Of all the things to go wrong at Apple, how did Tim Cook mess up the iPhone 5 supply chain?

(Photo by LiPo Ching/Mercury News Staff)

If you missed it earlier this week, the Merc’s John Boudreau had at a great look inside a small corner of Apple’s massive supply chain. The story examines the role of a tiny company in Taiwan called Ta Liang Technology that makes a part of the iPad cover. But Boudreau steps back from that example to give us the larger context:

“Apple’s massive supply chain is what enabled the record-breaking rollout Friday of the iPhone 5, more than 5 million units of which were sold by the end of the weekend. While the Cupertino-based company outsources component production to numerous corners of the globe, Taiwan is at the center of the Apple manufacturing ecosystem.”

As many analysts note, that’s a remarkable feat. 5 million iPhones. And yet, demand far exceeded what Apple could supply. And so, Apple said it would have to delay shipment of iPhones to some customers.

Which is fine, if this were a surprise. But the thing is, this always happen. Which led the folks at the Business 2 Community Blog to ask an intriguing question: Apple iPhone 5 Delays – Is That a Supply Chain Strategy?

That seems crazy, at first. But when Tim Cook succeeded Steve Jobs as CEO, nobody thought he would have Jobs’ design flair, or his outsized personality. But Cook was the  operations and supply chain guy. He was the person credited with building Apple into a juggernaut by creating one of the world’s most awesome manufacturing systems, relentlessly squeezing partners and ruthlessly demanding efficiency and perfection. As Boudreau wrote:

“But working with Apple is not easy. Its engineers are uncompromising and it imposes a code of silence enforced with financial penalties for product leaks. And its history of cutting suppliers in a heartbeat helps create a “love-hate relationship” between Apple and the companies that build its products, said Stephen Su, general director of Taiwan’s Industrial Technology Research Institute, who used to work for a company that supplies camera modules for iPhones, iPads and MacBooks.”

It’s been startling for many to see Apple’s reputation for perfection dinged by the maps debacle. But there doesn’t seem to be as much wailing and gnashing of teeth over the supply chain issue. Understandable, since it’s not as sexy to consumers and more complex.

But still, this would seem to go to the heart of Cook’s core skill: the supply chain. If he messed that up, well, that would seem to be something that bodes ill for the future of Apple. But, as the B2C blog, suggests, could this just a master stroke of supply chain manipulation, creating a kind of artificial scarcity that highlights the unquenchable demand for Apple products? B2C writes:

“There is a possibility that Apple is purposefully orchestrating this havoc as part of some genius marketing scheme. However, given that this is a blog about Supply Chain and Business Operations, let’s focus on some of the more concrete elements of Apple’s situation.”

In theory, the diversity of manufacturers in Apple’s supply chain for the same parts of the phone should allow the company options for increasing orders to meet demand fairly quickly. On the other hand, the complexity of getting all these pieces in one place, and assembling them so far away from most customers works against the company making quick enough changes to respond to demand — if indeed it exceeded expectations.

But again, B2C writes, it’s hard to understand how this demand could have been unexpected:

“Previous generations of iPhones have sold out in pre-sales in progressively shorter periods of time.  The iPhone 4S sold out faster than the iPhone 4, which sold out faster than the iPhone 3GS, and so forth.  It should not have been a surprise that the iPhone 5 would also sell out.  Additionally, the iPhone 5 is the first iPhone to be simultaneously released in major markets around the world – not just the US.  This was a decision that practically ensured all iPhone 5 devices would sell out in record time.”

So that brings me back to Cook, and what to me, remains every bit as much of a mystery at the maps controversy. How did Mr. Supply Chain not have a better forecast for demand? Or is it possible that he did, but that this “shortage” is a clever marketing campaign to create the appearance of an even bigger frenzy around the iPhone 5?

Is Cook a mad genius in his own way? Or was this just another Apple screw up? What do you think?



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    Get rid of youtube brilliant. Get rid of google maps brilliant. Hire the ceo
    at netflix, not necessary you got rid of the two most popular features of
    the iPhone and are shrinking into a walled garden. I went into your store
    today and you’ve lost the MOJO. GREAT JOB CEO.

  • http://mercurynews.com sunda

    as mr.Ron Petry said they can recruit a right person at higher level paying good salary and perks and command that no such event to occur and to get a sorry
    notes to customers which Mr.Tim Cook publised to all customers for sorry state of affairs. in the Customers angle having spent huge amount for the product and
    if it not given the info. it is failure to the company and advantageous for the competitors who are wating for a chance to become topper. so Mr.Tim Cook will
    take good steps to prevent such events in furures

    dont take it as my advise but a suggestions since i am a very very very small
    take it easy and every body is learning by mistake only but should not occur future
    bye and thanks

  • Eric

    If this was a strategy, I seriously question the logic behind it. Why? Revenue. Every day a phone isn’t moving off a shelf, the company is losing potential interest, stock valuation, etc. I hardly think any off-handed marketing strategic advantage could offset the time value of cash. And from a supply chain perspective, everyone knows the smoother a demand profile the easier to manage. Intentionally adding variability is crazy. Inventory holding cost should be minimal for iPhone, because that liability is passed on to the carriers anyway.

    But back to the marketing strategy… I definitely don’t see this logic. I cracked my screen last week of my 2.5-yr-old Droid Incredible phone. I was willing to consider trying an iPhone this go around, but the idea of waiting another 3-5 weeks is making the Galaxy SIII look that much more attractive daily.

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