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Apples Sapphire Supplier: A Textbook Example of Supplier


Rob Handfield's Supply Chain Blog
About Supply Chain View
Relationships Gone Bad from the Field
November 20, 2014
by: handfield About The SCRC: Producing graduates
categories: Category Management, Customer Relationship Management, Supplier Relationship that are prepared to tackle supply
Management, Supply Chain Innovation, Supply Chain Management, Supply Chain Risk chain management issues with
analytical problem solving, practical
skills and the ability to execute. Rob
Todays breaking Wall Street Journal article provides a great case study on the impacts of not Handfield is the Bank of America
properly managing contractual supplier relationships. Distinguished Professor of Supply
Chain Management, and Consulting
Editor, Journal of Operations
First consider the type of supply arrangement this represented. This was an important and
Management. He serves as Co-Director
emerging new technology, one that would produce manufactured sapphire to cover the face of of the SCRC along with Clyde Crider.
all of Apples new iphone products. According to the WSJ, GT made furnaces for producing more
sapphire. GT told Apple in March of last year that it was developing a furnace that could
produce a sapphire cylinder, known as a boule, weighing 578 pounds, more than twice as large
as what were then the biggest boules. The larger boule would yield more screens, reducing Search
costs.Apple offered to lend GT $578 million toward building 2,036 furnaces and operating a
factory in Mesa, Ariz. Apple would buy and retrofit the factory for an additional $500 million Custom Search
and lease it to GT for $100 a year.

This type of purchase, nearly half a billion dollars, and for a supplier that is unique with an
emerging new technology, puts this category of sapphire squarely in the middle of the Translate
strategic category for the traditional Kraljic category portfolio matrix. Based on traditional
supply management pedagogy, strategic categories require a great deal of attention,
information sharing, and joint collaboration to ensure that the right mutually beneficial Recent Posts
outcomes occur.
Bad Data + Lack of Standards = Lousy
Supply Chain Analytics
The second part of this challenge is understanding what type of supplier Apple was dealing
Best Practice: Creating a Governance
with. According to the WSJ, GT was intrigued, because the agreement would provide more Mechanism for Analytical Learning in
consistent revenue than equipment orders. Moreover, GTs business making equipment for Organizations
solar cells had fallen on hard times. GTs 2013 revenue was down 66% from two years earlier. Red Flags that Every Supplier Business
In other words, GT was also a high risk supplier, in that they had indicators of having had Development Team Knows to Look For
previous financial problems and had made bad technology investments in the past.read on Why do high quality suppliers pass
over big RFQ/RFPs?
Mapped to a supplier preference matrix, this would indicate that GT was definitely viewing What Trumps Announcement of
Apple as a preferred customer, and would fall into the Develop category, or a supplier that is Withdrawal from the TPP Means for US
not doing a lot of business with Apple, but has the customer as a strong developmental Supply Chain Executives
prospect. But because they were high risk, a prudent supply manager would want to watch
them closely.
Categories
In terms of a procurement strategy, everything looked copacetic and had fallen into place. Aerospace Supply Chain
GTs stock price took off when Apple and GT signed an agreement to seal the deal. Apple Analytics
would lend GT $578 million toward building 2,036 furnaces and operating a factory in Mesa,
Big Data
Ariz. Apple would buy and retrofit the factory for an additional $500 million and lease it to GT
Biobased Products
for $100 a year.
Biopharmaceutical Supply Chain
Shortly after, in fact a few days later, the first sapphire boule came out of the furnaces, and it Book Reviews
was badly cracked, and deemed unusable. Soon, it became clear that the manufacturing
BRIC Supply Chain
problems were more than a single batch, and that there were major problems with the process
Business Process Outsourcing
itself.
BVL International
At this stage, there should have been daily onsite meetings, so that Apple and the supplier Category Management
could work on the technical issues together, and identify the source of the problems. Instead,
Change Management
GT continued to flounder, hiring over 700 people for jobs that didnt exist, as capacity was not
China Supply Chain
up and running yet. They struggled with quality, production planning, and failed to meet
deadlines. Rather than have regular communications, Apple failed to conduct due diligence Commodities forecasting
and project planning. GT, fearing that Apple would leave them stranded, continued to try to Contract Management
work through the problems on their own, and continued to experience difficulty.
Corporate Social Responsibility

Customer Relationship Management


This is a textbook case, in that it demonstrates the importance of managing strategic
relationships through careful performance measurement, human interaction, joint problem Design for Supply Chain
solving, and project management. It also demonstrates the critical nature of joint technology Emerging Issues in Supply Chain
development. Apple was essentially funding the project, but not providing the human capital
Energy Supply Chain
and knowledge required to make the technology viable. GT was afraid to ask for help, and ERP Systems
preferred to clam up and continue to work on their own. In the end, both parties failed to do Food Supply Chains
what was needed to manage the relationship. In the end, both parties failed to do what was Forecasting
needed to manage the relationship.
German supply chain

