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The Apple iPhone Supply Chain

January 18, 2007 at 10:37 pm · Filed under Gemba, IT at Toyota, Lean Consumption Maps, amazon, apple iphone, bullwhip effect, business, busm361, complexity, costs, customer obsession, drum-buffer-rope, featuritis, genchi genbutsu, general, google, heijunka, ishikawa, kanban, lean, metrics, muda, operations, pareto principle, quality, root cause analysis, six sigma, strategy, supply chain, technology, toyota, variation, waste

Update: To read Aza Raskin’s (Aza is son of Jef Raskin, the inventor of the Macintosh) thoughts on the iPhone’s User Interface, please go here: The Humane Interface, Aza Raskin.  Alternatively, you can check out my Google Job Interview: Google gave me a job offer, but I rejected Google’s Job Offer.

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

high level supply chain map.png

From a high-level, we speculate that the following are the material suppliers of the Apple iPhone:

  1. Samsung: The Singapore facility manufactures CPU and Video processing chips.
  2. Infineon: The Singapore facility manufactures Baseband Communications hardware.
  3. Primax Electronics: The Taiwan facility manufactures Digital Camera Modules.
  4. Foxconn International: The Taiwan facility manufactures internal circuitry.
  5. Entery Industrial: The Taiwan facility manufactures connectors.
  6. Cambridge Silicon: The Taiwan facility manufactures bluetooth chipsets.
  7. Umicron Technology: The Taiwan facility manufactures printed circuit boards.
  8. Catcher Technology: The Taiwan facility manufactures stainless metal casings.
  9. Broadcomm: The U.S. based facility builds touch screen controllers.
  10. Marvell: The U.S. based facility builds 802.11 specific parts.
  11. 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.

taiwan_all.png

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:

  1. People Remember Experiences, Not Features
  2. Simplify The Product
  3. Ask Aza Raskin
  4. Aza Raskin on Poka-Yoke & The Humane Interface
  5. Aza Raskin on Quasimodal Design and The ATM
  6. Aza on Feature-Bloat and Site Clutter
  7. Aza on Google Search Results Page
  8. Aza on Cooperation and Team Size
  9. Design Thinking in Medicine
  10. On Designing a Watering Can for Little Hands
  11. Queueing Theory and Visual Management
  12. An Interview with the Inventor of "Clocky"
  13. Bad Breath but Good Design
  14. What is Ethnography

Please find originally-written articles on Queueing Theory below:

For a few articles on Operations, lean and six sigma, please visit the links below:

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13 Comments »

  1. Russell Page said,

    January 19, 2007 @ 10:37 am

    Thanks for the link to my apple iPhone story Pete. Nice job on this post. Very thorough.

  2. The Apple iPhone Supply Chain | iBIT said,

    January 19, 2007 @ 1:07 pm

    [...] Source: psabilla Filed under Blog by [...]

  3. peyv said,

    January 19, 2007 @ 5:03 pm

    iPhone Only Costs $250 to Make; Rest of Price is Fanboy Tax

    http://gizmodo.com/gadgets/cel.....229664.php

  4. Mark Graban said,

    January 23, 2007 @ 5:42 am

    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:

    http://kanban.blogspot.com/200.....stuff.html

  5. Mark Graban said,

    January 23, 2007 @ 7:35 am

    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.

  6. Mark Graban said,

    January 23, 2007 @ 5:58 pm

    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 :-)

  7. HM said,

    February 6, 2007 @ 5:51 pm

    Who is supplying charger to iPhone for Apple? Where?

  8. Jeff Morrow said,

    July 10, 2007 @ 6:01 am

    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.

  9. Louis Duran said,

    July 29, 2007 @ 10:45 am

    Does anyone know who is supplying the NAND Flash? Is the joint Micron-Intel supplier?

  10. Top China Suppliers : Blog Archive : iPhone: Made In Shenzhen, Assembled by Foxconn said,

    August 26, 2007 @ 8:33 am

    [...] 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 [...]

  11. Wemind Weblog » Blogarkiv » Business vs Design? said,

    November 30, 2007 @ 5:51 am

    [...] 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. [...]

  12. shmula » 2007 Year-in-Review : Business, Technology, and Stuff in Between said,

    February 19, 2008 @ 6:41 pm

    [...] Apple Supply Chain [...]

  13. Customer Service: an iPhone Case Study | shmula said,

    March 16, 2008 @ 2:10 pm

    [...] know — through pretty accurate anecdotal evidence — that the supply chain of the iPhone looks like the [...]

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