Not enough new iPhones, strategy or supply chain challenge?

An article in the Wall Street Journal titled “Why There Are Never Enough New iPhones” (September 18, 2017) describes the new iPhones launched in September 2017 as being available only in November, with possible delivery delays. The introduction if many models, with significantly different price points, complicates forecasting demand. The tweaking of design details by Apple, Just-in-Time manufacturing, a complex parts supply chain, just one supplier of the new OLED screens, competitor Samsung’s independent division, add to challenges. Is the delay period, when customers preorder, a strategic choice to improve demand forecasts? Will Apple’s financial forecasts, that are in advance of sales, a reason to be conservative in providing suppliers with orders? Should Apple release its products in versions rather than tweaking designs until the last minute?

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44 Responses to Not enough new iPhones, strategy or supply chain challenge?

  1. Vijay Raisinghani says:

    iPhone shortage (and Apple products in general) are mix of both – an Apple strategy, Apple culture and the supply chain challenge. Apple culture to work on products till the last minute, i.e., just in time changes to tweak things, is a known part of their corporate culture that dates Steve Jobs era. Apple strategy to keep the hype for iPhone release to create the market expectations and build the lines on the launch day are consistent and dates back to 1st iPhone release. However the complexity in supply chain is at is highest as well. Keeping in mind that Tim Cooks has a history of mastery in operations management, it is still a challenge for Apple to produce enough phones of each type, i.e., 8, 8 Plus and X, in the right quantities to built the appetite but not have over stocked the shelfs. With Apple’s main channel being Apple stores, the channel strategy they have is quite unique and adds to the distribution challenges as well. Managing multiple types of phones with screen size/quality as a critical part and store/channel strategy while being carried by each phone carrier and being #1 or #2 phone manufacturer is a challenging task.

  2. Julia Eldridge says:

    I agree with Vijay that there is definitely a culture piece that allows them to operate with fewer products than are demand. I believe that the lack of product at launch is part of their strategy. For one they are able to maintain a low inventory and more importantly they aren’t losing those customers that were unable to get the new phone right away. This second piece is key so that they are able to maintain revenue and possibly even increase it as scarcity motivates more people to purchase and at a higher retail price.

    Additionally, as new iphones come out, there is a whole cohort of people that will use the time to upgrade to the version just before the new one as they are able to benefit from the lower prices and have a good percentage of the functions of the newest version. Because this phenomenon is seen and encouraged at practically each new launch, Apple is further able to decrease its inventory.

  3. April King says:

    I agree with Vijay and Julia that there is certainly a cultural aspect to Apple making changes to their products up to the last minute that shortens the amount of lead time Apple’s manufacturing facilities and suppliers have to generate the newest iPhone model. I also agree with Julia that Apple uses the (now) expected feeling of scarcity for their newest iPhones to their advantage, in driving demand and rationalizing the high price tags. However, I also feel that there is a significant amount of supply chain and manufacturing complexities that lead to shortages of the new phones. An iPhone has an incredible number of components from various suppliers. Many of these components are of a very high quality with strict specifications and requirements, and all of these components must be provided in vast quantities. Since 2015 to present, Apple has sold approximately 212 million to 231 million iPhones each year (https://www.statista.com/statistics/276306/global-apple-iphone-sales-since-fiscal-year-2007/). With the release of a new model, significant changes must be made at the manufacturing facilities all the way back up through the supply chain. If Apple ramps up production of the current model phone in anticipation of the increased demand Julia mentioned for the current phones once the new one is launched, then the manufacturing facilities and suppliers will be working hard providing the components and assembling the current model phone. Once the required number of units are produced, manufacturing facilities and suppliers must retool and prepare for the manufacturing of the new model of phone and it’s related components that also likely have different requirements, specifications, etc. Of course both versions of finished product and components can be manufactured at the same time, however this eats into the capacity to build one or the other, and retooling a line to make a new “thing” can be a very costly and complicated process that can impact product quality and also result in errors. Although Apple has redundancies built into their supply chain, some components such as the OLED screens do not have a backup supplier, and any issues, delays, or problems experienced by the suppliers or manufacturing facilities directly impact and delay the number of finished products built and able to be sold. With Apple’s penchant for last minute tweaking, bursts of demand, and a supply chain with critical pressure points, Apple may want to move away from it’s JIT manufacturing strategy if it wants to minimize supply shortages in the future.

  4. Freddy Horn says:

    There is not a lot to add to Vijay’s, Julia’s, and April’s comments other than that I believe that the real root of this is a changing business model. Other smartphone brands have similar supply chains, but they release the phones in versions and hence manage to deliver the demanded quantities in time. Apple wants to fight the commoditization of its smartphones and moves further into the direction of a premium brand and seller of the latest custom-made smartphones. This underlying strategy calls for a change in managing Apple’s supply chain and production, and requires better demand forecasting. Finished goods inventory building is becoming risky when products are custom-made and not produced in standardized series that could easily be sold to a larger customer segment. Therefore, reduced inventory numbers and better demand forecasting are not only positive side effects, but a necessity for this business model.

    Btw, this reminds me a lot of premium car manufacturers, where you can configurate your car and have to wait a few weeks before it gets delivered.

