CASE: Apple Inc.

This case study has been produced for assessment purposes only. It has been sourced directly from the articles
indicated within the bibliography, which are available in the public domain. It contains a number of direct extracts
and quotations which have been referenced within the text. This case study was written in July 2017 but is largely
based on data for the subject company’s last complete fiscal year which ended on 24 September 2016 and might
not reflect the current situation. Students of PSM523 are advised to base their answers on the situation depicted
in the case.

Introduction

In October 2016, Apple Inc. announced its financial results for the fiscal 2016 fourth quarter, reporting that its gross
margin was 38 per cent compared to 39.9 per cent in the same quarter for the previous year. International (i.e.
non-USA) sales accounted for 62 per cent of the quarter’s revenue. Services revenue (digital content and services,
AppleCare, Apple Pay, licensing and other services) had grown by 24 per cent to an all-time record of $6.3 billion.
In its press release, the company’s chief executive officer (CEO) Tim Cook commented that ‘our strong September
quarter results cap a very successful fiscal 2016 for Apple’ and that the company was ‘thrilled with the customer
response to iPhone 7, iPhone 7 Plus and Apple Watch Series 2, as well as the incredible momentum of our
Services business’ (Apple, 2016a).

In just forty years since it was founded in 1976, Apple Inc. has become ‘one of the world’s most valuable technology
companies’, with its supply chain being described as ‘the best supply chain in the world’ (CIPS, 2017; Lu, 2017).
Indeed, over the past five years, Apple has been ranked number one in Gartner’s ‘Supply Chain Top 25’ from 2012
to 2014 and as a ‘Master’ in 2015 and 2016; the latter category recognises the ‘accomplishments and capabilities
of long-term supply chain leaders in the Top 25’ when their composite scores place them in the top five rankings
for at least seven out of the past ten years (Gartner, 2017).

Apple Inc.’s vision is the following:

Apple is committed to bringing the best personal computing experience to students, educators, creative
professionals and consumers around the world through its innovative hardware, software and Internet offerings.

(Johnson et al., 2012)

Apple Inc.’s mission statement as at 2017 is as follows:

Apple designs ‘Macs’, the best personal computers in the world, along with OS X, iLife, iWork and professional
software.

Apple leads the digital revolution with its iPods and iTunes online store.

Apple has reinvented the mobile phone with its revolutionary iPhone and App store, and is defining the future of
mobile media and computing devices with iPad. (Investopedia, 2017)

This view of Apple Inc.’s mission has changed somewhat from Steve Jobs’ original statement which was ‘to make
a contribution to the world by making tools for the mind that advance humankind’. The difference in focus between
them can be perceived as Apple Inc. now seeing its products not as a tool for advancement, but as the ‘purpose
of the company’s existence’ (Investopedia, 2017).

Notwithstanding the difference in perception between Steve Jobs and the current leadership of Apple Inc., the
company has been one of the most valuable companies in the world since 2010, and by mid -2015 was reported
as so profitable that it had almost $200 billion in cash (Beattie, 2015; Page, 2015). Apple Inc. is the world’s largest
information system company to date, and charges substantial premiums for its products owing to brand loyalty
among users. Apple Inc. is currently the second largest smartphone manufacturer in the world, with a market share
of 14 per cent (MBASKOOL, 2017).

This case study considers the company background of Apple Inc., its industry sector context, supply chain
operations and some of the challenges that it now faces.

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Company history and background

Apple Inc. was established by what are often described as two high school/college ‘dropouts’, Steve Jobs and
Steve Wozniak, in April 1976 in Cupertino, California, United States of America. Both men teamed up while working
for Hewlett-Packard. Their new company was formally incorporated on 2 January 1977 as Apple Computer, Inc.
(renamed Apple Inc. in January 2007), with the intention of producing a new style of processing unit and
establishing a corporate culture which was quite different from its chief competitor at the time, IBM. Technical
development was largely carried out by Wozniak, with Jobs taking care of marketing activity.

