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HBP# HK1285

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BENJAMIN YEN
MINYI HUANG

iPHONE’S SUPPLY CHAIN UNDER THREAT

Teaching Note

yo Synopsis
The outbreak of COVID-19 (coronavirus disease, 2019) posed unprecedented challenges to the
global supply chains. As a leading and innovative supply chain that achieved just-in-time
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manufacturing, Apple’s performance was put in the spotlight. This case describes how Apple’s
supply chain has coped with the COVID-19 pandemic.

Apple’s supply chain has weathered natural disasters, such as earthquakes, fires, floods, and
SARS; the risks and challenges brought by the outbreak of COVID-19 were unprecedented and
complicated. Unlike the symptoms of SARS patients with high fever, the symptoms of COVID-
19 varied; some patients had no symptoms at all, which made them difficult to identify.
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Moreover, the pandemic complicated supply chain planning because it was difficult, if not
impossible, to predict where the next epicenter would be and what measures local governments
might take to prevent the further spread of the virus. Social distancing was effective to control
the pandemic, but it brought both challenges and opportunities for companies like Apple. On
the one hand, social distancing slowed the manufacturing process and had a negative impact on
the economy, which could dampen consumer confidence and reduce demand. On the other hand,
social distancing boosted the demands for electronic devices, as many people had to work at
home.
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Using this case study, students will understand the importance of risk management in supply
chain management and learn the challenges and opportunities of the disruption posed to
business operations. The case provides an opportunity for students to discuss and understand
why some companies can recover from the disruptions better than other companies and how a
resilient supply chain can improve a company’s competitiveness.
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Professor Benjamin Yen prepared this teaching note with the assistance of Dr. Minyi Huang as a guideline to teaching: “iPhone’s
Supply Chain Under Threat”.
© 2021 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or
transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the internet)—
without the permission of The University of Hong Kong.
Ref. 20/680TN

Last edited: 16 February 2021

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 20/680TN iPhone’s Supply Chain Under Threat

Conceptual Foundation and Teaching Objectives

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This case is suitable for undergraduate and postgraduate students attending supply chain
management and risk management courses. It covers agile and lean supply chains, resilient
supply chain management, and risk management. Since Apple’s is an excellent example of a
lean and agile supply chain, the case facilitates class discussion on resilient supply chain
management. After studying this case, students will have a good understanding of the features
of lean and agile supply chains and the importance and difficulty of resilience in supply chain

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management. They should be able to choose and apply different strategies to enhance resilience
in supply chain management.

The teaching objectives of the case are:

1. To allow students to understand the advantages of a lean and agile supply chain
2. To enable students to understand the importance of resilience in supply chain management

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3. To provide an opportunity for students to discuss different strategies to cope with
unexpected disruptions in supply chain management

Suggested Student Assignments/Preclass Questions

1. Use iPhone’s supply chain as an example to discuss the advantages of an agile and lean
supply chain.
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2. What challenges does COVID-19 pose for iPhone’s supply chain?
3. What measures did Apple take to cope with COVID-19? What do you think of the resilience
in iPhone’s supply chain management?

Potential Teaching Approach and Strategy

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Instructors are encouraged to give the case study to students before class so that they can
become familiar with iPhone’s supply chain before class. If students have already learned the
concepts of lean and agile supply chains, then they can be divided into three groups. Each group
makes a 10-minute presentation at the start of the class. Each group is assigned to one of the
three topics, namely, Apple’s agile and lean supply chain, the challenges of COVID-19 to
Apple’s supply chain management, and Apple’s strategies to cope with COVID-19.
Alternatively, instructors may follow the teaching plan below.
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Introduction
The instructor may start the class with an overview of the iPhone’s supply chain, showing
students that it is a global supply chain involving many stakeholders across many different
countries. An iPhone is designed in the US and finally assembled in China. An iPhone has
hundreds of components that are produced in 43 different countries using many advanced
patented technologies. At the final stage of assembly, for example, Foxconn used 94 production
lines and took 400 steps to assemble an iPhone in 2016. Therefore, students need to be aware
that Apple has a lot of challenges once a disruption takes place on the global level.
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Then, the instructor can discuss Tim Cook, the CEO of Apple, and his pride in iPhone’s supply
chain. This should raise students’ interest in understanding the details of the supply chain.

