Inventory Management
Abstract
This paper is on the topic of inventory management of Apple Inc. and Samsung Electronics. The first section of this paper will discuss the types of inventories managed by these companies and their essential inventory characteristics. These second section will analyze how each of their goods and services design concepts and integrated. The third section will evaluate the role their inventory plays in the company's performance, operational efficiency, and customer satisfaction. The fourth section of this paper will compare and contrast the types of layouts and their importance in company’s manufacturing. The fifth section of this paper will determine the metrics used to evaluate supply chain performance of the companies and suggest improvements to the design and operations of their supply chains based on those metrics. Final section of this paper will suggest ways to improve the inventory management for each of the companies without affecting operations and the customer benefit package.
Inventory Management
Introduction
Apple Inc. and Samsung Electronics are twp of the largest technology firms in the world providing new paradigm for vertically integrated firm all over the business world. Technology has been changing the workings of markets and value chains in such manner, that opinion about the vertically integrated structures are also changing with time. Both Apple and Samsung are in control of their inventory, helping them build proficiencies and minimize transaction costs at the same time. Apple and Samsung have made great leaps for improving their inventory control and distribution strategies carving its edge in many areas (Vergara, 2012).
Apple has some remarkable products in their portfolio that are very popular among its loyal customer base. These products include iPad, iPhone, iPod, Apple TV and Mac, some of them in many versions. The core competency of the company is for many years have been their focus on producing high-tech products. Most of the Apple products launched these days is one of the hottest selling products and Apple continually launches products much to customer’s delight. To match the rising demand of their products, Apple has been for many years now one of the biggest tech-buyers in the market. Similar, to other businesses, inventory levels of Apple changes on the basis of product cycles and comprises of two distinct types of inventory. These are firstly, balanced sheet inventory that comprises of finished goods and Work-In-Progress components and secondly, off-balance sheet inventory that comprises of revenue placed with the channel partners for the purpose of resale (Lew, 2014). Just-in-time inventory management system has been highly successful amongst electronics manufacturing companies. Samsung inventory comprises of completely finished goods, the raw materials and work-in-process goods. Samsung Electronics have utilized JIT since the 1970s and is the benchmark for its application in the industry. Samsung recognizes and extends the use of JIT and is aware that it much more than arrival and departure of goods they prepare. In tandem with their JIT characteristics, Samsung has always maintained a limited number of suppliers for their inventory. This helps them in creating synergies for the present and prospers through elimination of variations by confirming that the best products are delivered on time (Manna, 2008).
Through, vertical integration a company can control their end products in addition to their component parts. Apple for the last 35 years has used the vertical integration model that features the integrated software and hardware approach. Example: the iPad and the iPhone have their hardware and software that is designed by Apple themselves, in addition to their processors for devices. This integration allows Apple to set their own term for the field of mobile computing among others. David Hsu, professor at Wharton business school said “Despite the benefits of specialization, it can make sense to have everything under one roof” (University of Pennsylvania, 2012). Samsung Electronics a technology conglomerate has been highly successful in making processors to LCD panels, smartphones and televisions. Samsung Electronics is one the largest suppliers of electronic components for Dell, Sony, HP and even Apple. Samsung too is a vertically integrated company that achieves economies of scale that allows them to hold their position as one the consumer electrics giant by leveraging their ability to produce and assemble products in a cost efficient manner and at large scale.
Most of Apple’s inventory is carried to their retail stores and customers ordering from their online store can notice that Apple products are frequently shipped from their manufacturing facilities based in China. Thus, Apple never takes the possession and avoids the risk of eating the writedowns of their products. Apple’s operational agility and superior inventory are the benchmark for the electronics industry. In term of efficiency on the basis of inventory turnover Apple is the leader by a large margin. They have even left Dell, the paragon of efficiency in the PC industry behind in term of efficiency on the basis of inventory turnover (Niu, 2012). Samsung follows their Barcode solution that provides the resellers with means to increase their business opportunities and meet the customer needs without the need of managing or purchasing any additional inventory. It helps in increasing business opportunities for Samsung electronics and fulfils the request made by customer on variety of issues. Their Barcode solution for inventory mapping is a workflow document software solution that is embedded in Samsung’s printing services that provides an flexible and efficient document management for organizations, added business advantages for their resellers and reduces the costs for resellers and businesses to document environment, device costs and installation (Samsung Barcode Solution, 2012).
Many analysts have pointed to the super-efficient inventory management system as the reason for Apple’s success and their ability to beat competitors in inventory management. The company CEO Tim Cook has managed to revolutionize their inventory management to such a level that they cannot keep enough supply in their hand on to get them through for even 1 week. In 2009, a study was conducted that revealed that apple only kept 5 days inventory in hand. In contrast to this, Samsung among other competitors of Apple have held around 2-4 times the inventory on hand. Firstly, Apple has the right understanding and knowledge about inventory they hold at one time in their warehouses. Every day a certain amount of inventory gets shipped out from the warehouse, cutting into their bottom line. Apple believes that it is in their best interest to ship their inventory as soon as it gets them from the assembly line. Samsung on the other hand follows Just-in-time that involves tracking the amount of orders that stick on the company shelves for more than few days and adjusting the order pattern to maintain a certain flow from the assembly line that fits the company’s outflow of inventory. Despite this method being success Samsung takes 21 days to clear the inventory on hand in comparison to 5 days taken by Apple.