Following development of its first machine, the Apple I, the updated version, the Apple II computer, soon became
the heart of the company’s revenue stream, although by the beginning of the 1980s, Apple
Computer, Inc. was struggling commercially; this was widely believed to be as a result of mismanagement at the
corporate level. The development and introduction of the Apple Macintosh in 1984 saw a significant improvement
in fortune for the company, with it making sales of 70,000 units soon after initial production. By then, however, IBM
had closed the technical and corporate gap between the two companies.
Disappointing revenues from the Macintosh, largely due to its high selling price and a limited range of software
titles, along with internal power struggles between company executives, saw Steve Jobs leaving the company in
1985. Jobs was replaced by John Sculley, who remained as the CEO until 1993 (Johnson et al., 2012; Gupta and
Prinzinger, 2013; Beattie, 2015).

Under Sculley’s tenure as CEO, Apple Computer, Inc. saw innovation and strong growth with new products, such
as the Macintosh Portable, PowerBooks, the Newton and laser printers. Apple Computer, Inc. continued to market
its products at a premium, and this led to generous margins and strong financial results. This was a time which
saw the market for personal computers increasing.

Despite the initial success of the Mac, Apple Computer, Inc.’s sales began to diminish as a result of much lower
priced products becoming available from competitors, many of which were running the Microsoft Windows
operating system. This began to open up a ‘much larger middle market for people who wanted home computers
but could not afford a Mac’. Two of the CEOs who followed John Sculley (Michael Spindler and Gil Amelio) both
struggled to ‘turn the tide on the relentless spread of IBM clones running Microsoft [Windows]’, which was then
becoming the industry standard (Beattie, 2015).

It was against this decline in competitive advantage that saw Steve Jobs return to Apple, creating ‘many new
products that brought the company back to its position as a leader in the technology world’ (Gupta and Prinzinger,
2013, 215). The return of Jobs brought with it his renowned vision and innovative skill, leading to a string of hit
products which included the iBook, the iPod, the iPhone, MacBook Air and the iPad. As described by the business
commentator and author Andrew Beattie:

The iPod became the ‘category killer’ in MP3 players, the iPhone essentially launched and then dominated the
smartphone market, and the iPad somehow convinced millions of people that they needed yet another screen to
consume content on.

(Beattie, 2015)

The key items in Apple Inc.’s product and service portfolio as at 2016 are shown in Table 1.

Table 1: Apple Inc. product and service portfolio as at 2016

Products Services Other products

iPhone internet services accessories

iPad iCloud Apple TV
Mac (including MacBook) AppleCare Apple Watch
operating system software Apple Pay
application software
iPod

Source: Apple, 2016a.

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As of 24 September 2016, the company had approximately 116,000 full-time equivalent employees. Apple’s
customers are primarily in the consumer, small- and mid-sized business, education, enterprise and government
markets. The company sells its products and resells third-party products in most of its major markets directly to
consumers and small- and mid-sized businesses, through its retail and online stores and its direct sales force
(Apple, 2016b).

Apple Inc. manages its business primarily on a geographical basis. Financial reporting areas consist of: the
Americas (North and South); Europe (European countries, India, Middle East and Africa); Greater China (China,
Hong Kong and Taiwan); Japan; rest of Asia Pacific (Australia and Asian countries not included in other areas).

Apple Inc. trading performance

A change in the way in which Apple compiles financial data in annual reports (available within the public domain)
makes it difficult to present an easily understood picture prior to 2012. However, the five-year picture for revenue
and individual product types from 2012 to 2016 can be summarised with a degree of consistency. These figures,
extracted from Apple’s annual reports for 2013 and 2016, illustrate the changing nature of Apple’s business during
this period (see Tables 2 to 4).

