Apple – SINGLE POINT OF FAILURE

Shifting Supply Chains: Are today’s risk strategies and programs up for the challenge?

“We cannot direct the wind but we can adjust the sails” Dolly Parton

Supply chains will shift, will the organizations risk programs and strategies keep pace?

Facing the prospect of a 31% EU tariff, Harley-Davidson must choose between a $2000 per unit or bike increase or dramatically reduce production costs. Of course, Harley-Davidson is not alone. The food, drug, agriculture, industrial manufacturing, automotive, mineral and mining, and energy industries all face a similar challenge. The profitability implications of the global trade wars are being driven by a variety of geopolitical actions such as tariffs, taxes, quotas, banning products, social media propaganda that aim to shift sentiment, and contractual and permitting obstacles (delays). All these actions impact the supply chain, forcing leaders to seek relief in their supply chains. For Harley-Davidson, it could result in a shift in manufacturing operations from the U.S. to the EU.

The shift will happen quickly and introduce new processes, technologies, relationships, and players (both internal and external resources).

Will a “program based” risk strategy keep pace and adapt to cultural, societal and political influences?

Let’s assume for a moment that the supply has shifted. Let’s also assume that there are new “local” suppliers or supply networks, transportation and logistics partners, manufacturing facilities (or at least an expansion), regulators and regulatory agencies, warehouses and distribution centers and networks, and on and on.

What is the likelihood that the supply chain related risk programs would be updated in lockstep? This includes risk programs such as insurance (property, marine & cargo, etc.), supplier risk, supply chain resiliency/continuity, emergency management, safety, security, disaster recovery, crisis and event management, and product recall. What level of effort and investment will be needed to adapt, adjust or recreate these programs? How fast can these programs be applied and where on the long list of operational priorities will they rank? In theory, the operational change and risk management program refresh should occur simultaneously. In theory! If you are like most organizations, you’ll eventually get there in one to three years.

Why wait? A change represents an opportunity as well as a risk, correct? Leading organizations such as Apple, Toyota, Cisco, Biogen, Amgen, JPMorganChase, Amazon, GM, Rockwell Automation, Boeing, and many others rely on a data-centric strategy to support an operational dialogue about performance and risk trade-off decisions. They rely on historical data and descriptive analytics (the past), augment with real-time market and operational data and predictive (future) and prescriptive (action-oriented leading to ML/AI opportunity) analytics.

What are some of the ingredients of a Data, Dialogue, and Decision based supply chain risk strategy?

consider an investment of time, management priority, resource, and capital to collect the end-to-end product/family related supply chain activity data. Leverage existing franchise sources of data including the Bill of Materials, ERP systems, sensor data, and numerous functionally maintained spreadsheets that do a darn good job of profiling necessary skills, application software, physical assets (including inventory), warehouse info, critical 3rd parties. Don’t forget to tap into your event, insurance and supplier management SaaS systems. Collect it once and connect to your change management process.
aggressively tap into your data scientists (or leverage external resources) to design the data management (architecture, pools, platforms, etc.), data feeds (threat and event categories and vulnerability analysis groups – e.g. switching costs), and algorithms for analysis and dialogue. This is the first step on your way to applying machine learning and artificial intelligence to managing risk in the supply chain.
consider adopting a profitability, value-based strategy for navigating uncertainty and managing risk in your supply chain. This will require greater knowledge of the industry value chain and your place in it. It will also require a deeper dive into the financial, information and material flow by product, category, or group level. This will be important in preparation for the operational effectiveness/performance and risk trade-off dialogue and decision (e.g. should we qualify a second site or supplier, how much safety stock/inventory should we hold and where do we place it, how much insurance coverage do we need, etc.).

Bottom line: A program approach to risk management is an essential base-level defensive strategy to get the masses to manage risk as dictated by the leadership of the program. Adopting an aggressive data-driven risk strategy to exploit the opportunity and minimize risk in real-time is needed to compete on risk.