Apple and Samsung are capable of tracking large amount of inventory they move thanks to the inventory software they employ. This decreases the requirement of human hours for counting every item on the shelves. This software is easily integrated in to the products made by both companies and helps them track the products before they are sold to the final consumer. Also, keeping the communication line open with the warehouse managers can help in better understanding and keeping track of the ordering patterns. Open communication helps in figuring out and better optimization of the order management system. In case products stay on the shelves for more than a few weeks, change is needed in the order management of the product. In case a product faces regular shortages, it will help in placing advanced orders of meeting the market demands. There are reasons for Apple supply chain being considered as the best in the world and this is amazing for a company that retails millions of products all over the world without stockpiling their products at warehouse. Apple can turnover their inventory within the space of 5 days and Samsung can do so within 21 days. A typical manufacturing company can do around 8 inventory turns in a year, Samsung achieves 21 inventory turnovers and Apple can better it with 74 inventory turn a year (Satterlee, 2012).
On the basis of Cash-to-Cash cycle and Gross Margin metric, Apple has demonstrated better trajectory in comparison to Samsung in past few years. Apple has far superior C2C (Cash-to-Cash cycle) value returning the negative numbers for the same duration of time. In comparison on the basis of gross margin Apple comes out again on the top of Samsung with trajectory living up to the hype of supply chain and heading almost close to 0.4. In terms of Revenue per employee vs Inventory turns, Apple operates in a completely different position in comparison to Samsung. Although, Apple does not have a consistent inventory turn, it is an overwhelming winner in terms of achieving the higher number of inventory turnovers in comparison to Samsung and other competitors. Apple’s dominance is clearly evident as Samsung cannot compete with them in terms of inventory turnover and revenue generated per employee.
Apple Inc. can shake up their supply chain that will help them make more money on the basis of market cap. Since, many manufacturers of Apple were doing the same thing by assembling their devices, they charge for procuring the material and therefore they mark up the products. Removing this extra layer of supply chain would help Apple increase its profits and without making a lot of changes to their operations and consumer benefit package. Though this has both positive and negative ramifications for manufacturers, it will place added pressure on the manufacturers whose competency is production. It will affect the manufacturers negatively, as they can no longer negotiate lower prices for materials and control their margins. On the positive note, the pressure to manage inventory will no longer exist. Apple in past have asked their manufacturing partners to maintain certain inventory levels for their entire manufacturing components.
Samsung has maintained their position as the one of the leaders in the field of consumer electronics, since the beginning through their adoption of smart supply chain management and collaborative philosophy, like CPFR, Six Sigma and ‘fast follower’. As Samsung has moved into the diversified business model, it expects the continue utilization of methods to remain profitable and competitive, at the same time fostering similar advantages with supply chain partners, suppliers and retailers. Samsung needs to allocate investment in the capital expenditures and needs to outspend their competitors to improve their inventory management. In 3rd Quarter of 2013, Samsung revenues reached $53.9 billion and Samsung made $9.4 profit. Samsung failed to live up to their commitments about improving their labour relations in the supply chain and develop a program for better understanding the needs of labours and respect their legal rights of workers. Samsung needs to take action on this and ensure the mistakes of past are not repeated in coming future. In addition to their auditing system, Samsung has to encourage and establish worker hotlines and stronger unions in all their factories where Samsung products are made to better their inventory management (iClarified, 2013).
Conclusion
Apple has changed the structure of electronics and music industry and created a new market for their products. Apple’s business has been booming in the past few decades, but with time they have developed a serious competitor. Apple and Samsung are both Smartphone makers, but their missions and philosophies are very different. After competing over design and sales, inventory management is the next avenue of competition for both these firms. Inventory management is crucial in Apple and Samsung as they will help them create their revenue outside their domestic base as balance is needed between getting their products to the market faster and maintaining low inventory. Inventory management goes beyond running distribution networks and warehouses; it would include the ability of detecting and measuring the impacts of being flexible, agility in cutting costs and potential risks.
References
Vergara , R. G. (2012). Samsung Electronics and Apple, Inc.: A Study in Contrast in Vertical Integration in the 21st Century. American International Journal of Contemporary Research, 2(9), 77-81.
Manna, D. (2008). Just-In-Time: Case Studies Of Supplier Relationships Across Industries. The Journal of Applied Business Research. 24(1), 75-84
Lew, M. (25/2/2014). Apple's Inventory: The Sum Of All Fears. Retrieved 12 Mar 2014 from http://seekingalpha.com/article/2046823-apples-inventory-the-sum-of-all-fears
Niu, E. (23/3/2012). Apple Lesson of the Day: Inventory Is Evil. Retrieved 12 Mar 2014 from http://www.fool.com/investing/general/2012/03/23/apple-lesson-of-the-day-inventory-is-evil.aspx
Samsung Barcode Solution, (2012). Easy, efficient workflow for productive document environments. Retrieved 12 Mar 2014 from http://www.samsung.com/uk/business-images/resource/brochure/2012/11/PS5_ITS_1212_Printer_Barcode_Solution_BR-0.PDF
Satterlee, B.E. (5/3/2012). Taking Inventory of Your Inventory Management System. Retrieved 12 Mar 2014 from http://businessfizz.com/2012/03/taking-inventory-of-your-inventory-management-system/
Iclarified. (2013). Apple is Spending $10.5 Billion to Improve Its Supply Chain. Retrieved 12 Mar 2014 from http://www.iclarified.com/35757/apple-is-spending-105-billion-to-improve-its-supply-chain