Table 2: Apple Inc. net sales by operating area (US$ millions) – fiscal years 2012 to 2016

Area 2012 2013 2014 2015 2016

Americas 57,512 62,739 80,095 93,864 86,613

Europe 36,323 37,883 44,285 50,337 49,952

Greater China 22,533 25,417 31,853 58,715 48,492

Japan 10,571 13,462 15,314 15,706 16,928

Rest of Asia Pacific 10,741 11,181 11,248 15,093 13,654

Total Apple 137,680 150,682 182,795 233,715 215,639

Source: Apple, 2013, 2016b and 2017a.

Table 3: Apple Inc. net sales by product (US$ millions) – fiscal years 2012 to 2016

Product 2012 2013 2014 2015 2016

iPhone1 78,692 91,279 101,991 155,041 136,700

iPad1 30,945 31,980 30,283 23,227 20,628

Mac1 23,221 21,483 24,079 25,471 22,831

Services2 12,890 16,051 18,063 19,909 24,348

Other products1 3 10,760 10,117 8,379 10,067 11,132

Totals 156,508 170,910 182,795 233,715 215,639

Source: Apple, 2013, 2016b and 2017a.

Notes to Table 3:

Includes deferrals and amortization of related software upgrade rights and non-software services.

Includes revenue from Digital Content and Services, AppleCare, Apple Pay, licensing and other services.

Includes sales of Apple TV, Apple Watch, Beats products, iPod and Apple-branded and third-party accessories.
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Table 4: Apple Inc. unit sales by product (thousands) – fiscal Years 2012 to 2016

Product 2012 2013 2014 2015 2016

iPhone 125,046 150,257 169,219 231,218 211,884

iPad 58,310 71,033 67,977 54,856 45,590

Mac 18,158 16,341 18,906 20,587 18,484

Totals 201,514 237,631 256,102 306,661 275,958

Source: Apple, 2013, 2016b and 2017a.

The world consumer electronics industry – Apple Inc. in context

Broadly defined as any electronic devices designed to be bought and used by end users or consumers for daily
and non-commercial purposes, consumer electronics are among the most commonly used form of electronic,
computing and communication devices (Technopedia, 2017).

Globally, the industry represents substantial business. Indeed, in the United States of America alone in 2005,
consumers were reported to have spent more than $75 billion on such products, some 8 per cent more than the
previous year (Wetfeet, 2012).

The dynamics of this industry have changed significantly over time, with world production across the wider
electronics market moving from high-cost to low-cost locations, and with China emerging as the focus for
electronics production for high-volume products, particularly in the consumer sector. Indeed, in 2015, China was
forecast to account for 38 per cent of electronics equipment production (Reed Electronics Research, 2016). Apple
is one of many such companies to have outsourced a substantial proportion of its production to the Far East.

Up until the early 1990s, Apple Inc. enjoyed strong growth, but the wider availability of cheaper computers running
Microsoft Windows began to provide for a much larger middle market of home computer users who could not afford
the price tag of the Apple iMac (Beattie, 2015).

The market remains highly competitive, but across a much broader spectrum of products. In its annual report for
2016, Apple openly acknowledged these challenges, recognising that ‘the Company is confronted by aggressive
competition in all areas of its business’. The characteristics of such markets
include frequent product introductions and rapid technological advances; these have significantly increased the
capabilities of mobile communication devices and personal computers. Many of Apple’s competitors use other
operating systems and have ‘aggressively cut prices and lowered their product margins to gain or maintain market
share’. Such contrasts in device selling prices have not gone unnoticed by consumer and business customers.

Apple Inc. readily acknowledges that its future financial position and operating results will ‘depend on the
Company’s ability to develop and offer new innovative products and services in each of the markets in which it
competes’ (Apple, 2016b).

Amidst the large numbers of manufacturers of consumer electronic devices and service providers, Apple continues
to be ranked first in the world in terms of revenue and profit (see Table 5).