  5. Marcya Carter-Sheats says:

    Just like Freddy says, there is little to add. Again, it is a strategy that works and continues to propel this company closer to a trillion dollar business. Changing this strategy is a risky move, however, there is always room to remove waste and improve processes. Any part of the supply chain that can be modified to improve profitability and efficiency should be considered. Once again, they are close to a trillion dollars, so they have a pretty good strategy. The only thing that I can think of is their warranty costs. It seems that that is something that will impact their profitability, and that can be improved with a better product quality/release process. It takes a while to create new technology. The issues that apple has is that every tech person wants to hack the technology as soon as it is released. After this happens, they start the virtual blogging and the feedback starts to impact the sales. I think giving people more inventory and opportunity to read the reviews prior to purchasing might negatively impact sales. This is just a guess. I know that personally, the scarcity feeling is what attracts people to wait long hours for their opportunity to purchase the latest and greatest technology. I read the tech reviews and personally that is what motivates me to purchase as is or wait for the new technology. I do not generally like to purchase brand new because I know that there are a lot of upgrades before the bugs are fixed.

  6. Camilo Rodriguez says:

    I will try to focus only on things that have not been said, although I believe this is quite difficult at the moment! I think that part of the answer has alot to due with marketing. Long lines and a huge backlog in orders at some point is desired from a pure marketing perspective. Leaving this at a side, another reason why they have to do this would be demand elasticity. Demand elasticity is the mobile phones market would ultimately determine the amount in which the price will impact the quantity sold and since they are constantly pushing the limits (each model is significantly more costly than the previous one) they have no other choice. On a “The Goal” perspective, the strategy lowers inventory and costs, and grows throughput all at once.

  7. Kim Coldiron says:

    Everyone has such great responses, it is difficult to come in late with this group. 🙂
    We had a good discussion about the blog this week and we were lucky enough to have a couple of teammates that are very familiar with this industry. Ultimately, we believe that Apple’s release and availability are 100% strategic. They have sufficient data and analysis to fully understand their market and the resulting demand forecast. Each step of their plan is intentional and part of their overall strategy. Haris has experience and knowledge with their release strategy that indicates they have sufficient inventory available which they manage closely to create scarcity in the market with both vendors as well as end consumers. Sarah compared Apple’s supply chain to Dell’s which is quite impressive and capable to meet the demands of such a giant market leader. As other’s have mentioned, they have been highly successful with this strategy thus far.

    • Huili says:

      Also, with every new release of the iPhone it is possible to pre-order the phone. With this as a given, it is easy to analyse what the demand would be and adjust the supply chain.
      Another aspect that needs to be taken into account that the smartphone market is getting more mature. This means that there will be numbers available on things like how many customers will upgrade or replace their iPhone.

    • Sarah Rosnick says:

      Thanks for the lead-in, Kim. Apple and Dell frequently are compared in terms of their supply chain and their strategy. One of the most fascinating parts of Apple is their incredibly huge supply chain that spans much of China and is shifting in response to the changing disposition of suppliers. Once you peek under the covers, however, and you get down to the most basic supply chain concerns is that they really maintain just a few phone models. With so little variation in products, it’s a relatively simple set of variables to maintain. The big competition from their supply chain comes from the fact that many of their suppliers are getting far more lucrative business from other businesses like Tesla. When you have a relatively simple product portfolio, then it becomes obvious that the scarcity is largely strategic. Their suppliers are frequently qualified over a year in advance, global planning takes place to support demand for the new phones, and Apple has a single event in their history where they had excess phones that they were forced to reduce price on in order to sell. (Not Job’s finest moment, of course.) It would be foolish to think that they were surprised by the demand at each launch and suddenly unable to fulfill.

      • Sarah Rosnick says:

        ^next time, I’ll proof read my answer first. pardon the run-on sentences and poorly structured flow of thoughts 🙂

  8. Jordan McCroskey says:

    Great comments everyone! I agree that Apple uses the appearance of limited supply to create demand. We discussed this topic in our marketing class last module and all agreed that Apple is one of the leaders in marketing. Sarah makes a great point that their product line is very concise with few options. This makes production planning and procurement easier. Currently the shipping estimate for a new iPhone X is 1-2 weeks. This is a reasonable time frame that consumers will accept. The phone will arrive in time for the holidays – but they also create a sense of urgency that a delay in purchase decision may cause the delivery date to slip later.

    Another interesting thing about Apple is how they tend to acquire companies that make parts of their computers, accessories, or phones. This guarantees them the supply they need and keeps the advancements exclusive to Apple. Some recent examples (sapphire glass manufacturer, and recently the company that helps power the Face ID technology). The are also working to acquire a part of Toshiba’s NAND manufacturing (makes the storage used by their devices).

  9. Rohit Mohan says:

    I think it is primarily a supply chain challenge which Apple paints as a strategy of scarcity since it fits well with its image as a premium exclusive brand. Apple is known for innovative products which are tweaked endlessly to provide the best user experience. Apple’s latest versioning philosophy with price discrimination seems to be an attempt to reach out to multiple customer segments across developed and developing markets. An example of the complexity in Apple’s Supply Chain is that of the Samsung a competitor providing OLED Screens. Another contrast example is that of chips from Qualcomm vs Broadcomm in I-Phones which is a relationship dominated by Apple. Thus Apple’s Supply Chain complexities result in lead times which are tolerated by customers as what they truly value Apple for is its innovative differentiated product, so Apple is able to satisfy its customers with its current strategy.

  10. Abhishek Sharma says:

    There are multiple factors that are causing lack of I phones availability in the new product launch. such as “component shortages”, “Apple’s last minute design changes”, “difficulty in forecasting demand” and “free marketing”. However, these factors are not only associated with Apple but also with other mobile manufacturers. OnePlus used invitation based model for selling its phones in India primarily due to its supply chain limitations. However, it worked in the company’s favor by providing free advertising caused by creation of a halo of exclusivity in the initial growth phase of the company in Indian market.

