Apple Turns Over Its Inventory Once Every 5 Days

http://www.theatlantic.com/technology/archive/2012/05/wow-apple-turns-over-its-inventory-once-every-5-days/257915/

by avirambm • 14 years ago

153 56 14 years ago

snitzr3• 14 years ago

The Steve Jobs biography mentioned Apple's supply chain success. Tim Cook was noted as being responsible for great improvements in inventory management.

"When Cook took over the supply chain, he cut the number of component suppliers from 100 to 24, in a move to force the companies to compete for Apple's business. Cook then shut down 10 of the 19 company warehouses to limit overstocking, and by September 1998 inventory was down from a month to only six days." http://www.appleinsider.com/articles/11/10/21/jobs_trusted_c...

mikek• 14 years ago

And that is why Tim Cook is CEO.

Splines• 14 years ago

I wonder how he'd do playing The Beer Game (http://en.wikipedia.org/wiki/Beer_distribution_game)

idoh2• 14 years ago

The Beer Game is like the Kobayashi Maru test - the rules are set up so you can't succeed, and the failure is supposed to teach you a lesson.

http://en.wikipedia.org/wiki/Kobayashi_Maru

jcampbell1• 14 years ago

This is just absurdly high if it includes Apple retail stores. It makes sense that samsung would have high inventory turns since they don't hold finished products in inventory, but Apple must keep finished inventory in the retail stores, which makes the number that much more impressive.

hemancuso• 14 years ago

Consider the huge number of iPads/Macs/etc sold through apple.com that never hit inventory, they ship right off the line straight from China. Adding a lot of 0's to the numerator can really drive down an average.

ajross4• 14 years ago

This seems like a measurement you have to be careful with. It's measuring completed products shipped only, as far as I can tell. So the fact that Apple is selling hot products which can't stay on shelves (alternative: selling products with such high value that customers demand doesn't drop when they have to order them) counts as "good supply chain management" when it's really a reflection of the desirability.

If Apple was, say, sitting on a warehouse of unsold A5's, it wouldn't count against them. And if their battery supplier goofed and they ended up with a million incomplete iPads, they'd still be "selling" all the inventory they had.

snitzr3• 14 years ago

The high speed of manufacture and distribution means that if demand goes up or down, Apple could throttle the manufacture of goods to keep the same high inventory turnover regardless of demand flux. Low inventory is desirable financially and JIT (just-in-time manufacturing) can make it possible.

The 5 day inventory turnover would not be sustainable without good supply chain management. This is a strategic advantage for Apple.

ajross4• 14 years ago

No, that's wrong. Apple can't throttle the manufacture of flat panels or batteries or chips because they don't make them. Semiconductor components especially have a month-long trip through the fab (from where the wafer is started until it comes out ready for packing); it's quite literally not possible to get 5-day scale bandwidth out of that process. Likewise cross-ocean transits make that 5-day number impossible to tune for in real time.

I'm not dinging Apple's supply chain management (they are, after all, competing very well on price vs. competing products -- that's the ultimate goal). I'm saying that this number alone isn't very good evidence for or against it. It's a complicated issue not well served by "OMG! Apple sells its inventory every 5 days!!!!"

antr• 14 years ago

"If Apple was, say, sitting on a warehouse of unsold A5's, it wouldn't count against them."

Yes it would, just look at the cash flow statement.

ajross4• 14 years ago

But this isn't a cash flow statement, thus "This seems like a measurement you have to be careful with". Are there analysis of Apple's financials that show a 5 day mean inventory wait?

bstar77• 14 years ago

I'm very impressed with Apple's ability to turn over inventory, it seems to be an extremely well oiled machine.

But... I have to wonder if these optimizations work against Apple if there is a sudden significant downturn in demand. Since Apple pumps so much money into the supply chain to keep it consistently rolling at a high level, would it hemorrhage cash at epic proportions if a significant drop in demand occurred?