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Table 5: Top 10 consumer electronics companies in the world in 2016 by revenue and profit

Company Revenue (US$ billion) Profit /loss (US$ billion)

Apple $ 233.715 Profit $ 53.394
Samsung $ 305 Profit $ 22.1
Microsoft $ 93.58 Profit $ 12.19
Intel $ 55.4 Profit $ 11.4
Hewlett-Packard $ 52.7 Profit $ 4.6
Hitachi $ 88.94 Profit $ 1.98
Sony $ 73.75 Profit $ 1.34
Panasonic $ 70.21 Profit $ 1.63
Toshiba $ 60.57 Loss $ 0.34
LG Electronics $ 48.06 Profit $ 0.249
Source: MBASKOOL, 2017.

Technical competition – Apple and Samsung

The smartphone and tablet market has become increasingly competitive, with Android-based products presenting
a significant challenge for Apple. In April 2012, Apple lodged a legal case in the US District Court, claiming that
Samsung’s Android-based smartphones and tablets had infringed seven technical patents concerning user
interaction with such devices. The outcome was a victory for Apple and saw the company awarded $1.05 billion in
damages. Recourse to lawsuits is seen as only of short-term benefit. Indeed Gupta and Prinzinger (2013) suggest
that ‘the company… needs to focus on continuous innovation to capture additional market share and drive their
competition out of the consumer market’.

Interestingly, Samsung is also a core Apple supplier, producing microprocessors, flat screens and memory chips
for the iPhone, iPod and iPad. They also point out that ‘in the short term, Apple may try to expand its supply chain
to reduce its reliance on Samsung’ and that ‘small suppliers may temporarily benefit from the deteriorating
relationship between Samsung and Apple, but in the long term they may not be able to compete with Samsung in
terms of quality, volume and prices’ (Gupta and Prinzinger, 2013, 219). Such dynamics in the consumer electronics
sector illustrate just how close the competing technology is and the inter-dependence between companies in terms
of what they produce.

Apple’s supply chain

Apple Inc.’s reputation as the ‘best supply chain in the world’ owes much to the innovative approach of Steve Jobs
and, latterly, after the death of Jobs in October 2011, the current CEO, Tim Cook. On his return to the company in
1997, for example, Jobs paid $50 million to buy up all the available holiday air freight space to make sure that
Apple’s new translucent blue iMacs would be widely available the following Christmas. At the time, the majority of
PC manufacturers transported their goods by the much cheaper means of sea freight. This step disadvantaged
one of its rivals, Compaq, which later tried unsuccessfully to book air freight space (Satariano and Burrows, 2011).
There might, however, be problems with such initiatives in the future, as a number of airlines have cut back on
freighter-only capacity and this will limit their ability to meet such demands at times of big product launches by
such companies (Manners-Bell, 2014, 115).

Tim Cook’s approach from the beginning of his tenure was to ‘slash inventory, cut down on warehouses and make
suppliers compete between themselves’ (Lu, 2014).

Notwithstanding the obvious benefits of minimising the size of inventory, the volatility of the consumer electronic
market also has a part to play. As commented on by Lu (2014):

Technology manufacturers can’t afford to keep too many products in stock because a sudden announcement from
a competitor or a new innovation could change everything and suddenly bring down the value of products in
inventory.

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Much of the success of Apple’s supply chain has been attributed to what is termed a ‘closed ecosystem’, a network
the company has created where it can control virtually every part. Largely as a result of its volume, the company
is able to secure large discounts on parts, manufacturing capacity and air freight. This, according to Satariano and
Burrows (2011, 2) writing in BusinessWeek, is the: operational edge… [which] enables Apple to handle massive
product launches without having to maintain large, profit-sapping inventories. It’s allowed a company often
criticized for high prices to sell its iPad at a price that very few rivals can beat, while still earning a 25 per cent
margin on the device, according to the estimates of Piper Jaffray analyst Gene Munster. Apple’s skill in minimising
the size of its inventory is notable. Indeed, in a PricewaterhouseCoopers market analysis, Apple’s inventory at the
end of the fourth quarter of 2016 was valued at $2,712 million. By comparison, the inventory valuations of Philips,
Canon and Sony were valued at $3,567.27 million, $4,766.26 million and $5,872 million, respectively (PwC, 2017).

