By Dave Turbide, Seacoastonline.com
Apple just announced the iPhone 6 and reports are out just a few days later that they have orders for 4 million of the new phones – the entire initial stock planned for the release. Word is that stocks of the larger phone (iPhone 6-plus) were fully committed within hours of the announcement with additional orders being given a ship date weeks or months down the road. The smaller iPhone 6 is apparently still available for sale on opening day, as of this writing, but are expected to sell out soon.
Can you imagine what it takes to build and distribute 4 million copies of a complex and pricey product, to be in place on a specific first day of sale? It boggles the mind. And it takes a lot of confidence, money and resources.
Someone at Apple had to forecast what the demand would be on opening day. There’s certainly a lot of risk associated with that forecast. If the predication is too low, as it appears that this one is, some potential buyers will be disappointed and sales will be lost as frustrated consumers who may not be willing to wait will look at Samsung, HTC, Nokia and other alternatives. If the forecast is too high, unsold inventory of phones will sit on the shelves and very quickly become obsolete as competitive offerings grab the next headlines.
Once the forecast is accepted, Apple had to turn on its massive world-wide supply chain to acquire all the parts and materials, and get the assembly factories in China busy turning out 4 million phones. Then they had to fly them around the world to distribution warehouses and stores – all without a single sale or dollar in revenue.
Apple production on this scale consumes huge resources – the entire capacity of factories around the globe producing only Apple’s critical parts for weeks and sometimes months at a time. Apple also books huge volumes of air freight capacity in advance to accommodate their needs. And, yes, they do fly the products around as speed of delivery is much more important than transportation cost. Margins are high enough on these first-to-market products to pay for all of these expenses and the research and development costs as well.
This is a business model that Apple has developed and operated very successfully for many years now, and one that very few companies could ever hope to emulate. Not every business would benefit from this approach. It happens that the market that Apple is in – phones make up more than half of Apple’s revenue – demands these huge investments and risks and richly rewards Apple’s success. In other markets, product release and availability are very different and other characteristics take precedence. In those markets, the most successful companies are the ones that focus on whatever makes up the most appropriate strategy – manufacturing quality (Rolls-Royce, Rolex), engineering and complex manufacturing (Boeing), efficient manufacturing and distribution (consumer products of all kinds), and others. The point is this: different markets have specific characteristics that lead to success and companies have to understand what those things are and structure themselves to deliver on those needs better than the competition.
