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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.

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.