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 20/680TN iPhone’s Supply Chain Under Threat

Table 1: Time Plan

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Introduction 5 minutes
Understand iPhone’s supply chain 15 minutes
Understand the impacts of COVID-19 on iPhone’s supply chain 15 minutes
Summarize iPhone’s approaches to risk management 15 minutes
Evaluate resilience in iPhone’s supply chain management 20 minutes
Wrap-up 5 minutes

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Understand iPhone’s Supply Chain

Agile Supply Chain

An agile supply chain emphasizes adaptability. It is suitable for companies that need to quickly
respond to changing situations. When market changes due to factors like the economic
environment, technology, and customer demand, an agile supply chain allows a company to

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immediately adjust its sourcing, logistics, and sales. An agile supply chain normally has a short
order lead time, which enables the company to quickly respond to customers.

Lean Supply Chain

Lean supply chain management focuses on cost and waste reduction. If adopting lean supply
chain management, the company eliminates the unnecessary layers and take steps that will add
value to a product or service. By predicting how much inventory is required to meet future
demand, the company tries to avoid overproduction and produces on an as-needed basis.
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Lean and Agile Supply Chain
Though lean and agile supply chains are different, it is possible to combine them with careful
design. A lean and agile supply chain, or called a “leagile” supply chain, requires a
comprehensive supply chain strategy that can provide a decoupling point to separate the
material flow stream and the customer order. Then, the supply chain can properly schedule the
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production and quickly respond to the volatile market demand.1 [Table 2 compares an agile
supply chain, a lean supply chain, and an agile and lean supply chain.]

Table 2: Comparison of Lean, Agile, and Lean and Agile Supply Chains

Aspects Lean Supply Agile Supply Lean and Agile Supply Chain
Chain Chain
Market demand Predictable Volatile Volatile and unpredictable
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Product variety Low High Medium

Product life cycle Long Short Short
Customer preference Cost Lead time and Service level
availability
Profit margin Low High Moderate
Dominant costs Physical costs Marketability Both
costs
Stockout penalties Long-term Immediate and No place for stockout
contractual volatile
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Purchasing policy Buy goods Assign capacity Vendor-managed inventory

1 Ashish Agarwal, Ravi Shankar, and M. K. Tiwari, “Modeling the metrics of lean, agile and leagile supply chain: An ANP-
based approach,” European Journal of Operational Research 173 (2006): 211–225.

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 20/680TN iPhone’s Supply Chain Under Threat

Information Highly Obligatory Essential

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enrichment desirable

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Forecast mechanism Algorithmic Consultative Both/either
Typical products Commodities Fashion goods Product as per customer
demand
Lead-time Essential Essential Desirable
compression
Elimination of Essential Desirable Arbitrary

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wastefulness
Rapid Desirable Essential Essential
reconfiguration
Robustness Arbitrary Essential Desirable
Quality Order qualifier Order qualifier Order qualifier
Cost Order winner Order qualifier Order winner
Lead time Order qualifier Order qualifier Order qualifier
Service level Order qualifier Order winner Order winner

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Source: Adapted from Ashish Agarwal, Ravi Shankar, and M.K. Tiwari, “Modeling the metrics
of lean, agile and leagile supply chain: An ANP-based approach,” European Journal of
Operational Research 173 (2006): 211–225.

The Strengths of Apple’s Lean and Agile Supply Chain

Apple’s iPhone supply chain has the features of a lean and agile supply chain, which not only
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reduces costs and adds value to customers but also is flexible enough to respond to changing
market demand.