Supply chain strategy

In broad terms, Apple Inc.’s supply chain consists of five main ‘links’. Starting ‘upstream’ in this chain is sourcing.
Although Tim Cook had managed to reduce the number of suppliers from 100 to 24 when he took over as CEO in
2011, the number had risen to 200 supplier companies in 2016. Within these companies, there were a total of 792
sites in 28 countries. The greatest proportion of supplier sites (62.5 per cent) is located in China and Japan (Apple,
2017b). The breakdown of supplier sites by world continent is detailed in Table 6.

Table 6: Global distribution of Apple Inc. supplier sites 2016

Continent No of supplier locations % of total number of suppliers
Asia 663 83.71%
North America 87 10.98%
Europe 36 4.55%
South America 5 0.63%
Africa 1 0.13%
Source: Apple, 2017b.

Most essential components are generally available from multiple sources. However, some components are
currently obtained from single or limited sources. The company also competes for various components with other
sector competitors. Many components used by Apple, including those available from multiple sources, are at times
subject to industry-wide shortage and significant pricing fluctuations, which can materially affect Apple’s financial
position and operating results.

Apple also uses some custom components not commonly used by competitors, many of which are available from
only one source. In the case of new technologies, initial capacity constraints often persist until the supplier’s yields
have matured or manufacturing capacity has increased. There is always a risk that, if Apple’s supply of components
is delayed or constrained, or if an outsourcing partner delayed shipments of completed products, Apple’s operating
results could be materially affected. Interestingly, Apple does state that it has entered into agreements for the
supply of many components, but highlights the point that there can be no guarantee that it will be able to extend
or renew those agreements on similar terms, or at all (Apple, 2016b).

While some Mac computers are made in the United States and Ireland, ‘substantially all of their hardware products
are manufactured by outsourcing partners which are mainly located in Asia’. Significant concentrations of
outsourcing partners are the sole-sourced suppliers of components and manufacturers for many of the company’s
products. Apple’s manufacturing purchase obligations typically cover its requirements for periods up to 150 days
(Apple, 2016b).

The second element of the supply chain is final product assembly, which Apple has outsourced to China, with the
company Foxconn as its main partner carrying out this key activity. The decision to outsource assembly to the Far
East has met with much criticism, representing a significant loss of potential jobs in the United States. The
company, though, argues that it was the only option and provided it with greater flexibility and enabled much lower
costs. This latter point is particularly well illustrated by the fact that in 2010 the average manufacturing wage in
China was about $2.00 compared with $34.75 per hour in the United States. If iPhone production, for example,
were relocated back to the United States, this would add some $25 billion to labour costs (Chen, 2012).
The third element in Apple Inc.’s supply chain is the warehousing element, which uses intermediate warehouses
to distribute products (distribution is the fourth element of the supply chain) via its online store, using the couriers

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UPS and FedEx. The company’s main warehouse facility in Elk Grove, California, in the United States, distributes
products to retail stores, direct sales force and wholesalers.

The final element of Apple’s supply chain is a ‘reverse’ element, which provides for warranty returns, its trade -in
programme and its recycle/reuse programme. This effectively provides a ‘closed loop’ supply chain (Devapershiya
et al., 2016; Benjabutr, 2017; Lu 2014).

Supply chain planning

The key to much of Apple’s success with supply chain management starts with a cyclical approach to planning.
The five main stages of this process are detailed in Table 7.