    Apple’s reliance on Samsung for OLED screens can be regarded as one of the major supply chain risks faced by the organization, an area of concern which the firm has to address by building a competitive technology on its own or in collaboration with technical giants such as LG. Additionally, even minutest of the design changes cause a huge impact on the stakeholders of supply chain in the forms of performance changes, re-testing and re-assessment of overall user experience. Moreover, since every new I phone comes with a different price tag and features, it becomes extremely difficult to forecast the demand for the new offering without assessing the consumer response. In addition to that not only older versions of I phone but also the competitor’s offerings changing with time compete with new I phone version making the sales forecast and assessment of production quantity further difficult. These challenges however create an atmosphere of excess demand, further adding to the fuel of desire for the product. Though Apple’s strategy has been working in its favor but it is also exposed to several supply chain risks as mentioned above which need to be addressed by Apple for maintaining a sustainable market share and premium.

  11. Ashish Trivedi says:

    I don’t think that the OLED screen provided by Samsung would actually be a problem . Samsung will gain $110 on every Iphone X sold by apple. Going by the initial forecasts, Samsung will earn close to $14 billion from Iphone X sales alone. Although Apple is trying to develop more companies to produce the OLED screens and reduce the monopoly of Samsung, I see no reason why Samsung would jeopardize its source of income.
    (source:https://www.wsj.com/articles/why-apple-rival-samsung-also-wins-if-iphone-x-is-a-hit-1506936602)
    In my opinion, Apple uses this to understand the forecast demand much better. It has many products (existing models) in the market and a new product (Iphone X) which has touched the $1000 mark. This delay will help them monitor pre-order sales data and adjust their demand forecasts better and reduce unnecessary inventory build up.

  12. Prabhat Pustake says:

    Every product manufacturer, from BMW to Patanjali, would definitely love to have the loyal customer base as that of Apple’s, which creates a unique and probably unprecedented supply chain advantage for the firm. The acceptable delay in delivery of i-phones facilitates Apple with not just improved demand forecasts, but also lower working capital, better cash turn around cycle, and savings of millions of publicity dollars. If Apple would have shared these benefits with the customers then probably I would also have been able to join the queues outside the Apple stores. Nevertheless, I believe that Apple understands this strategic advantage and must be taking advantage worth every cent out of it. I am also sure that if this was a problem, then Apple as a firm is capable enough to sort out this supply chain issue. Hence, I don’t think that the delays are due to some internal reason such as conservative financial planning or last-minute tweaking in design or JIT fixation. Samsung and Google ensure that their phone is on the shelf as soon as after launch, not because of better supply chain management, but because they know that probably not every customer will wait for their new model.

  13. Atul Jha says:

    The strategy of tweaking the designs till last minute suits complexity of Apple’s supply chain and it gives a perception to the customers that they are special and product they are being offered is a very special and differentiated one but it might be a cover up for the add up in lead times due to outsourcing of different components.

  14. Simrat Bir says:

    This is a question that has always intrigued me and I think that the shortage of I-phones during the launch phase is basically a combination of a calculated risk strategy as well as inherent challenges faced by Apples’ Supply chain.
    One would imagine that a company like Apple would be able to accurately forecast demand for its new I-phones. However, this still remains one of its biggest pain points. This basically means that before every launch, Apple faces the issue of how many I-phones to stock, because of which it has come up with the concept of pre-orders which gives Apple the window that it needs to better gauge the demand for its products.
    Another major risk, which is that Samsung is currently the only supplier of OLED panels for Apple, increases Samsung’s bargaining power significantly. Apple is looking to mitigate this risk by tying up with LG to procure OLED panels. Even NAND chips are in short supply and Apple has been forced to source from Samsung for the same.
    Apple is also known to make changes to its hardware till the very end and this perfectionism also contributes to shortages during launch.
    While the newly launched I-phones tend to land up in the hands of a privileged few, thereby increasing the brand value, this strategy is not the only reason for the shortfall in supply.
    Hence, a combination of such factors, when analyzed in totality, gives a clearer picture of this phenomenon which repeats itself, launch after launch.

  15. Aayush Jain says:

    Apple iPhone X was a huge departure from the current trend of releasing incremental upgrades to iPhones year on year. It was whole new concept that required new materials including OLED displays and scanners for Face IDs. Samsung is the leader in the OLED display market with a market share of almost 90% (https://www.androidheadlines.com/2017/02/report-samsungs-amoled-market-share-drop-72-2020.html) and perhaps the only supplier who could meet Apple’s demands of quality screens at such a large scale. Similarly, the 3D face scanner introduced in iPhone X was a first for mobile devices and therefore had limited suppliers.The lack of supply for facial recognition hardware has been a mjor contributor to the delays. (https://www.cnbc.com/video/2017/09/27/iphone-x-delays-are-blamed-on-snag-in-facial-recognition-hardware-report-says.html)

    I believe, that a misjudgment of the demand for iPhone X and irregularity in supply for the new hardware has been the main reason for the delays in shipment and its not a strategic move on Apple’s part.

    Samsung has already released the Note 8 and the S8 plus is doing well in the market. Apple can ill-afford the risk of delaying supply of iPhone X and let the competition get ahead.

  16. Michael Minor says:

    I believe the preorder period serves as more than strategic choice to improve demand forecasts. Yes, preorders will give Apple a good sense how it’s sales forecasting algorithm worked but won’t affect its global supply issue(s). What the delay period does is allow the company to tweak its distribution plan, enabling them to divert shipments from underperforming locations to those that exceeded expectation based on preorders and waitlists. This distribution model not only prevents stockpiling it pushes revenue into the next quarter through its long lead times. As Vijay mentioned the conservative distribution of supplies is also about keeping up the hype. I will say that I don’t do much more with the iPhone than I did with my Blackberry 8 years ago. Yes, applications make things more accessible but most users don’t use all the capabilities of a phone. That 1-pound Otter case you bought that covers the all glasses design of the iPhone X now voids the reason the phone was purchased. For that, I believe that Apple would probably do better producing an IOS that correlates with a newer version of a phone versus a fancy design.

