iPhone: A best case study of efficient inventory management

How Apple Inc. used efficient inventory management for its product launch and growth of ‘iPhone’

When Steve Jobs has announced about the new revolutionary mobile communication in his Macworld presentation, iPhone was judged a triumph of design and functionality, not to mention it’s X-factor. Similar to other hot electronic products such as Xbox, PS3, Wii – analysts expected big shortages when the iPhones would go for sale across counters, but that didn’t happen, instead iPhone turned out to be the triumph of inventory management along its supply chain.

Selling 270,000 iPhones in 30 hours of transaction, a million units in 3 months, and 3.75 millions in 6 months shows the meticulous planning of its inventory control and management along its entire supply chain. Key to this success was:

• Choosing right suppliers and partners
• Establishing synchronization in the value delivery chain

Choosing right suppliers and partners:

• Choosing the hardware suppliers from USA, China, Taiwan, Japan, etc. worked out in Apple’s favor. They were able to manufacture the iPhone initially at $200-220 per set including distribution cost. They sold over a million units at $499-599 shooting their profits to $6.22 billion . Apple then was able to bring down the prices by almost 40% and yet generate huge profits by increasing the volume to 3.75 million units, through stable supply chain management in 6 months
• Selecting AT&T for distribution was a strategic move. The buyers were committed a 3-minute activation time, and customers were offered across-the-counter activation for those who buy them at the AT&T stores
• Fedex Express was another strategic partner who ensured smooth distribution of products from China to US, and to distribute those products to individual stores on time, just few hours before the launch time of 6 PM
• They partnered with Yahoo!, Google, Flicker, etc. for the applications that were relevant to the US market

Establishing synchronization in the inventory chain:

• A value inventory chain consists of suppliers, production, distribution, partners, etc. Typically every single step where some value is added from production to consumption of the product
• First, the communication layer was synchronized, and all the partners and suppliers shared a single version of the truth. The market research data was shared with its suppliers along with its management’s goal in terms of the number of units to be sold in each month. This enabled the partners to plan their capacity and production well in advance
• The assemblers of the product in China had manufactured the expected quantities well before the launch dates. The distributors had it sent to US a whole week before the products were to be sold. The goods were sent to the retailers few hours before the lunch break so that stores could close and reopen at 6 PM to prepare for sales till midnight
• Retailers had also made some changes wrt merchandizing the products. iPhones were sold near the entrance area of the shop
• Bringing together all these components and synchronizing helped a very historical launch of this product resulting in exceeding the expected sales during the first few days of the launch