Lean supply chains bring value-added products and services to customers while eliminating
unnecessary waste and costs. An important part of lean manufacturing is quality because it
saves the cost of handling returns and related quality issues. The Apple supply chain’s lean
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aspects are shown in the following ways:

First, Apple keeps a low level of inventory, which is enabled by Apple’s just-in-time
manufacturing. The evolution of smartphone development depends on integrated circuit (IC)
companies that release new processor chips and SoCs a couple of times every year. Every new
model is better performing, with new features, making the older-generation mobile phones
obsolete and quickly eliminating customers’ interest in old models. The low inventory level
gives Apple the agility to upgrade its products and incur a smaller loss on the value of its
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inventory when its competitors introduce a new product.

Second, Apple has a limited number of suppliers so it can maintain a close relationship with
them. With a few suppliers, the company can place a big order with each one, which gives
Apple the bargaining power to keep the cost down. Suppliers will maintain high quality with a
competitive pricing scheme to avoid Apple replacing them with another supplier.

Agile supply chains rely on a wait-and-see approach. Before committing and launching a
product, the company will decide on the general trend of market demand. Apple’s supply chain
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achieves this objective in the following ways:

First, Apple has focused on a limited range of products it has specialized in, which helped to
keep the number of SKUs to a minimum. The relatively small number of SKUs makes it easier
to manage the inventory via stock levels, orders, and sales forecasts. Accurate inventory data
help Apple correctly forecast future demand. The demand forecast for the following years

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 20/680TN iPhone’s Supply Chain Under Threat

allows Apple to negotiate a lower price with suppliers by placing orders for a longer period of

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time.

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Second, Apple has established close relationships with its suppliers. When the market demand
suddenly increases or drops or there is a disruption, Apple can quickly respond to the market
changes by quickly increasing, reducing, or changing its orders with its suppliers. To maintain
the relationship with Apple, its suppliers are willing to work closely with it. With a reputation
for innovativeness, Apple has loyal customers. This gives Apple’s suppliers the confidence that

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there will always be a demand for its products and services.

Understand the Impacts of COVID-19 on Supply Chain Management

Supply chain risks can be both predictable and unpredictable. Predictable risks include those
uncertainties companies face every day, like changing customer demands, delay in delivery,
and supply shortages. Since these risks occur often, companies should prepare and become
good at handling them. The difficulty lies in how to manage unpredictable risks, such as terrorist
attacks, natural disasters, and an unknown disease pandemic (such as COVID-19). These risks

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are hard to prepare for beforehand, which means that, although they take place less frequently,
they are more costly than predictable risks.2

As an unpredictable disruption, the COVID-19 pandemic has had profound impact on not only
corporate management but also on supply chain management. The pandemic has affected all
the stakeholders along the supply chain, both upstream and downstream. It has created both
long-term and short-term impacts on companies, which require them to make minor and
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dramatic changes on both operational and strategic levels. Some changes need to occur quickly,
while other changes may take place slowly.

The Impacts of COVID-19 on Business

First, from an economic perspective, COVID-19 led to a sudden drop in supply and demand in
the short term. Businesses had to shut down in order to control the pandemic, leading to a drop
in supply. At the same time, declining consumption and investment resulted in a decline in
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demand. The uncertainties about current and future economic conditions caused a decrease in
consumer confidence. Consumers tended to spend less and save more, which affected the
demand for goods and services.

Second, owing to economic lockdown measures and restrictions imposed on traveling, the
revenues of many industries have dropped. For example, the profits of the auto industry are
expected to fall by USD100bn in 2020, representing an annual decline of 20% to 30%.3 Small
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businesses are more fragile financially. Mass layoffs and closures have taken place in many
countries.4

Third, consumer behavior has changed, as people have spent more time at home. For example,
they work and entertain from home, which increases the demand for electronic devices. They
go to restaurants less frequently, which increases the amount of takeout orders and deliveries.
Restaurants have been forced to update their menus because people are less likely to order side
dishes, appetizers, and desserts with high profit margins than when they ate in the restaurant.
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2 Council on Foreign Relations “Managing the unpredictable risks in supply chains,” 15 September 2016,
https://www.cfr.org/blog/managing-unpredictable-risks-supply-chains, accessed 20 November 2020.
3 Mark Staples, “New views on the postpandemic futures of six sectors,” McKinsey COVID-19 and the Great Reset, Breifing

note no. 29, 28 October 2020.