  17. Ameya Date says:

    I believe Apple takes calculated risks every time it tries to launch an ambitious new product. With the new iphone, it has increased demand uncertainty with the steep price, and has increased its ambitions by deciding to launch it in multiple countries. That being said, however, the delay could be perceived as strategic for Apple, since catering to the so called influential markets of North America and Europe without hiccups would be the first priority for the company. This could be extrapolated into its need to control the brand positioning of its products, along with coinciding with the holiday season in most of the world.

  18. Mansi Mishra says:

    According to past shipping estimates data, the shipping estimates have seen an improving trend which suggests that there is perhaps something more than just a strategic reason behind the limited supply.
    The issue did have severe implications such as 39% decline in net income of Apple’s main device assembler and large hold-ups. A dearth of suppliers for OLED coupled with production problems added to the complexity and ambiguity of the issue. Also, an emphasis on the end user experience means significant re-work and design changes to ensure the overall product performance. However, this means a great impact & stress on other parts of the supply-chain.
    Pre-ordering definitely helps in improving and fine-tuning the demand forecast hedging the volatility risk to some extent.

  19. Anwesha Dhar says:

    Apple releases a new version of the iPhone in September each year. We can divide iPhone buyers in 2 categories: those who upgrade versions each year and those who are new/occasional buyers. The first category are the loyal customers who upgrade to the latest version each year and the second category usually looks for reviews, etc before making their purchase. That means the second category of people wouldn’t preorder under usual circumstances. As a business, we can safely assume that Apple’s motto is revenue maximization. So by delaying the release of the iPhone by 2 months to November, Apple is essentially reducing the number of months of peak sale of the latest product to 10 months till the newer version is released. In doing this, the number of loyal buyers are remaining the same but the number who’d buy after looking at reviews is reducing because by September of the next year, they would buy the next version announced.

    In my opinion, even if the November release is done as a part of a strategy to look at the number of preorders, it defeats the purpose of getting a demand estimate. Even though just-in-time manufacturing could be a good thing for them, the delay of release doesn’t justify the motive of estimating demand of an iPhone.

  20. Devika R Krishnan says:

    In order to analyse the issue at hand, we need to understand in detail (i) the industry in which Apple Inc. operates (ii) the value chain of iPhone manufacturing (iii) operations strategy of Apple Inc.
    Apple Inc. is in a technology industry which is subject to radical innovations almost every other day and hence stands a high chance of the products turning obsolete. With this in mind, it’s natural for Apple Inc. to not push its products into market with an approximate demand forecast but to generate a pull demand. This can be a reason for iPhones facing shortage in the market, forcing customers to pre book them
    The value chain of an iPhone manufacturing can be divided into 4 main entities namely the suppliers for parts of iPhone, the manufacturer (outsourced facility for production), the distributors and the customers. Inorder to ensure the availability of iPhones, the coordination required among suppliers and the outsourced production partner must be at high levels. As Apple has cut down its suppliers over the year to ensure high quality and also as there are dedicated suppliers for parts like OLEDs, the flexibility within the supply chain might be low compared to other products in the same industry which do not call for these high quality levels. This in turn leads to a shortage of products in the market
    Apple Inc’s strategic position in the industry has been that of differentiation and thus it is able to get a premium from its customers. The profitability has improved over the last few years as Apple is consciously employing a low inventory strategy to cut down the costs, which can be another reason for non availability of products.

  21. Chaitanya says:

    The delay period for the shipments is strategic in nature, as it gives Apple an accurate demand forecast which protects their suppliers from unwanted inventory eating into their costs, by forcing the early adopters to wait Apple gathers accurate demand forecast and the long waiting lines in-front of their stores does add to the appeal of the new models. Apple’s financial forecasts which are released ahead of the actual sales can be another reason for them to be conservative in their orders to suppliers as they do not want to end up with finished goods inventory. And apple’s reliance on a sole supplier for OLED screen supply and that too from a competitor can add to apple’s conservatism in orders to suppliers. Apple should not make versions of the products and stick to their current strategy of incorporating important changes into the design albeit at the last minute, their responsive supply chain allows them to do it and the downside of releasing a bad or substandard product is huge for a premium brand like Apple.

  22. Ritwik Vimal says:

    Apple works on a pull-based strategy, which fundamentally incentivizes under-stocking rather than overstocking. Its customers are willing to wait in long queues from day one for new models and are willing to wait a little longer if it means they get their hands on their desired device. This is unique to Apple. Though not entirely intentional, understocking is a strategic choice by Apple. Apple customers are loyal and would ONLY buy Apple products. This is why Apple tweaks the design to perfection right up to launch day to ensure HIGH quality.
    A similar understocking model based on periodic flash sales (online) is followed by the Chinese phone manufacturer – Xiaomi, in India, that has surged to capture a 26.5% market share overtaking Samsung, by consistently generating more demand in the market by creating a paucity of its products. [Source – http://indiatoday.intoday.in/technology/story/xiaomi-becomes-top-smartphone-company-in-50-indian-cities-redmi-note-4-the-most-selling-phone-idc/1/1098776.html%5D
    For Apple, pre-orders provide a metric for demand forecasting, but the reason for its conservative supplier ordering patterns seems to stem from its need to develop products in secrecy. An Apple employee was fired when his daughter accidentally shared a video of iPhone X from her father’s office. Apple probably has infringement issues with Samsung or any other supplier. Even though patents and copyrights might be enforceable by law, the time it would take could severely jeopardize the model or product line. [Source – https://www.engadget.com/2017/10/28/apple-fires-employee-over-iphone-x-video/%5D

  23. Deepesh Moolchandani says:

    I feel that test marketing of products can be a good way to estimate the demand for futuristic products like IPhoneX. The only problem here is that the product can be copied and there can be IP rights dispute which apple has won before in a case with Samsung. I do believe that apple shouldn’t do vertical integration but what it can do is concentrate on having more manufacturing facilities like tie up with fox con under make in india initiative.
    Also the strategy of JIT is not suitable for products like Iphones as if any risk associated with the complex supply chain materializes then the whole plan can result in bad image in customers.
    The solution to me looks in through market study and launch different versions of products so that even if one is short the other can compensate as apple buyers are not price sensitive, also products can be differentiated as per geography for example india I phone can be different than USA which can boost sales and have differentiation.