Table 7: Apple Inc. supply chain planning

Research & Concept testing Pre-launch Launch Quarterly review

development
develop new conduct market manage production resolve backlogs review inventory
technologies research ramp-up issues level
make demand
acquire licensing of conduct product provide software for forecast up to 150 adjust demand
intellectual property testing new products days forecast

acquire third-party assemble cost data manage material check product life
business purchase cycle status
identify potential commitments
quality defects update new product
provide proper development
inventory levels
monitor current sales
determine launch levels
quantity
monitor component
raise orders and cost trends
make prepayments
to suppliers
Source: Devapershiya et al. (2016); Benjabutr (2017).

Supplier development – Apple Inc.’s assessment process

While the extent of Apple Inc.’s supplier base, especially in the Far East, has enabled the company to drive down
costs and achieve greater flexibility, Apple’s ethical standards in a number of these locations have drawn criticism.
Indeed, Manners-Bell (2014, 26 and 128–9) comments that ‘companies such as Apple have been accused of
taking advantage of low cost labour and lack of environmental regulations to manufacture their products more
cheaply and efficiently than they could in North America or Europe’.

One of the most prominent issues has been poor working conditions, especially at Foxconn, Apple’s largest
assembling partner. Johnson et al. (2012, 7) highlight that in a report from 2012, there were in excess of 900,000
employees in their factories, many of them students aged from 16 to 18 years old and forced to work on production
lines for up to two years. They also comment that a survey revealed that 73.3 per cent of employees were working
ten hours or more each day and that the average overtime was 83.2 hours
a month; this was in breach of official labour laws which limited overtime to 36 hours a month. This, it is claimed,
contributed to twenty workers attempting suicide, with fourteen of them succeeding.

With such issues attracting adverse international media attention and the accompanying risk of significant
reputational damage, Apple Inc. has endeavoured to implement a supplier responsibility programme, publishing
the advancements it has made throughout its supply chain in annual progress reports.

In 2016, the company reported that it had continued to increase its efforts with suppliers on these issues and had
performed 705 site audits, the largest number to date. The number of high-performing supplier sites had increased
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by 59 per cent and low-performing sites had decreased by 31 per cent. The company acknowledged that there
was still more to be done but ‘by holding our suppliers accountable to the highest standards and partnering with
them to make lasting change, we remain steadfast in our commitment to improve lives and protect the environment’
(Apple 2017c, 2).

In essence, Apple Inc. assesses its suppliers’ codes of conduct and performance, with the intention of uncovering
areas for improvement, categorising non-compliance in three degrees of severity: administrative non-compliance
which covers policy, procedures, training or communication-related findings; violations which denote
implementation-related findings; and core violations which Apple considers the most serious breaches of
compliance for which it has zero tolerance (Apple, 2017c, 28). Examples of these categories are detailed in Table
8.

Table 8: Examples of areas for improvement in supplier assessments

Category Examples

Administrative non-compliance inadequate record keeping

inadequate documentation of policy or procedures
insufficient training on policy
Violations insufficient provision of benefits
no or inadequate pre-placement/on-job/post-employment
occupational health check
no or inadequate environmental permits

Core violations underage workers or involuntary labour

document falsification
intimidation of or retaliation against workers
environmental and safety threats

Source: Apple, 2017c, 28.

Supply chain challenges

Independent analysts (Devapershiya et al., 2016; Benjabutr, 2017) have summarised Apple Inc.’s supply chain
challenges as follows:

▪ Global economy could affect the company.

▪ Some resellers may also distribute products from the competing manufacturers.
▪ Inventories can become obsolete or exceed the anticipated demand.
▪ Some components are currently obtained from single or limited sources.
▪ Some customer components are not common to the rest of the industries.
▪ Ability to obtain components in sufficient quantities is important.
▪ Supply chain disruption such as natural and manmade disasters can be serious.
▪ It depends on logistical services provided by outsourcing partners.

Of these key challenges, there are two which are likely to be of significance for the company, which have not been
previously assessed in this case study:

Global economy – made in the USA?

