Apple Inc An Assessment and Term Paper

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Table 2: Distribution of Revenue by Product Area

Source: (Apple Investor Relations, 2008) (Prudential Equity Group LLC, 2006)


The cornerstone of Apple's planning processes is the continual development of products and services that compliment the product and services ecosystem shown in Figure 1 (Apple Investor Relations, 2008) (Prudential Equity Group LLC, 2006).

Figure 1: Apple Product and Services Ecosystem

Source: (Apple Investor Relations, 2008) (Prudential Equity Group LLC, 2006)

For Apple, their future planning revolves around the following opportunities the company needs to capitalize on. First, the broader development of digitization of video across iPod and iTunes needs to be a catalyst of future growth for the company. Second, the development of Apple TV platforms including the development of an Apple Personal Video Recorder (PVR) is critical. Apple TV needs to also have an HDTV equivalent and the ability to receive, not just play back recorded content. Third, there is significant expansion in the area of video-capable mobile devices. Approximately 80% of all Apple iPod units sold in calendar Q407 are capable of playing video, expanding the installed base of video-enabled devices to nearly 50 million units in 2007, increasing from 19 million through all of calendar 2006. Fourth, the company has significant potential to completely re-define their content provider and partnership strategies by concentrating on populating iTunes with fresh musical and video content. The existing laptop business is 50% of iTunes revenue and shows potential through 2010 through the existing product roadmap (Prudential Equity Group LLC, 2006) and through SEC filings (Apple Investor Relations, 2008). The laptop product line is analyzed in the Market Assessment section of this paper, showing the competitive advantages Apple has in this aspect of their business, in addition to the challenges of competing with market leaders in each specific segment.

Market Assessment

The most urgent requirement the company has today is to capitalize on the extensive installed base of video-compatible iPods. Figure 2 compares Video-capable iPods and iPhones unit shipments and forecast (Apple Investor Relations, 2008).

Figure 2: Market Assessment of Video-Capable iPods

Figure 2 graphically illustrates how critical it is for Apple to capitalize on the expanding installed base of iPods and iPhones capable of receiving and displaying video content. Apple needs to create a much greater breadth of video content to capitalize on this emerging installed base and capture this catalyst of growth for portable MP3 players.

In addition, Apple needs to concentrate their efforts staying competitive on their iPhone and iMac platforms. Table 3, Apple iPhone Competitive Analysis illustrates the unique differentiators of Apple with their iPhone and iPod Touch. Their use of the Mac OS X significantly reduces the royalties they have to pay relative to their competitors, who must pay royalties on the operating systems they use.

Table 3: Apple iPhone Competitive Analysis

Source: (Apple Investor Relations, 2008) (Prudential Equity Group LLC, 2006)

The competition within the laptop business is not as rapidly changing as the area of iPod, iPhone and iPod Touch, as personal MP3 players capable of also playing video content is the most rapidly growing market Apple competes in today. Apple's supply chain is a major competitive advantage for their laptop and personal computer products however. The supply chain partnerships and extensive levels of collaboration that Apple has with their suppliers make it possible for them to rapidly gain new components, often having them customized specifically for their laptops and systems. In addition, Apple has greater supply chain visibility relative to competitors in the laptop business, further giving them a significant competitive advantage.

Table 4: Apple iPhone Competitive Analysis

Source: (Apple Investor Relations, 2008) (Prudential Equity Group LLC, 2006)

Apple's Marketing Strategy

Apples' strongest segments are state & local government, schools and universities, small and medium businesses, and after several major attempts to move into enterprise computing have led the company to focus on graphic design and higher end animation, including their contributions to film making with collaborations with Pixar. The majority of the customers however are consumers who are purchasing Apple iPods, accessories and music, videos, television shows and other forms of digital entertainment from Apples' iTunes online store. Underscoring all these segments however are those brand loyal customers who have only used Apple personal computer products and insist that, in either a personal or professional context, it will be the only system they will use. This "cult of Apple" as it has been called by industry analysts, is on the one hand the company's greatest strength in terms of recurring revenue. Yet on the other, the "cult of Apple" has at times led the product strategy to become insular and less focused on innovation that will capture new converts. Steve Jobs' return to Apple in 1997 began an entirely new approach to delivering innovative products to capture greater market share in previously untapped markets, including digital music players, the company had not competed in before. As a result of this graphics expertise the company also has grown significantly in the Scientific/Engineering marketplace as well.

Figure 3 is derived from multiple sources to illustrate the core values of Apple's highly loyal customer base:

Figure 3: A Profile of Apple's Customer Base Characteristics

Sources: Cuneo (2003), Marketing Week (2004)

Apple's Business Operations Systems

The most critical aspect of Apple's Business Operations Systems is the continual synchronizing of the many supply chain components that comprise the company's global operations with their production centers. Operations must keep the supply chain in synch with both indirect and direct-based selling channels if the sales and profit goals are going to be achieved. Figure 4 provides a graphical representation of the Apple supply chain, as defined through the research completed by Prudential Equity Group LLC (2006) and also from SEC filings by the company (Apple Investor Relations, 2008) and (Prudential Equity Group LLC, 2006).

Figure 4: Apple's Supply Chain

The underlying system components that Apple's Business Operations Systems rely on for keeping demand from all selling channels in coordination to supply chain systems is their global distributed order management system, direct selling forecasting system, indirect selling forecasting system, pricing management system, and services system that handles both music-based and computer-based or Macintosh systems. The integration of all these systems is at the distributed order management hub within Apple's manufacturing centers.

Distributed order management is the backbone of Apples' Business Operations strategy and systems architecture. The ability to schedule multiple production runs and allocate enough inventories to each manufacturing center while tracking a specific large order for fulfillment to a Best Buy for example is a common task that the Apple distributed order management system manages. Apple must stay focused on their retail-based customers, in addition to their distributors and direct accounts, especially in the latter months of the year when many of their consumer-oriented products including the iPod have their best sales months. The essence of Apple's business operations systems is the fulfilling of the mission of having the right Apple product, at the right price, in the right location at the right time for the consumer who wants to purchase it. This demand synchronization aspect of Apple's operations systems is what makes it possible for them to get higher levels of production efficiency than their competitors, and also keep pace with the number of new product introductions completed ever year.

Apple has decided to build its Business Operations Systems primarily in business processes that can be managed for cost reduction and greater performance throughout their supply chain. There are many reasons for this, but foremost is the fact that Apple has learned to use the combination of its operations systems to manage the supply of components for its iPod and Macintosh systems. Specifically the use of hard disk drives in the iPod and NAND flash components can easily become a strategic threat if not managed aggressively. Due to this Apple uses its Business Operations Systems to thoroughly manage its supply chain with major Taiwanese components manufacturers including Hon Hai, Asustek, Quanta and Inventec. Apple uses integration points called Supplier Relationship Management (SRM) modules and secured links via the Internet to provide forecast data to these companies in exchange for availability of their components to meet the production schedules necessary for forecasts to be completed. This is another critical component of Apple's Business Operations Systems.

In summary, Apple's Business Operations Systems are really a series of synchronized business processes that have systems included with them to make them more efficient and profitable. These systems together fulfill the strategic objective of having the right product, at the right price, at the right location for the right customer. In fulfilling this objective Apple relies on a series of synchronized systems.

Apple's Business Operations Systems include the following key components. First, the distributed order management system is the backbone of their operations strategies and systems, followed by their supply chain, pricing, services and fulfillment systems, the entire architecture works to support business processes that Apple has found to give them both speed and accuracy in…[continue]

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