4 A. W. Bartik, M. Bertrand, Z. Cullen, E. L. Glaeser, M. Luca, and C. Stanton, “The impact of COVID-19 on small business

outcomes and expectations,” PNAS 117, no. 20 (2020): 17656–17666.

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 20/680TN iPhone’s Supply Chain Under Threat

At the same time, there are new business opportunities emerging. For instance, Asian insurtechs

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offer new, pandemic-oriented products to millions of customers online. In the future, companies

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may need to look for new or digital alternative ways to safely deliver their products and services
with minimal physical contact.5

The Impact on the Scope of Supply Chain

First, companies may need to rethink the geographical location and the number of their
suppliers, which might mean that they need to consider other factors, such as geopolitics. To

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be more specific, on the operational level, factory closures and economic lockdowns have
delayed the manufacturing processes of suppliers. Manufacturers have to redesign their floor
plans, rearrange work shifts, and follow health and safety procedures to protect their workers,
which causes delays in the manufacturing schedule. Then, the measures to control the spread
of coronavirus, such as curfews and a 14-day quarantine for cross-border traveling, have further
created delays in delivery and affected downstream supply chains. Therefore, while just-in-time
manufacturing may limit the number of suppliers, those companies that have one supplier for a
specific component might consider adding one more supplier from another region just in case.

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On the strategic level, many companies’ supply chains are globalized, and the operation of
global supply chains depends on free trade and the effective transfer of goods and services
across different countries. The outbreak of COVID-19 has inhibited the global transfer of goods
and services, and the US-China trade war puts pressure on free trade. As a result, companies
may need to reconsider the map of their supplier network.

Second, the outbreak of COVID-19 may change companies’ strategic plans and existing
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business operations, leading to a structural change to their supply chains. Some of the COVID-
19 impacts are short term and operational, which requires companies to quickly respond; for
example, the delay of delivery caused by the travel restrictions. However, the other impacts
may be strategic and long term, which may bring dramatic changes to the existing structure of
the supply chain in the long run. For example, fast-fashion brand Zara has decided to close
1,200 retail stores globally and boost online sales. COVID-19 has forced many companies to
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seriously consider digitalization and moving their business online, which will bring significant
structural changes to their supply chains.

The Impact on Apple’s Supply Chain

The outbreak of COVID-19 has had an impact on Apple’s suppliers, manufacturers, assemblers,
logistics, and retail stores. We will discuss the impacts based on the measures introduced by
the governments to combat COVID-19, including social distancing, health quarantine
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arrangements for travelers, and economic lockdown.

Social Distancing
First, social distancing slowed suppliers’ manufacturing processes. To ensure social distancing,
Apple helped its suppliers to rearrange the work floor. Instead of working full-time as before,
workers have to take work shifts. Thus, it takes longer than originally scheduled for
manufacturers to complete their orders.

Second, social distancing has reduced customers’ willingness to go shopping. As a result, the
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customer flows into retail stores have decreased, which have a negative impact on the sales in
retail stores. Nevertheless, as more people have to work from home, the demand for electronic
devices, such as personal computers and smartphones, is increasing. Therefore, the sales of

5 Priya Seetharaman, “Business models shift impact of COVID-19,” International Journal of Information Management, October
2020, doi: 10.1016/j.ijinfomgt.2020.102173.

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 20/680TN iPhone’s Supply Chain Under Threat

Apple retail stores will decrease, while the online sales will increase. This explains why even

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though Apple’s first quarter financial results were significantly lower than the same period in

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2019, the second quarter recorded a quarterly result that is better than the second quarter in
2019.