The election of Donald Trump as the 45th President of the United States on 8 November 2016 and his subsequent
inauguration on 20 January 2017 brought fresh challenges for American business, not least of which was Apple
Inc. The new President’s views regarding US manufacturing became apparent very quickly with strong views that
companies should build their products in America. In a speech in January 2017, Trump stated that ‘We’re going to
get Apple to build their … computers and things in this country instead of in other countries’ (Kharpal, 2016). The
companies Foxconn and Pegatron both assemble Apple iPhones in China, a feature of Apple’s business model
which enables it to maintain a strong margin on its products. Trump has stated that he would also impose a 45 per
cent import tariff on Chinese goods. Not surprisingly, the Chinese government warned that ‘other American goods

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could suffer if such a plan were to go through’ (Kharpal, 2016).

The outlook remains uncertain. The global supply chain is complex. While China has an ‘abundant supply of labour,
it often struggles to compete with the technological capabilities of American capital’. Opinion in the United States
regarding its declining employment is that this is the fault of the ‘global supply chain,
not the relentless march of technology’ (Webb, 2016). A move of manufacturing to the United States could have
considerable impact on costs. One estimate suggests that manufacturing the iPhone in the US could add $30 to
$40 as a result of increased costs owing to shipping components. Moreover, it is suggested that costs could rise
by an estimated $80 to $90 if iPhone components were manufactured in the United States as well (Trefis Team,
2016).

The competitive advantage which Apple has gained through manufacturing and sourcing in the Far East is coming
under growing threat as the Trump administration begins to move towards a more nationalistic approach and to
recover such capabilities to within its own shores. Apple Inc.’s supply chain strategy will most likely need to adjust
through imposed change, rather than through its own judgment.

Supply chain disruption – natural disasters

The risk of disruption to supply chains due to natural disasters and meteorological events has always been a factor
for which companies have had to plan. The globalisation of supply chains, however, has seen a number of industry
sectors grappling with the actual impact of such events, notably for those companies with significant supplier or
manufacturing bases in the Far East.

Most notable in recent years have been: the Tohoku earthquake and tsunami in Japan in 2011; Hurricane Katrina
in North America in 2005; the Sichuan earthquake in China in 2008; Hurricane Sandy in North America in 2012;
and the flooding in Thailand during 2011. All five events (in that order) have been ranked as the most costly recent
natural disasters, with total costs estimated to be in the region of $309 billion,
$200 billion, $146 billion, $71 billion and $46 billion, respectively (Manners-Bell, 2014). Of particular note from
Apple Inc.’s perspective is the proportion of its supplier base located in these regions, especially within Asia (see
Table 6).

In its annual report of 2011, Apple Inc. made specific reference to the Tohoku earthquake and tsunami and the
Thailand flooding, commenting that the Japanese event ‘caused significant damage in the region, including severe
damage to nuclear power plants, and have impacted on Japan’s power and other infrastructure as well as its
economy’ (Apple 2011, 26). The report highlighted the point that a
certain number of the company’s suppliers were located in Japan as well as other suppliers who integrate
components or use materials made in Japan in the manufacture of its products.

The company acknowledged that component production had been affected, but it had generally obtained
alternative sources of supply or ‘implemented other measures’. Apple Inc. stated, however, that:

there is a risk that the Company could in the future experience delays or other constraints in obtaining key
components and products and/or price increases related to such components and products that could materially
adversely affect the Company’s financial condition and operating results.

(Apple 2011, 26)

Similarly, the flooding in Thailand had an impact on Apple’s supply chain where a number of its suppliers were
located. As an example, the situation in Thailand at the time of Apple’s 2011 annual report was still unfolding; the
company commented that component production had been affected but they were also working to obtain
alternative sources of supply (Apple 2011).

The extent of Apple’s supplier base in the Far East and the heart of its assembly operation in China will continue
to be a key factor in its supply chain risk planning. Moreover, it will remain an area where the impact on competitive
advantage through challenges in maintaining the lowest cost of supply will be of significant concern to Apple Inc.

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