  24. Nachiketa Mohanty says:

    I feel that this issue is more a strategy to ease demand forecasting than a ploy to create demand. It is essential to consider that Apple has to deal with not just the demand for different models but also for that of different colors of each model. The demand for different models (with different price levels) as a whole would follow a more ‘financial-capability’ pattern whereas the demand for colors of each model would follow a more ‘cultural-preference’ pattern. For example, darker colors like Space Grey are preferred more in the US and Australia and lighter colors like Gold and Rose Gold are preferred more in the Asian countries. This makes for a very complex demand planning scenario. To be able to forecast the right quantities of each model and of each color for a particular model seems almost impossible without any kind of pre-sales survey of preference. And this is what the pre-orders for iPhones might be aimed for – to collect sufficient data before making production commitments. Another fact that seems relevant is that Apple has been releasing new models of iPhones each year. In a way, each model has a ‘top-of-the-line’ status for only one year – a very short time period. In such a scenario, the company wouldn’t want to have excess units of a model lying in the market when it is launching the next big model. Therefore, it becomes all the more imperative for the company to be accurate in its demand forecasts.

  25. Asiman Kumar Panda says:

    While Apple deliberately playing up its scarcity to jack up the ‘premium-ness’ of its products may still be in the realm of conjecture, what is less debatable is Apple’s desire for maintaining utmost secrecy of its design lest it should leak before announcement – now, scarcity may or may not induce a sense of enhanced value of product in the customer’s mind, but leakage of the design certainly would erode value, especially for a product whose launch is waited for with bated breath by millions across the world. It is in the anticipation of the new product is where I believe people conjure up value in their mind for the product. This desire for secrecy, besides the quest for making the product as free of defect as possible, is what keeps Apple tinkering with the design until the last moment. This policy is definitely going to create challenges vis-a-vis responsiveness in the supply chain and thereby, besides other factors such as constrained supply of parts (OLED etc.), may contribute somewhat to the delay.
    Coming back to the conjecture of Apple deliberately creating a sense of scarcity, I believe, sooner or later, customers are going to see through this tactic, if such a tactic were indeed being employed. A feeling of deceit is not taken kindly by the customer, and no company worth its salt would like to be seen as toying with its customers. Even if Apple were clandestinely employing this tactic for real, it would do well to camouflage the scarcity with an attribution to supply chain issues.

  26. Sethuraman Subramanian says:

    I agree with many of the comments made by commentators above me in the thread. I think much of Apple’s predicament is largely attributable to it’s own strategy of the need to roll out a brand new design of iPhone every single year. For a global product with unthinkable scales of operations in supply chain, such a tough deadline puts an enormous pressure on manufacturing to be able to acquire the final approved deign from the development and start sourcing for the different components to put them together. It is common knowledge that the iPhone is by far one of the most global products ever made, wherein every component seems to have its own distinct journey from its manufacturer in varied parts of the world to the final device. So, Apple certainly seems to have brought this challenge upon itself by insisting on completing re-designing the iPhone every single year.
    But, its also becoming evident that Tim Cook, as its operations specialist CEO is able to sense the stretch of the supply chain, and seems to have taken a conscious choice to phase out the dramatic hardware changes that could lead to frequent disruptions and delays. Hence, many of the iPhone’s constituting components appear to have remained fairly similar over the last few years and drastic design changes have been introduced as much smaller changes over several iterations. This is clearly an indication of the Apple team’s cognizance of supply chain constraints.
    But, Apple being the marketing genius that it always has been, has only used this supply chain pinch point as an invaluable marketing tool to create scarcity and make its customers value each product release higher than ever before. This supply chain constraint helps Apple market even its trivial product modifications as a monumental achievement, owing to the days and weeks its customers wait for finally having to own a phone.
    So,it only appears that Apple would wish that there remain a supply scarcity to keep its loyal customer base build up, and help each of its highly priced phones to be consumed almost immediately. This is the price Apple has to pay for having positioned itself as a niche device maker.

  27. Gautham Ravindar says:

    Not enough new iPhones – I believe that this is a bit of both, strategic decision and supply chain challenges as well, 80-20 split. There is a huge consumer base for Apple iPhones that prefer to buy them not for their functionality or ease of use but more for the ‘pride’ that they feel when they own them. This is where Apple has done exceedingly well. Their marketing is top notch. Not only did they concentrate on building an excellent device but ended up charging a premium for their device without affecting desirability. iPhone in some sense is on the track to be categorized as a Giffen good.

    Apple’s demand forecasting techniques, their cash reserves, relationship with suppliers (albeit the only one for OLED) are on point. iPhone X’s new component requirements can be attributed to slight delays and inefficiencies in the Supply chain but nothing significant enough to be the chief cause of shortages across the world. Apple has already begun working on de-risking its OLED supplier by developing LG (https://9to5mac.com/2017/09/06/iphone-lg-2019/) for its screens.