Health Quarantine Arrangements for Travelers

First, the outbreak of COVID-19 has amplified the shortage of workers after the Chinese New
Year ended. It has prolonged the normal factory closure period during the Chinese New Year

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holidays. Many of Apple’s suppliers are based in China, including Foxconn, which has two
major manufacturing facilities to produce iPhones. Factories are normally closed during the
Chinese New Year, as nearly all the factory workers return to their hometowns, very often in
remote rural areas, to celebrate the Spring Festival with their families. The health quarantine
arrangements for travelers made it more difficult for workers to return to the factories. This
problem has been solved by using the “health code” in China, but travel restrictions were still
imposed on travelers in many parts of the world at the end of 2020.

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Second, the health quarantine arrangements have created obstacles for goods and people to
travel. Many countries or regional governments required people traveling to first undergo a
mandatory 14-day quarantine. As a result, it has become more costly and time consuming for
people to travel between places, which will possibly have a negative impact on work. For
example, Apple had booked flight seats to allow staff to travel regularly between the US and
China. Similarly, Apple’s logistics will also be negatively influenced because Apple’s sourcing
and production take place in many different countries. The time for goods to travel is longer
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than normal and sometimes unpredictable.

Economic Lockdown
Store closures and shortened hours will have a negative impact on the financial performance of
Apple’s retail stores. Moreover, the lockdown will have a negative impact on the confidence of
consumers, leading to an economic downturn. An economic downturn not only has a negative
impact on people’s income levels but also damages consumer confidence. People will be afraid
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of losing business and jobs; they will become more price conscious and are unlikely to spend
money.

Summarize iPhone’s Approaches to Risk Management

Support for Suppliers

Since Apple has developed and maintained close relationships with its suppliers, it has provided
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health and safety support to its suppliers during a crisis situation.

First, it has a limited number of suppliers, which allows the company to effectively
communicate with them to have an overall picture of its supply chain operations when a
disruption takes place. Under normal circumstances, suppliers will produce high-quality
products and offer competitive pricing to compete for Apple’s business. In a crisis situation,
Apple can effectively communicate with the affected suppliers, understand the situation, and
reschedule its supply chain arrangement when necessary.
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Second, Apple provides appropriate training and assistance to its suppliers. Under normal
circumstances, Apple provides education and up-skill programs, such as the subject-matter
expert (SME) program and the SupplierCare platform, for its suppliers to help them maintain
their competitiveness in the fast-moving electronics industry. In a crisis situation, Apple can
provide a tailor-made assistance program for its suppliers. For example, to cope with COVID-
19, Apple has worked closely with the world’s leading medical experts to develop health and

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 20/680TN iPhone’s Supply Chain Under Threat

safety protocols. Based on the circumstances in different countries, Apple has worked out a

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range of protections suitable for each supplier. The measures include health screenings, deep

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cleaning, face mask distribution, hand sanitizer deployment, and work area rearrangements
(such as flexible working hours and work shifts) to limit the density and ensure strict adherence
to social distancing in the workplace.

Adjust Product Release Strategies

Apple adjusted the release of new models based on market demand. It released new iPhone

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models twice in 2020. In April, Apple released iPhone SE with a competitive price tag starting
at USD300. The design, size, camera, and other components are similar to iPhone 8, but its A13
Bionic processor is similar to iPhone 11. However, the price of this phone is the most cost
effective for customers. The cost of making an iPhone SE model is 54% of the lowest selling
price, which is higher than that of iPhone 8 (38%) and iPhone 11 (48%).6

The competitive pricing helps to lure those customers with older iPhone models to upgrade
their iPhones so that they use more Apple products, such as Apple TV+. More importantly, at

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the time this new model was released, economic performance had been negatively influenced
by the outbreak of COVID-19. Similarly, the announcement of Apple’s iPhone 12 model was
delayed to mid-October too, reflecting the changes in supply and market demand.