This doesnt appear to be a one-time event either. Another blog on the WSJ Global Distribution
website interviewed Apple suppliers, and two key lessons came out of it: Global Supply Chain

Government Acquisition
To long-time suppliers, GT is a reminder of two lessons they learned long ago: Dont rely too
Healthcare Supply Management
heavily on Apple and dont make promises you cant keep. Follow these, they say, and you
probably wont end up like GT. Innovation in the Supply Chain

Internet of Things
Apple always asks the suppliers to expand their manufacturing facility to meet the rush
Inventory Management
demand for its new product, but we have to make our own judgment as the big orders only last
Labor and Human Rights in the Supply
for a few months, said a manager at an Apple supplier. For example, Apple might want us to
Chain
increase 100 production lines, but we would only add 50 to 60 gradually.
LIVING Supply Chain

The screen maker Wintek was another supplier that over-expanded on Apple hopes. Local Food Systems
The company expanded its facilities on the prospect of growth, but ended up losing new Logistics
orders when Apple shifted to new technology to make screens thinner, people familiar with the
Luxury Brands
matter said. The company has suffered major operating losses. The subsequent word is out in
MBA Supply Chain
the supplier community, that Apple is very demanding of their suppliers, but not always
committed. MBA Supply Chain Programs

Oil and Gas Procurement


The blog also notes that Apple has built up an army of supply chain managers over the past
Organizing for Supply Chain
few years to squeeze costs, people familiar with the matter said. Many of these were hired
Outsourcing
directly from suppliers, so they know exactly where suppliers costs are. Apples contract
manufacturers have seen their profits margins shrink as Apple flexes its muscle on component Pharmaceutical Supply Chain
pricing, the people said. Apple has also tightened its oversight of factory conditions, which Procure to Pay
means higher costs for suppliers who have to comply with the measures. Procurement Sustainability

Project Management
The approach to ruthlessly pursuing price reductions and using the marketing power is
certainly one that traditional procurement executives have used for years, but one which Real Estate
everyone in the industry is recognizing as obsolete. And the results are also predictable. On Retail Logistics
October 6, GT chief Mr. Gutierrez told Apple that his company had sought bankruptcy Sales and Operations Planning
protection. GT shares collapsed 93% on the news, wiping out roughly $1.4 billion in market
Social Media in Supply Chains
value. The story demonstrates why simply checking the boxes on sourcing strategies arent
enough; people actually need to manage and communicate with their suppliers, especially the Strategic Cost Management
important strategic ones. Strategic Sourcing

Supplier Diversity

Supplier Relationship Management

Supply chain analytics


7 Responses Subscribe to this conversation's RSS feed..
Supply Chain Economics

Supply Chain Ethics


Frank Rozemeijer
November 21, 2014 @ 9:00 am Supply Chain Innovation

Supply Chain Legal Issues


Hi Robert, thanks for sharing your views on this interesting case! Look forward using it in my
Purchasing Management class. Students love to hear about Apple. Supply Chain Management
Regards,
Prof dr Frank Rozemeijer Supply Chain Quality

Supply chain Relationships

Supply Chain Risk

handfield Supply Chain Strategy


November 21, 2014 @ 12:46 pm Supply Chain Students

Thanks FrankFeel free to discuss it at length! Let me know what they have to say. It is Supply Chain Systems
definitely an intriguing issue
Supply Chain Talent

Supply Chain Talent Management

Supply Market Intelligence


Thomas Johnsen
November 21, 2014 @ 1:13 pm Sustainability

Transportation Planning
Indeed, same here.
Thanks Robert Undergraduate Supply Chain
Regards
Thomas Johnsen Working Capital Management

Archives
Hans Hopmans February 2017
November 24, 2014 @ 1:16 pm
January 2017
December 2016

November 2016

when customer strength evolves to procurement power, it ends up with supply chain weakness October 2016

September 2016

August 2016

Robert Sotler July 2016


December 18, 2015 @ 4:55 pm
June 2016
I have also used this as a reference for a class discussion pertaining to May 2016
Customer/Supplier/Employee relationship management! I hope you dont mind me using this
page as a cited reference. April 2016

March 2016

February 2016

handfield January 2016


February 11, 2016 @ 11:20 am
December 2015
Not at all! I think it also creates an interesting discussion around the use of Porter Five Forces November 2015
Analysis.see another good example at https://scm.ncsu.edu/blog/2013/06/15/applying-
porter-five-forces-analysis-in-category-management/ October 2015

September 2015

August 2015
Continuing the Discussion
July 2015
Apples Sapphire Supplier: A Textbook Exa...
November 20, 2014 @ 11:49 am June 2015
[] Apple's Sapphire Supplier Story: A textbook example of why supplier relationship management May 2015
matters http://t.co/RJO145zM55  []
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