The Apple iPhone Supply Chain
I am teaching a class in Operations and Supply Chain Management at the Marriott School of Management at Brigham Young University. As part of that class, we discuss global supply chain strategy as well as other things pertaining to Operations. I thought it might be fun to map the supply chain of the new Apple iPhone, hoping that this might help to demonstrate the complexity involved in manufacturing the Apple iPhone — a feature-rich product I wish I could have, if I could afford it.
I conducted some research and found some interesting information on the suppliers of the Apple iPhone. My data comes from The Wall Street Journal, January 14, 2007; Supplier Code of Conduct, Apple Corporation; and, some speculative assertions from Ars Technica, Engadget, and New York Times.
Note: Some or all of my data may be wrong. One fact I do know for sure is that the Apple iPhone is assembled, staged, and fulfilled from Apple’s Shenzhen, China facility.
High-Level Map
From a high-level, we speculate that the following are the material suppliers of the Apple iPhone:
- Samsung: The Singapore facility manufactures CPU and Video processing chips.
- Infineon: The Singapore facility manufactures Baseband Communications hardware.
- Primax Electronics: The Taiwan facility manufactures Digital Camera Modules.
- Foxconn International: The Taiwan facility manufactures internal circuitry.
- Entery Industrial: The Taiwan facility manufactures connectors.
- Cambridge Silicon: The Taiwan facility manufactures bluetooth chipsets.
- Umicron Technology: The Taiwan facility manufactures printed circuit boards.
- Catcher Technology: The Taiwan facility manufactures stainless metal casings.
- Broadcomm: The U.S. based facility builds touch screen controllers.
- Marvell: The U.S. based facility builds 802.11 specific parts.
- The Apple Shenzhen, China facility assembles the hardware, holds inventory, and handles the pick, pack, and ship steps of the fulfillment process.
If I am correct in any of my research and assertions above, it’s easy to see that if there is any disruption in material flow of any supplier into the Apple Shenzhen, China facility, then production either slows or halts altogether.
Taiwan Wins Big
Again, if I am correct in my research and assertions in this article, Taiwan supplies 6 of the 10 parts that comprise the Apple iPhone. This can be viewed as a strategic approach by Apple, concentrating sourcing the majority of the parts from one country, or this could be seen as a bottleneck or constraint — a potential risk: if there is any turmoil in political economy in Taiwan, then material and product flow might be disrupted.
Above are the sourced materials from Taiwan in the alleged Apple iPhone Supply Chain.
Conclusion
Again, if I am correct in my research and claims in this article, then to make one Apple iPhone, material comes from 3 countries, traveling to China to be assembled, inventoried, and then fulfilled to retailers and to customers via purchases from the Apple Store. Is it any wonder they are asking for $500+ per unit? It is important to note, that the price has nothing to do with the costs structure — Lean and Friedman both teach us that the price has everything to do with what the market will bear. The firm has a target cost structure, a break-even point, but the price they go-to-market with is about the market demand, not internal cost structure. Assuming that I’m correct in my assertions in this article, I can only imagine that this complex supply chain is a challenging one to manage.
+++++
Articles on Ethnography and Design:
- People Remember Experiences, Not Features
- Simplify The Product
- Ask Aza Raskin
- Aza Raskin on Poka-Yoke & The Humane Interface
- Aza Raskin on Quasimodal Design and The ATM
- Aza on Feature-Bloat and Site Clutter
- Aza on Google Search Results Page
- Aza on Cooperation and Team Size
- Design Thinking in Medicine
- On Designing a Watering Can for Little Hands
- Queueing Theory and Visual Management
- An Interview with the Inventor of “Clocky”
- Bad Breath but Good Design
- What is Ethnography
Please find originally-written articles on Queueing Theory below:
- Queueing Theory: Part 1
- Queueing Theory: Part 2
- Queueing Theory: Part 3
- Queueing Theory: Part 4
- What is Waste?
- On Time-Traps and Waste
- Call Centers as Queueing Systems
- Travel Time & Waste
- Little’s Law for Product Development
- YouTube’s Queueing Properties
- Psychology of Queueing and Disneyland
- Queueing, Disneyland, and FastPass
- Multi-Tasking Leads to Lower Productivity
- Queueing Theory and Terrorism
- On Queueing Theory and Elevator Mirrors
- Queueing Psychology at the Gas Pump
- Psychology of Queueing, Haunted Houses, and Halloween
- The Variability Tree
For a few articles on Operations, lean and six sigma, please visit the links below:
WP Cumulus Flash tag cloud by Roy Tanck requires Flash Player 9 or better.
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
Comments
The fact that Apple charges $500 has nothing to do with cost… it’s what the market will bear.
In the Lean/TPS world, price is driven by the market. To make profit, Apple has to get their costs down below a target cost. It’s the old non-TPS mindset that says “this product costs X to make, I’m entitled to 10% profit, so my price I’ll charge is 1.1X”.
With TPS, market says price is Y, for 10% profit, you have to get your cost to Y/1.1.
Interesting analysis of the locations though!
If iPhones and iPods weren’t so small and cheap to ship (and if they were customizable), you’d have to consider making them closer to the U.S. for the sake of supply chain responsiveness.
See this post:
Peter – you’re right that a complex or long-distance supply chain is complex to manage. It might be cheaper than the alternative of a vertical integration model. But, I still think companies chronically underestimate the costs of that complexity.
I watched the Steve Jobs iPhone demo (on my iPod) and he talked through the pricing… the $499 decision was based on the market (iPod Nano $199 + Smart Phone $299), so $499 for a combined product with many more features.
It was priced based on the market and value. He said nothing about what it costs to produce 
Very thorough analysis, Pete. FWIW, I work in a consultancy that helps firms bring in oobeya practices. A partner consultancy has a relationship with Foxconn. Last spring they wondered if we knew anyone at Apple (we didn’t). I speculate that they hoped to use oobeya practices to coordinate between Apple and Foxconn but don’t know for sure.
[...] Beginning with the recent Foxconn article in the WSJ, and my resulting post, I then stumbled upon Spendmatters’s Apple’s iPod Supply Chain post, which lead me to TEXYT’s article iPhone: Who’s the Real Manufacturer, which then took me the to Shumla’s post entitled The Apple iPhone Supply Chain, source of this diagram [...]
[...] Et interessant eksempel kunne jo være Apple. Der er vel ingen der kan være i tvivl om at Apple i høj grad er funderet i måske noget af det bedste design i verden – ikke mindst med fremkomsten af lækkerier som iPod og iPhone. Men det at kunne levere millioner af enheder til verdens eksalterede forbrugere kræver på samme vis et højt niveau af innovtion i at skabe noget så tørt og gråt som en effektiv værdikæde, der foregår på tværs af minimum 4 landegrænser og 11 virksomheder – nærmere beskrevet her. [...]
[...] know — through pretty accurate anecdotal evidence — that the supply chain of the iPhone looks like the [...]
[...] School of Management at Brigham Young University runs a blog called shmula.com. On that blog, I found an interesting article that has a high-level map of the Apple iPhone supply [...]
Hey, so I am looking to break into purchasing iphones and reselling them and I was wondering if you could tell me how to find a supplier who gets them direct through Apple with out all the brokers in between?
Does anyone know where I can find information on bullwhip effect in iPhone supply chain? Thank you for the assistance in advance
Leave a comment
Additional comments powered by BackType
Thanks for the link to my apple iPhone story Pete. Nice job on this post. Very thorough.