If I draw a parallel to the 80's video game crash, the big players were the ones that seemed to take the biggest hit while the significantly smaller players did not have to shift their operations so drastically to survive. They were able to sustain themselves on crumbs. Right now we're seeing largish companies like Palm and Rim try to live off of crumbs and it's not going too well.

gdubs• 14 years ago

I'm pretty sure that fluctuations in demand are precisely what Apple is geared for. They discovered that unsold inventory, stuff sitting on the shelves, is what ends up weighing down companies.

apike• 14 years ago

The whole point of having so little stockpiled inventory is that if there's a reduction in demand or a new product is released, the minimum amount of money is lost unloading the excess product.

Back in the day, Apple would always be sitting on 10 weeks of inventory. When a downturn or new product would come out, it would force them to sell the backlog at a loss, which was very painful for them.

excuse-me7• 14 years ago

There is a flip side to this. An earthquake in Japan has car factories in the USA sitting idle a year later because of a shortage of parts.

A fire at a Foxcon factory in the run up to christmas would really hurt Apple.

stretchwithme• 14 years ago

I believe it.

Back in 2005, I ordered my sister an iPod on apple.com, complete with custom etched message on the back on Monday afternoon. It was shipped from China and arrived in New York on Thursday, not even 70 hours later.

It seems like Apple has figured out what things are really worth spending money on and invested heavily in those those things. Almost as if they had applied the Taguchi method to the enterprise.

Certainly, the speed with which materials and products move through a company is a thing worth optimizing.

excuse-me7• 14 years ago

So who does it help for them to be paying to airfreight an iPod vs having built them 10days in advance and seafreighted them?

ctdonath• 14 years ago

Custom-etched iPods mean a real customer has in fact paid full price for the product, so it can be shipped directly to the customer for less than the total cost of routing it thru the brick-and-mortar pipeline (truck to store, inventory, shelve, pay for store space & utilities, pay in-store staff overhead, etc.).

gonzo• 14 years ago

sea freight isn't 10 days

ekosz• 14 years ago

I remember Evan Koslow talking about[1] this back in 2010 at the University of Waterloo. Really thought provoking stuff.

[1] http://www.youtube.com/watch?v=9RYXqCtsZsc&feature=playe...

7952• 14 years ago

Surely stock piling is happening somewhere to cope with Christmas?

bonzoesc• 14 years ago

Not at the moment, it's June.

joshuahedlund• 14 years ago

I used to work at an Apple retail store, and I'm pretty sure we didn't have turnover every 5 days. Of course this is an average, and I'm not exactly sure what it's measuring, and regardless we definitely got a lot of stuff shipped every day.

From what I hear of my wife's job, though, it sounds like Trader Joe's turns over its inventory every 1-2 days.

ImprovedSilence• 14 years ago

You make a good point, and while I don't know the answer, maybe online sales play a part in their turnover rates? And it's possible that some large stores (think NYC) have 2-3 day turnovers, with others being slower?

Like I said, I don't know, but those are two variables I can think of.

nacs• 14 years ago

I believe the 5 day figure here is about how many days worth of inventory are stored in the warehouse -- not how long they sit in retail stores.

These warehouses ship to all the retail outlets (Apple Stores, Best buy, etc) and the online orders.

philwelch3• 14 years ago

It makes sense for groceries to have a faster turnaround though--after all, many of them are actually perishable.

micks562• 14 years ago

Some misconceptions in this thread on how inventory turnover is calculated.

It is (commonly) calculated as COGS / Average Inventory.

Let's say your COGS for a Macbook is $500. You buy material on Jan 1 to make it, assemble on Jan 2, and ship Dec 31. Your turnover is $500 / $500 = 1 for the year.

If you buy parts to make 2 Macbooks on Jan 1 your inventory turnover would be 0.5 ($500 / $1000).

This accounts for unused A5 chips in stock (or anything else unused), and online sales don't count as "0 days".

More here: http://en.wikipedia.org/wiki/Inventory_turnover

excuse-me7• 14 years ago

But if you buy finished iPads from Foxcon then they don't count until the finished iPad is shipped out the door. Whereas Dell might buy in NVidia cards, Intel CPUS, Corsair memory and assemble it itself so that does count.