    Creating paucity is an age-old technique of creating hype/increasing demand for a product and Apple doesn’t necessarily need this but is using it brilliantly nevertheless. Flipkart pulled similar stunts with the sale of Oneplus 3 which was supposed to be an Amazon India exclusive. They not only caused slight damage to Amazon for that one product also attracted thousands of customers with that one product whose price was 50% of MRP. Flipkart personnel on the inside say the quantity of phone that went on sale was in single digits.(http://indiatoday.intoday.in/technology/story/flipkarts-oneplus-3-sale-screwed-amazon-india-even-if-it-wasnt-nice/1/838100.html)

  28. Gaurav Suri says:

    In today’s world where the consumer is spoilt for choice, it is very rare that a firm enjoys the kind of brand following that Apple does. I have always felt that the demand shortage for newly launched iPhones is somewhat a strategic decision that Apple takes every year. I feel that the pre-order period that Apple gives to its consumers helps Apple to gauge the demand for the new iPhone better. Also, the lines of thousands of consumers outside the Apple store creates a sense of mass hysteria for the new iPhone and is free publicity for Apple. Apple enjoys a “cult” following and knows that its consumers are going to stay even if they don’t get their hands on the latest iPhone immediately which also gives a sense of exclusivity to the general public.
    Apple has a truly global supply chain with sourcing of iPhone components from across the globe from multiple suppliers. Apple has successfully managed this sourcing strategy for all the versions of iPhone and its suppliers by now have an understanding of the production capability they are looking at for meeting demands of the new iPhones. Apple has recently made the switch to the OLED screen for its recent range of iPhones and tied up with Samsung for the supply of these OLED screens, Samsung is also providing NAND flash and DRAM chips for the iPhone and is the only company capable of producing these items at the scale Apple desires. If recent estimates are to be believed Samsung would earn billions more than it had made on selling its flagship phone, the Galaxy S8.
    http://fortune.com/2017/10/04/samsung-apple-profits-iphonex/
    Though, many are debating it is a risk for Apple’s supply chain in sourcing these materials from Samsung, I believe it is a well-thought decision made by Apple which is a win-win situation for both the parties involved. Apple in the meanwhile is also in talks with another technology giant LG for the supply of OLED screens.
    Apple is known for the product quality it gives to its consumers. The last-minute tweaking in designs is something that Apple has been doing for the past several years dating back to the launch of its initial Mac. Consumers associate this with something that is a sign of perfection. It is perceived as Apple’s thrust on giving its consumers the very best and upholds brand Apple. Further, Apple has always been tweaking the software with free upgrades to all its consumers, which I feel is the best approach.

    • Vijay Raisinghani says:

      Gaurav’s point of software update made me think about the trends of software releases on iOS products. I reviewed the release date for recent iOS releases (7 through 11) at https://en.wikipedia.org/wiki/IOS_version_history#Overview. The important trend in the very recent release from 9 onwards, Apple releases about 4 patches (x.0.y) releases within a month of each big iOS release (an example of JIT software manufacturing culture). The recent iOS 11 had most updates in the shortest time time, i.e., 7 releases in less than 3 months of initial release. Being an ex-phone OEM Platform manager, the matrix of complexity is quite high considering Apple supports at least 4 versions of hardware (iPhone 5,6,7,8 or a mix like that) at all times so besides the sourcing complexities of hardware components, the software components would pose challenging problems as well. As we know that perfect software never exists, they have used the brand loyalty and the “Apple culture” as a good disguise to keep working on normal challenges.

  29. Nishant Agarwal says:

    I believe that not having enough iPhones is a supply chain challenge that Apple is still trying to figure out rather than it being a strategic choice made by Apple. Although the long queues and unmet demands does have positive consequences such as the exclusivity of the brand and the adjustment in demand forecasts but it may have equally negative consequences in the form of loss sales and brand equity. A lot of challenges that Apple faces have already been covered in other comments, I would like to point out at a couple more:
    Continuous hardware and technological updates – which may require continuous investment in capability and capacity development of the suppliers. Such upgradations are bound to delay the supply of the critical components of the iPhones. Although, all the manufacturing components are assembled in a single unit in China, a problem with a single supplier of these components may have ripple effects across the whole supply chain right up to the availability of iPhones at the point of sales.
    Intellectual property protection – iPhones are the Apple’s most prized possession, the development of which has been the sole focus of Apple since 2013-14. The current supplier base of Apple is present in China, where the IP protection laws are not up to the international standards. It may happen that Apple delay the release of the production designs to the outsourcing units in China till the very end for this particular reason in order to safeguard its proprietary technology.

  30. Nishant Dhiman says:

    Launching a new phone priced upwards of $1000 is something which only Apple could attempt and it comes with its own risks in the whole value chain. Anticipating the demand for a product which is priced much higher than the previous models is a much difficult task which can be solved to some extent by analyzing the pre-booking numbers and then working out demand forecasts. For any new product, the early adopters are the people who are willing to spend such kind money and the firms obtain real feedback for further improvements and the reviews by these people give confidence to the followers to invest in such products. Figuring the demand and adjusting the manufacturing accordingly leads to lower level of inventories and hence saves money at each supplier level in the supply chain, especially considering that some components are custom designed and cannot be used anywhere else. Procuring OLEDs from its competitor, Samsung, may look like a risky move but considering the relationship investment by both the firms and how Samsung will gain quite a good amount of profit from this deal actually minimizes the risk. Developing alternative vendors will surely lead to lower procurement costs but it’ll also increase the supervision and transactional costs for handling multiple vendors to ensure quality coherence. Considering all the aspects the move looks like more as a strategic rather than the actual shortage of components or production capacity.