Adjust Work Arrangements and Store Opening

Apple has not only helped suppliers to adjust work arrangements but also changed its selling
strategies. Depending on the case numbers, positivity rates, hospital usage, and other factors,
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Apple made the decision to close stores. Apple closed all retail stores outside Greater China on
13 March 2020 and started reopening most stores in the US in the middle of May with additional
safety procedures and social distancing protocols. As the situation began to get worse in the US,
Apple reclosed the US stores.

Improve Recycling Capabilities to Reduce Reliance on Raw Materials

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Apple has sped up research on recycling to reduce its reliance on global sourcing of raw
materials. There are about 30 different minerals used in making mobile phones, including some
conflicting minerals and rare earth minerals. China is the predominant exporter of rare earth
elements. As many governments try to reduce the dependence on China’s production and the
global reserve continues to drop, Apple is working hard to recycle the metals, plastics, and
some valuable components used in old mobile phones because 80% of a mobile phone should
be recyclable. Apple has used 100% recycled tin in its mobile phones. After the outbreak of
COVID-19, Apple announced in September 2020 that all its products would be made from
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recyclable or renewable materials to complete a closed-loop supply chain by 2030.

Evaluate Resilience in iPhone’s Supply Chain Management

Define Organizational Resilience

Resilience refers to “the ability of an organization to successfully confront the unforeseen”7 or,
to be more specific, “an organization’s ability to anticipate potential threats, to cope effectively
with adverse events, and to adapt to changing conditions.”8 First, it is the organization’s ability
to recover from adverse situations and return to normal. Second, organizations can not only
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maintain and restore functionality but also focus on improving organizational processes and

6
Huang Zhengxuan, “The cost of new iPhone SE is 20% lower than 8 but the profits are lower than 8 and 11,” HK01.
7 Paul Michelman, “Building a resilient supply chain,” Harvard Business Review, 14 August 2017,
https://hbr.org/2007/08/building-a-resilient-supply-ch%20May%2011, accessed 21 October 2020.
8 Stephanie Duchek, “Organizational resilience: a capability-based conceptualization,” Business Research 13 (2020): 215–246.

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 20/680TN iPhone’s Supply Chain Under Threat

capabilities by learning from the crisis situation. They can adjust their organizational objectives

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and processes when necessary. Finally, some have incorporated the notion of anticipation into

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organizational resilience by identifying potential risks and taking proactive action to minimize
negative impacts. Therefore, organizational resilience is critical to organizational success9 and
can be a source of sustainable competitive advantage.10

The Importance of Resilience in Supply Chain Management

First, resilience helps to identify the weaknesses in the supply chain. Once the weakness is

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identified, a company can adjust in some way. Then, this soft spot will not become critical in a
crisis situation. Therefore, resilience helps the organization to prepare for future supply chain
disruptions.

Second, resilience provides an opportunity for all the stakeholders in the supply chain to change
their mindsets and prepare for unexpected scenarios. When the unexpected crisis takes place,
they know what to do to manage the continuity of the business.

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Third, resilience enables a company not only to withstand different, unexpected disruptions but
also to improve its competitiveness, especially when not all disruptions are foreseeable or
anticipated. The concept of resilience can explain why some companies can cope with the same
unexpected and unquantifiable risks far better than others and why it takes less time for a
resilient company to return to business as usual than its competitors. Its resilience enables the
company to quickly react to changing market demand in a crisis situation ahead of its
competitors.
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Strategies to Build Resilience into the Supply Chain11
There are at least three ways in which companies can strengthen the resilience in their supply
chain management, including increasing redundancy, building flexibility, and changing the
corporate culture.

Increase Redundancy
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A company can enhance its resilience by holding more inventory, having more suppliers from
different regions, maintaining additional production capacity, and so on. Nevertheless,
redundancy gives some breathing room for businesses to work after a disruption, but it is an
expensive and temporary measure. The company has to pay for the extra inventory, redundant
production capacity, and labor costs in the long term. Moreover, redundancy may lead to poor
operations and product quality because redundancy will inhibit a company’s ability to achieve
efficiency. In contrast, good supply chain strategies, such as lean supply chains, can create very
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efficient companies with little inventory and the ability to deliver good-quality products on time.