Although Apple are good it's largely a trick of how they manufacture. If Dell had it's assembly plant as a subsidiary company and wasn't billed for the computer until Fedex shipped it - they could have a 1minute turnover.

micks562• 14 years ago

Sure, but don't try to hack this metric too much. Manufacturers use it and don't try to game it. They actually want to improve it. Apple partners with Foxcon to get this number at 5, and wouldn't have it at 5 if they didn't believe Foxcon could manage demand. Apple would maintain inventories in their warehouse if that was the case.

This metric speaks as much about Foxcon's success as it does Apple's.

nateberkopec• 14 years ago

Apple is one of lean manufacturing's greatest success stories. I mean lean in the original Taiichi Ohno sense: reducing waste during the manufacturing and fulfillment process.

In 1997, Apple had 437 million in inventory with 7 billion in revenue. By 2006, Apple had just 270 million in inventory - with 20 billion in revenue. Today, it's 1.2 billion in inventory on a staggering 108 billion in revenue. Since the instatement of Tim Cook as the top guy in Apple's operations department, Apple has become one of the most efficient consumer electronics manufacturers in world.

By comparison, HP currently has 7 billion (!) in inventory with 127 billion in revenue - that's nearly 5 times as much inventory per sales dollar than Apple. Sony has something like 8.6 billion in inventory on 89 billion in sales - almost 10 times worse than Apple.

lordlicorice• 14 years ago

> We calculated these times from the report's "Inventory Turn" metric, which estimates the number of times a company's inventory is sold in a given time period. Apple's number is 74, according to Gartner (or 76, according to Forbes). From there, it's a common practice to divide by 365 to "estimate the number of days [of] sales sitting in inventory."

Shouldn't it be 365 divided by the number of times per year they sell their average inventory?

They're going to have the reciprocal of the actual answer. Like, if it takes an entire year to sell off their inventory then their formula will give you 1 day turnover.

mooism2• 14 years ago

Yes, they mean “divide into 365”, not “divide by 365”.

netcan• 14 years ago

Such an incredible company.

iblaine• 14 years ago

Consider how many distinct items are sold by Apple compared to Samsung, Dell and a grocery store and Apples feat seems less impressive.

r00fus• 14 years ago

Let me rephrase that for you:

"Considering how lightweight the Google homepage is compared to Amazon's, their responsiveness/uptime feat seems less impressive"

buster• 14 years ago

I wonder if a story like "Dell turns over its inventory once every 5 days" would have made it to the frontpage for a whole day...

icarus_drowning• 14 years ago

In a way it did, since the OP mentions that Dell turns over its inventory every 10 days.

eitally• 14 years ago

As micks56 said below, this has everything to do with how the combination of Apple selling product for enough profit to be able to do things like pay advance cash to their suppliers. This pushes almost all the inventory (material & finished goods) off their books entirely, and by enabling things like direct ship by Foxconn they basically then only have to semi-accurately forecast demand at their retail stores and minimally ship to stock for the shelves and small warehouses that support them.

This doesn't belittle Apple's achievements at all, but considering they only have ~20 component suppliers and 1 integration partner, it's a pretty damned simple supply chain.

petermcd• 14 years ago

The numbers I've heard here in China are three weeks from the factory door to a warehouse on the West Coast of the USA (don't forget loading/unloading and time clearing customs). Typically, factories require you to complete payment and take possession before the product leaves their factory doors. There is often an inspection of completed goods at the factory before payment is made, and the buyer takes possession.

Perhaps Apple has told their manufacturing partners they will only take possession once the product arrives at their warehouse in the US, moving this time window from Apple's books to their supplier's books.

philwelch3• 14 years ago

According to the article, that's over twice as fast as Dell. I guess if Dell can't compete, they should just liquidate the company and give the proceeds to the shareholders.

Apple Turns Over Its Inventory Once Every 5 Days

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