Daniel Hruska Almost a month has passed since the launch of the new iPhone 5s, and they are still in very short supply. Those impatient preferred to get in line at the nearest Apple Store, but in the Czech Republic we are only dependent on the Apple Online Store or one of the Apple Premium Reseller or operator. We all want our expected iPhone right away, preferably the next day after the order is placed. However, it should be noted that Apple does not store iPhones anywhere, except for a small amount regarding service, to save money. This currently means that your ordered iPhone is probably not yet manufactured, rolling off the production line or "sitting" on a plane. There are millions of people like you in the world. Millions of iPhones need to be shipped to all corners of the world as quickly and efficiently as possible. But how does Apple do it?
The whole process starts in China, where iPhones are shipped from factories in unmarked containers for security reasons. The containers are then loaded onto trucks and sent by pre-ordered aircraft, including old military transport ones from Russia. The journey then ends in stores, or directly with the customer. This is how the operation was described by people who worked in Apple logistics.
Complex processes in logistics were created under the supervision of the then Chief Operating Officer (COO) Tim Cook, who at the time was in charge of all events surrounding the supply chain. A steady flow of iPhones from factories to customers is a critical factor for the California-based company, as their sales make up more than half of its annual revenue. Apple also certainly cares about the numbers from the start of sales, when demand greatly exceeds production capacity. This year, a respectable 9 million iPhones were sold in the first weekend.
"It's like a movie premiere," says Richard Metzler, president of the Transportation Marketing & Communications Association and a former executive at FedEx and other logistics companies. "Everything has to arrive at all places at exactly the same time.” This year, the whole task became more difficult with the addition of the iPhone 5c. Another novelty is the sale of iPhones by the Japanese operator NTT DoCoMo and the largest operator in the world, China Mobile. This opens up a new market for Apple with hundreds of millions of potential customers. Any hiccups in delivery can cause sales to slow down or costs to increase.
Global logistics at Apple is now headed by Michael Seifert, who has excellent experience from his former job at Amazon. Within the company, his responsible person is the current COO Jeff Williams, who took over this position from Tim Cook.
The logistics of a new product itself begin months before its launch. Apple must first coordinate all the trucks and planes to transport components to Foxconn's assembly lines. Sales, marketing, operations and finance teams work closely together to estimate how many devices the company expects to sell.
These estimates from within the company are absolutely critical. When they get it wrong, you end up in the red for that product. An example is the 900 million deficit for unsold Surface tablets of rival Microsoft. The world's largest software maker is now buying Nokia, bringing with it a capable logistics workforce. Software is a completely different commodity than a real physical product, therefore their distribution requires knowledge of completely different disciplines.
Once the estimate is set, millions of iPhones are made, according to people familiar with the process. At this stage, all devices remain in China until the Cupertino-based iOS development team completes the final build of the new version of the mobile operating system, explains a former Apple manager who does not want to be named because the process described is private. Once the software is ready, it is installed on the device.
Even before the official unveiling at the keynote, iPhones are sent to distribution centers around the world, to Australia, China, Japan, Singapore, Great Britain, the USA, and beware – the Czech Republic. Now you, like me, are wondering where that place might be. Unfortunately, only Apple knows that. During the entire transport, a security service is present with the cargo, monitoring its every step, from the warehouse to the airport to the shops. Security doesn't budge from iPhones until it's officially unveiled.
FedEx ships iPhones to the U.S. mostly on Boeing 777s, according to Satish Jindel, a logistics consultant and president of SJ Consulting Group. These planes can fly from China to the U.S. for 15 hours without refueling. In the US, planes land in Memphis, Tennessee, which is America's main cargo hub. A Boeing 777 can carry 450 iPhones on board, and one flight costs CZK 000 ($4). Half of this price is fuel costs alone.
In the past, when Apple devices weren't selling in the tens of millions per quarter, less common aircraft were used. At the time, iPods were loaded into Russian military transporters to get them from China to stores in time.
The high price of the iPhone, its light weight and small dimensions mean that Apple will not lose its high margin even when using air transport. Previously, only shipping was used for electronics. Today only for products for which air transport would not be worthwhile. "If you have a product like a $100 printer that's also quite big and heavy, you can't ship it by plane because you'd break even," explains Mike Fawkes, a former logistician at Hewlett-Packard.