Apple’s Cobalt Play: A Lesson in Competitive Strategy, Navigating Uncertainty and Securing the Supply Chain

Another Apple Trifecta? If recent reports of Apple being engaged in discussions with cobalt suppliers are true (and I bet they are) then we are about to witness another lesson in how to gain competitive advantage as Apple simultaneously executes competitive strategy, uncertainty navigation and supply chain risk management.

Competitive Strategy

CEOs and strategists often define competitive strategy as a point-of-view about the future in which they execute against. To do so requires focus, unique value and achieving superior returns on capital investment. One of Michael Porter’s key principles to competitive strategy is that one must thoroughly understand the industry value chain and the value creating and cost generating activities associated with it. Note: competitive advantage is achieved at the activity level or in this example, the supply chain resources, technology and processes.

Apple’s leadership has achieved competitive advantage over the past decade by consistently and thoroughly understanding the industry value chain as well as their own product supply chains and related sourcing activities. As a result, uncertainty surrounding these activities has been greatly reduced thus allowing faster and bolder investment decisions. The sourcing activity has clearly provided Apple with unique and sustainable value. Decision making about the future of essential materials, such as Cobalt, are viewed simultaneously through a market and operational lens, then linked to financial performance.

For example, in 2011, Tim Cook revealed that he had entered into long term component supply contracts worth $3.9 billion over the next two years. Apple had locked up 60 percent of the world’s touch panel capacity, creating an industry-wide shortage and making it hard, if not impossible, for competition to release new products or keep the shelves filled. Not the first time, or the last, Apple leveraged its deep insight into the market, strategic suppliers and “timing” opportunities throughout its materials-to-customer supply chain to separate themselves from the competition. They exercised similar prowess with batteries, NAND flash memory, LCDs glass for iPad retina display, memory chips, image sensors, and the special resins that are used to hold chipsets together. Events like these delay competitors from coming to market or keeping inventory on the shelves. (excerpt From: Gary S. Lynch. “Uncertainty Advantage.” iBooks. https://itunes.apple.com/us/book/uncertainty-advantage/id1196773501?mt=11).

Navigating Uncertainty and Managing Risk in the Supply Chain

As EVs (Electric Vehicles) and energy storage become more widely adopted the lithium ion cathode battery demand and use of cobalt will shift from mobile devices to mega-industry equipment for transportation and energy. Cobalt is an essential material in the production of the lithium ion cathode and Apple’s leadership certainly understands the potential risk. More importantly, their view is not limited to their primary industry value chain but also competing and adjacent value chain (another Porter principle, competing for profits and understanding the five forces).

Apple once again is aggressively navigating uncertainty, clearing the obstacles ahead as the proceed down the highway. To do so not only requires a willingness to take risk but also a commitment to gain deep insight into the broader industry value chains, the activities that differentiate their products and the competitiveness for key commodities and capacities.

Now the elephant in the room, do organizations in the healthcare, food and other industries exercise similar rigor? Are they prepared for a potential large-scale shift in capacity or cost? Will organizations in these industries be able to compete for supply with the mega-energy and automotive industries? A shortage of radio-isotopes in 2009 should have been a wakeup call to the industry and strategic planners that a broader view of industry value chains that support their products and services would be needed. It that case it was the failure of a major producer. Now these industries are faced with a similar threat because cobalt is used in many products including: external beam radiotherapy, sterilization of medical supplies and medical waste, and radiation treatment of foods for sterilization (cold pasteurization) – (Wilkinson, V. M; Gould, G (1998). Food irradiation: a reference guide. p. 53. ISBN 978-1-85573-359-6)

Bottom line: Apple continues to demonstrate the opportunity to leverage uncertainty for competitive advantage. To do so requires relentless pursuit of the data and details while simultaneously understanding the competitive landscape both within and outside your industry.

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