Build Flexibility
A company can also choose to build organizational flexibility to cope with unexpected
disruptions and to quickly respond to customers’ changing demands. The following initiatives
may help a company build flexibility.

First, a company may use interchangeable and generic parts in its different products. This
requires the company to use similar and even the same factory designs and manufacturing
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processes in its different factories and provide the same training to employees working in

9 Diane L. Coutu, “How resilience works,” Harvard Business Review 80 (2002): 46–55.
10 Yossi Sheffi, The Resilient Enterprise: Overcoming vulnerability for competitive advantage (Cambridge, MA: MIT Press,
2007).
11 Thomas Y. Choi, Dale Rogers, and Bindiya Vakil, “Coronavirus is a wake-up call for supply chain management,” Harvard

Business Review, 27 March 2020.

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 20/680TN iPhone’s Supply Chain Under Threat

different factories. Having interchangeable parts, identical production facilities, and

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systematically trained workers enable the company to quickly respond to a disruption by

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reallocating resources to meet the changing needs in the crisis situation.

Second, a company can employ concurrent rather than sequential processes in the key
production areas, like product development and production, to speed up the recovery phrase
after a disruption. For example, a centralized supply chain can combine different production
stages at the same time to speed up recovery after the disruption.

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Third, the company can design products and manufacturing processes for maximum
postponement. By keeping products in half-finished form, a company has the flexibility to wait
until more accurate information about customer preferences becomes available. In this way, the
company can complete the products in the way customers like without increasing inventory
costs.

Fourth, a company can align supplier relationships with its procurement strategy, for example,

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when a company has a small group of suppliers and maintains a good relationship with each.
Given an intimate relationship with each supplier, the company can monitor its suppliers and
detect potential problems. In unforeseen crisis situations, the company can work more closely
with its suppliers to find a solution to those unexpected problems. Alternatively, a company
may choose to have an extensive supplier network that enables the supply chain to be resilient
and responsive to the market. The choice depends on the company’s overall supply chain
strategy.
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Change Corporate Culture
Corporate culture also distinguishes whether a company can recover quickly and return to
profitability. The following efforts may help to change corporate culture:

First, through continuous, effective communicating with employees, a company can make its
employees aware of the corporate goal, business strategies, and operations. Then, when a
disruption takes place, employees have a good idea of the company’s status quo, such as the
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type of products on sale, the location of raw materials, and the disruption to the supply chain.
Then, employees can use this knowledge to make decisions in a crisis situation.

Second, a company can empower its employees, allowing responsible teams and individuals to
take necessary actions in a timely fashion. For example, a US Navy aircraft carrier allows its
crew members to stop flight operations if they detect an emergency. This policy enables
frontline staff to respond quickly and take necessary measures immediately, which enhances
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the chance of stopping a disruption at the early stages.

Third, a company can reawaken its employees’ passion for work. When employees are
passionate about their work, they will feel happier and be more motivated. When the disruption
takes place, they will be more willing to solve problems.

Finally, some companies often have to face small but frequent disruptions in their operations,
which means their recovery processes are tested often. For example, UPS often has to face
difficult weather conditions, traffic jams, road closures, and other problems in its daily
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operations.

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 20/680TN iPhone’s Supply Chain Under Threat

Evaluate iPhone’s Supply Chain Resilience

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Redundancy Policy

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In 2011, Japan was hit by an earthquake and tsunami. This caused a shortage of components
for manufacturing the iPad2 that Apple launched in 2011. Ever since, Apple has adopted a
redundancy policy. For example, iPhone XS’s RAM was manufactured by SK Hynix in the US
and Canada, by Samsung in the US or Canada, and by Micron in China.

At the same time, Apple has adopted just-in-time manufacturing that helps to keep costs down.

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In the iPhone supply chain, Apple is responsible for design and sales. Manufacturing and
assembling different components have been outsourced to different suppliers around the world.
So, Apple’s redundancy policy is to use suppliers from different countries to manufacture the
same component to ensure that it can get the components if a supplier encounters unexpected
disruptions.

