplier relationships that might dilute their focus on saving Apple money, former employees said. (Note: here, saving Apple money seems to rely totally on reducing supplier prices).
  •  “His job is to Viking a town and get every resource out of it,” a former Apple colleague said of Mr. Blevins. “It’s like killing sheep versus shearing them.”

From these quotes it is pretty clear that according to Mr. Blevins, Apple’s supply chain is comprised strictly of commodity suppliers that offer no value to Apple above and beyond piece-prices.

Read more of Paul Ericksen's supply chain management articles

Apple’s overall supply chain strategy parallels what Boeing has done with their procurement function by putting it in the hands of Stanley Deal, who built his reputation on—among other things, “squeezing supplier margins" as I pointed out in my 22 November 2019 article “More Boeing Hypocrisy—and Suppliers Will Feel the Fallout.”

The basis of IndustryWeek's Supply Chain Initiative is to call out the importance of overall manufacturing effectiveness to small- and medium-sized supplier/manufacturers and emphasize to OEMs that they need to adopt step-function type changes in customer-supplier relationships so that both sides (win-win) can benefit above and beyond existing value propositions. Finally, the initiative posits that OEM customers can positively influence company financials by focusing more on supplier collaborations than win-lose piece-price negotiations.

If you’ve wondered why IndustryWeek feels a Supply Chain initiative is needed all you need to do is read the above and/or be a supplier to a large OEM.  The primary purpose of my articles is to document the value of collaborative relationships in terms of OEM executive level metrics.  I hope they give at least a few OEM’s enough pause to re-evaluate how they work with suppliers.  It only takes the case studies of a few to start a movement.

Paul Ericksen is IndustryWeek’s supply chain advisor. He has 40 years of experience in industry, primarily in supply management at two large original equipment manufacturers.

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