  31. Ankur Bansal says:

    Apple not able to supply enough iPhones has both strategy side to it as well as supply chain challenges aspect to it. However, I for once will like to believe that it is more of a strategic decision than a supply chain issue. Though there are a number of supply chain issues apple faces whenever it launches a new iPhone. However, with Tim Cook (Operations Guru) at the helm of the company, it is very difficult to imagine that Apple is not able to solve these issues. On the other hand, there are a number of benefits of adopting this methodology
    1. Creates a premium attraction: As correctly pointed out by Marcya Carter-Sheats, scarcity feeling creates an attraction to the consumer.
    2. Forecasting demand: With ever-changing prices and model specification it is always difficult to forecast demand for any electronic product in today’s world. This is one of the main reason concepts like “flash sales”, “reference sales” are gaining popularity. Nevertheless, the lack of supply increases the pre-order of Apple iPhones and approximately 2 months in between model launch and model availability gives them enough time to plan the production.
    3. Just in Time Manufacturing: Apple operates at a minimum level of inventory, which is again a strategic decision. By under-producing the iPhones, Apple is able to keep its inventory in check.
    4. One supplier for OLED screen: I really do not think that Samsung is really a factor limiting the supply of iPhone. Supplying OLED screens to apple is one of the major ways in which Samsung hedges its operational risks.
    Due to all these points, I personally believe that scarcity of iPhone is more of a strategic move rather than an operational constraint.

  32. Bhawarth Sangwan says:

    Though Apple has a complex supply chain in terms of different suppliers of components, manufacturing base in China (away from the target markets) etc., however, the delivery delay has been a consistent phenomenon for almost all iPhone launch. It’s bit hard to digest that a technology based firm like Apple, which thrives on supply chain agaility cannot reduce lead time in delivery. The technology gadgets depreciates really quickly and responsiveness of Supply Chain forms the core for this industry. Given these facts, had it been a supply chain issue. Apple should have already figured out the way to improve supply chain responsiveness. I believe it to be strategic move rather than supply chain issue for the aforementioned reason. A deeper look at the motives for purposefully doing so leads to following benefits for Apple;
    1. Principle of Scarcity/Free Publicity – Flooding the market with iPhone at once will reduce the charm/excitement among the customers.
    2. Lower Inventory Holding Cost – The post order production shifts the supply chain risk from Apple to its manufacturers (Foxconn in this case).
    3. Very high cost of overstocking – Given the nature of product, the inventory can get obsolete very quickly, thus apple wants to improve demand forecast before placing an order with manufacturer.
    4. Breathing space to make minor changes/eliminate bugs based on consumer feedback – iPhone X had an issue with screen. The delivery delay allows Apple to rectify mistake at production source itself based upon the feedback of few initial users.
    https://www.engadget.com/2017/11/10/iphone-x-green-line-glitch/
    I would like to strengthen my point by mentioning the example of Zara. Zara thrives on its responsiveness of its supply chain. According to 2010 study by Prof. Fraiman (Columbia Business School), Zara can get a product out from concept to store in just 15 days against the industry standard of 6 months.
    https://www.tradegecko.com/blog/zara-supply-chain-its-secret-to-retail-success
    It might be unwise to compare the Apple with Zara, however, the point that I want to make is that the nature of both industry are same. Responsiveness forms the key for both the industry, be it fashion or electronic gadgets. Thus, assuming Apple grappling with supply chain challenge is bit hard to digest.

  33. Debojyoti Ray says:

    I believe, the answer, to the question which the topic of the blog so astutely asks, is partly strategy and partly supply chain challenges.
    Why Strategy?
    1. Understocking Vs Overstocking: Given the cut-throat competition in the mobile industry, where a yearly refresh is a kind of norm for almost all players, the cost of overstocking exceeds the cost of understocking by a significant margin. It can, further, be argued that understocking helps in creating a hype and halo around the product, which the early adopters very much prefer.
    2. Demand Forecasting: If we take the specific example of IPhoneX – the product is being launched at an unprecedented price point of $999. Demand forecasting, using historical data, can never be trusted in such cases of product launches.
    Given the various versions of the product, postponing production helps the company in catering to the vagaries of the customer demand. Also, given the fact that one of the primary USP of Apple over other competitors is the quality of its products, the delay ensures that the company spends significant amount of time in ensuring quality and defect free models.
    Why Supply Chain Challenges?
    1. The fact that Apple is sourcing one of the bottleneck components, from a single supplier, and that too, from its competitor, speaks volumes of the supply chain issues the company is facing.
    2. Even some other crucial components, like NAND memory chips, are facing a supply crunch, due to the availability of a very limited number of suppliers.
    Therefore, I do believe that the jury is still out on the query.

  34. Siddhant Khattri says:

    Adding to Deepesh’s point, it is important to forecast demand using various techniques – Assessor model, Bass model are some of those. Apple’s iPhone are a much coveted product in the global market. Hence, a blend of both – strategic choice and supply chain capability – is required. iPhone procurement of OLED’s from Samsung seems to be a strategic decision rather than a supply chain issue.
    However, increasing the number of SKUs is going to complicate things further. It is similar to a problem faced by Sports Obermeyer. Serving long tail customers will become an issue with manufacturing requiring MOQs.

  35. Pulkit Gupta says:

    Apple shortage at the launch of the new product is something that all of us have seen over years. I believe this could be attributed to multiple reasons – 1) Poor forecasting – Even with whole lot of experience, I believe launch of any new product would cause high uncertainty in demand predictions. 2) Supply Side Issue – As we know, iPhone is a complex product with multiple parts and this makes its supply chain really complex. With shortage in any component, the production gets hit and hence the shortage of supply. 3) Apple last minute changes – Apple is known for achieving perfection in its product which ultimately leads to last minute changes/upgrades which also causes certain delay. 4) Last but not the least, marketing gimmick – It could very well be a very thoughtful way to create artificial demand by reducing the supply. I believe combined all these reasons would be contributing to the shortage of iPhones at the launch.