Quick Response to Changing Demands

The agility of Apple’s supply chain enables the company to quickly respond to disruptions and

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market changes, avoiding getting into “dysfunctional momentum.”12 Dysfunctional momentum
occurs when an unexpected disaster happens; people do not stop to reevaluate the situation and
adjust their objectives; instead they continue to work toward the original goal.13

When COVID-19 occurred, Apple decided to postpone the release dates of its new models.
Unlike its competitors, which released new models with updated functions and a high price tag,
the new models Apple released are competitively priced and cost effective. This reflects the
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market demand during a pandemic. People need to use electronic devices to work, communicate,
and enjoy entertainment from home, and the prices must be affordable while the global
economy is sinking.

Top Decision Making in a Flat Structure

Apple’s organizational structure is suitable for coping with an unexpected crisis situation. Its
structure is centred around Tim Cook, the CEO, assisted by senior vice presidents responsible
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for different business functions. This relatively flat organizational structure ensures that the
CEO’s decision can be implemented quickly and consistently throughout the company.

Manufacturing Flexibility
Apple focuses on only a specific range of products. The same component may be manufactured
by different suppliers. Moreover, Apple has close relationships with its suppliers and provides
standardized training to its suppliers. This allows Apple to have the flexibility to switch
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production among facilities if necessary.

Well-Established Supplier Relationships

Apple has a limited number of suppliers, which enables the company to maintain deep
relationships with them. By closely working with the suppliers, Apple ensures that it knows its
suppliers well and will be more likely to be forewarned of supply problems when an unexpected
disruption happens.

This supplier relationship is aligned with Apple’s overall supply chain strategy. Apple has a
relatively small number of suppliers, which encourages them to compete for Apple’s business
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by providing high-quality products at a competitive price. Since the number of suppliers is

12 Danny Miller and Peter H. Friesen, “Momentum and revolution in organizational adaptation,” Academy of Management
Journal 23 (1980): 591–614.
13 Michelle A. Barton and Kathleen M. Sutcliffe, “Learning when to stop momentum,” Sloan Management Review, Spring 2010,

https://sloanreview.mit.edu/article/learning-when-to-stop-momentum/, accessed 6 November 2020.

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 20/680TN iPhone’s Supply Chain Under Threat

relatively small, Apple is able to place a large order with each supplier. The suppliers have

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enough workload from Apple so that they cannot provide these components to Apple’s
competitors, which helps to reduce the possibility of imitations by Apple’s competitors. Apple

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is also able to provide training courses and expert advice to the suppliers. After the outbreak of
COVID-19, Apple could not only get updated supply information from its suppliers but also
assist its suppliers in health and safety measures. It helped its suppliers return to normal
operations as soon as possible.

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Wrap-up
This case uses the impacts of COVID-19 on the iPhone supply chain to discuss resilience in
supply chain management. Students should not only understand what a lean and agile supply
chain is but also know how to develop a resilient supply chain. When an unexpected risk
happens to the supply chain in the future, should it be a natural disaster, an accident, or an
intentional disruption, students will feel confident and prepare by understanding different
strategies to cope with the unexpected risk.

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References
Paul Michelman, “Building a resilient supply chain,” Harvard Business Review, 14 August
2017, https://hbr.org/2007/08/building-a-resilient-supply-ch%20May%2011, accessed 21
October 2020.

Thomas Y. Choi, Dale Rogers, and Bindiya Vakil, “Coronavirus is a wake-up call for supply
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chain management,” Harvard Business Review, 27 March 2020.

Yossi Sheffi, The Resilient Enterprise: Overcoming vulnerability for competitive advantage
(Cambridge, MA: MIT Press, 2007).
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This Teaching Note is authorized for use only by Hassaan Tariq, Ghulam Ishaq Khan Institute of Engineering Sciences and Technology until May 2023. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860.