Once the iPhone goes on sale, Apple has to manage the order flow as people choose a specific color and memory capacity. Some will also take advantage of free engraving on the back of the device. The iPhone 5s is offered in three color variants, the iPhone 5c even in five. Online orders are routed directly to China, where workers make them and put them in containers with other iPhones headed to a similar part of the world.
"People like to say that Apple's main success is its products," says Fawkes. “Of course I agree with that, but then there's their operational capabilities and their ability to bring a new product to market effectively. This is something completely unprecedented, which only Apple can do and which has created a huge advantage over the competition.”
By monitoring sales at Apple Stores and authorized resellers, Apple is able to reallocate iPhones based on how strong demand is in each area. iPhones rolling off the production line in China destined for European stores can be flexibly diverted elsewhere to cover fluctuations in online orders, for example. This process requires the analysis of a lot of data that changes with every passing second.
"Information about shipments is as important as their physical movement," says Metzler. "When you know exactly where every piece of your inventory is at any given moment, you can make changes at absolutely any time."
By now it's obvious to you that once the initial frenzy around the new iPhone breaks out, they certainly don't start celebrating at Apple yet. Every year, more iPhones are sold than ever before, so even Apple has to constantly improve its logistics processes. He has enough data from the past for this, because everything could never go 100% smoothly.
Thanks for the article!
Why are there warehouses with us and the start of sales is only 2 months after the keynote? :-D even then there is a shortage!
That's how it's always been - the warehouse is for a larger area than just the state in which it is located. Even at the time when the iMac was still manufactured in Pardubice, after an order from a seller, it was distributed to a warehouse in Pardubice first in Ireland (later in Hungary, if I'm not mistaken) and then delivered to the customer in Pardubice.
Anyway, what's starting to get embarrassing is that after the introduction of new iPhones/iPads, etc., these goods are always "in short supply". This "politics" is starting to make me quite sick, dude.
Try making quantities as well and you would see…
And how about delaying the sale, when I know there won't be "enough" hmm? :-) politics, marketing...
No no, that wouldn't make sense. I will not delay the sale for 2-3 months, let me produce even more so that the competition overtakes me with an offer ;)
And isn't it more economical to start production right before the keynote and then deliver "what it can do"? Storage costs are saved, and yes, marketing also plays a role, when there is a shortage (perhaps artificial) at the beginning of the sale, and the "chosen" take their iPhone. On the other hand, why produce ahead of time when the customer can wait. And those who just want an iPhone will simply wait.
I guess I'll start specializing in stealing planes :-D that happen to have a 500k iPhone in them.
Nice article :-)
And still nothing in Alga... Does anyone here from the apple store have any information about when the other sellers will finally have the iPhone available?
Do you have any reason why you want to buy it in Alge and not directly from Apple? :)
Last weekend they had an event there (yes, it was only 500 crowns, but for me as a student every crown is good :) ), so I pre-ordered it there and now I'm just waiting.. :D
I was also tempted by this offer. When I called them a few days later, they told me that they should definitely have it in stock next week. Today I called again after about 10 days and the lady didn't want to give me any more information... So I see it with Alza for a long time.
So getting an iPhone from China to the USA for 10,2 CZK (probably including insurance - it's usually included in the price of the flight) is quite a bargain. Otherwise, several billion crowns on board, decent.
I don't normally participate in the discussion under the article, but today I will make an exception. And that's just to praise the author for a nice and interesting article. Thanks Dan :-)
I would bet that the distribution center in the Czech Republic is FOXCON in Pardubice!
I thought of that too. If Apple already has facilities there and has computers built there (I hope this is still true, I don't follow it that much), then it probably also has ideal conditions for safe storage there for these situations. On the other hand, it also depends a lot on how it goes on from the Czech Republic. If by air (which is likely), then a warehouse near the airport in Prague would be more logical.
Nice article Dan, thanks for it. It explains my last year's wait for "Five", almost a month and a half... But thanks to the huge demand and production capacity + your way to the customer, it makes sense :)
The warehouse is in Hostivice near Prague, you can drive from there to, for example, Germany and up to the neighbor :).. I know because I used to work there.
Foxconn in Pardubice no longer makes iMacs. I work in an unnamed company in Brno and we laser burn keyboards for Apple (both bluetooth and wired). We used to supply keyboards to Foxconn, but now we haven't for a long time. We ship to Ireland and the Netherlands.
Great article!