  36. Amit George Mathews says:

    I think the supply shortages of iPhones are generally because of 4 reasons which are split between strategy and supply chain issues
    1. Last minute changes to the hardware and since the product lifecycles are too short in the smartphone space they can’t afford to extend the launch date
    2. Creates that perception of exclusivity and hence enables them to have a higher price point
    3. Non-availability of suppliers that can provide components with Apple’s specific requirements (in this case the OLED panels and the NAND memory chips)
    4. When the shortage is announced to the world there seems to be a spike in its stock prices
    With respect to iPhone X, the supply chain issues are being sorted with Apple trying to bring in other vendors to pick-up the shortfall of the components. This shows that in this particular case there seems to be more unprecedented supply chain issues than strategic decisions to deliberately create this unavailability.

  37. Ankur Jain says:

    Apple as a brand is one of the very few ones in the market today who can launch drastically innovated product every year. That too with a pull based strategy on a high value product. This has happened over years because of their brand image and razor sharp supply chain strategies. I feel Apple takes these calculated risks to go through shortage of products on shelves to ensure that the product always command a prized trophy image. Also the pull strategy supports maintaining a lower stock and fulfilling based on demand. The changes in product design every year will require changes in supply chain and it can stabilize om;y over a time period. In modern times, having a vast vendor base is actually troublesome. Pruning the supply chain is of paramount importance to achieve cost & efficiency. Ordering only from Samsung provided two opportunities: Keeping Samsung interested in the profits and the reputation at stake. And, Apple getting the best technology at a decisively lower cost from a lead supplier in the market.

  38. While the delays might be intentional to some extent to pent up demand for the latest iPhone, it definitely provides Apple some idea as to the extent of demand. As Nishant points out, these products are very expensive and Apple gets an idea of the demand for each product in the delay period. This can help them provide right orders with their suppliers considering Apple follows just in time manufacturing. However, the delays in this case may not be intentional, because of changing of sensor design till last minute and reliance on a single OLED supplier (which led to significant delays when an accident occurred in the OLED supplier’s factory).
    Apple may follow stricter timelines w.r.t design and not tweak designs till last minute which affects their entire supply chain. Releasing product in versions may not be a good idea as this would clash with their strategic positioning and the launch scheme that they have been following for so many years (and it has proven to be highly successful for them too). Also they should have at least 2 backup suppliers for critical components to minimize the risk in their supply chain.

  39. Prasant Goel says:

    Apart from being one of the leading players in the Mobile phone industry, Apple is known for its supply chain excellence with top management being involved in closely coordinating and developing supply chain players while deciding the Technology, quality, quantity and as well as sourcing of the various components in conjunction with the suppliers. However, The iPhone X release and its subsequent shortages became a nightmare that Apple is still trying to come to terms with. And it is not just the shortage of iPhone X production but strategic decision leading to iPhone X design and subsequent bottlenecks in the supply chain that need to be addressed. One of the reasons as highlighted by many is the short supply of Organic LEDs. Samsung, one of the leading OLED manufacturer operates separately from Samsung Phone Manufacturing Business but it still took a risk of short supply of OLEDs looming large over the fate of iPhone X with only one manufacturer, given the demand across the entire mobile phone industry, and this shortage of OLEDs has currently limited its supply of iPhone X to 10,000 units per day. Apple knew that the monopoly of Samsung might risk its supply chain of OLED and bought the CVD- Chemical Vapor Deposition Machines but the steps could have been preempted much earlier as Apple is still trying to get the collaborators to work on the Apple’s equipment. Another reason for restrained capacity to supply enough iPhone X in the market was a parallel supply of iPhone 8 in the market restricting the manufacturing of iPhone X units. Again the production of iPhone 8 was slashed by 50% to ramp up the iPhone X supply but these remedial measures could match the mammoth demand in the market. Moreover, another Challenge that Apple faced due to OLED in iPhone X was the development of fingerprints sensors that could work through the OLED screen but unfortunately, the engineers failed to get it in time for the iPhone X Release. Now the only option left was the Face ID recognition which involved two-part sensor creating another bottleneck in the already strained supply chain. These supply chain issues have not cropped up suddenly, but have been there since 2012 when the Chairman of Hon Hai Precision Industry Co., a major supplier of Apple, confessed that they just could not fulfill the demand as Apple has constantly struggled to produce enough iPhones for their customers upon the mega launches. Going ahead preempting the designs of future iPhones with ever-shortening product life cycles (less than a year) and building a supply chain for these models in diversified geographies is a key that Apple must be working at, as much bigger issues in the supply chain are yet to unfold and they may come from geopolitical risk, cutthroat competition or technology disruptions among many others.

  40. Surbhi Sachdeva says:

    I believe that the kind of customer loyalty that Apple enjoys allows it to operate in the manner it does. It is clear that the shortage doesn’t discourage people from buying a new iphone. An iphone enthusiast will buy the phone even after a long wait in a queue or a week long wait. I believe that the shortage is created by a combination of all the reasons i.e. working and tweaking till the last moment, supply chain challenges. Apple should create back-up suppliers for critical components and not just rely on one supplier to improve its supply chain. But the fact that it may be a strategy can’t be denied either. The shortage helps apply in multiple ways such as creating a hype and generating publicity around the new launch, also it helps to reduce inventory carrying costs. Hence the shortage seems to arise due to supply chain challenges, but seems to be contributing positively towards Apple’s strategy.

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