What Makes Apple’s Source-to-Pay Procurement Process So Good?
Apple’s supply chain is lauded for its efficiency and quality, but what makes it so good?
Electronics giant Apple ships over 400 million products every year, more than half of which are iPhones.
A symphony in procurement
Each iPhone is a procurement symphony, bringing together components from all over the world—a display and battery from Samsung and LG in Korea, glass casing from Corning in the US, a LIDAR scanner and camera array built by Sony, a flash unit built by Kioxa in Japan, a Chinese-made battery, a display port interface developed and built by a company in the Netherlands, and custom chips built by the company’s most trusted supplier: Taiwan Semiconductor.
All these parts (and more) are brought together and assembled in mega factories (Apple supplier Foxconn’s Zhengzhou assembly plant employs more than 300,000 workers), primarily located in China.
Suppliers are the key
Churning out more than 250 million smartphones every year is an immensely complex endeavour, and the way that Apple approaches its relationship to suppliers in its ecosystem is a big part of why the company’s procurement process is so successful.
In 2022, 98% of Apple’s direct spend for materials, manufacturing, and assembly was linked to its top 200 suppliers. The strength of the relationships Apple builds with these suppliers is a huge part of why the company’s procure-to-pay process can deliver huge quantities of complex electronics year after year with consistency.
Apple’s supply chain generates a significant amount of work due to typically market-leading sales. Not only this, but Apple updates its product line regularly. It adds new devices and accessories to collections along with developments that it phases in and out of existing product lines. As a result, Apple generates enough demand that most of its supplier base can afford to devote their activities primarily to Apple’s business, giving Apple a greater degree of control over their procurement ecosystem.
Replicating Apple’s success when you aren’t Apple
Of course, this isn’t a competitive advantage that more than a few dozen companies around the world have the necessary scale to leverage, but through collective buying schemes and group purchasing organisations, companies should be aware of the fact they can get more strategic wins out of buying at scale than just a reduction in prices.
Apple uses its scale and purchasing power to drive strict manufacturing and (increasingly) sustainability standards throughout its procurement ecosystem.
The company developed the Apple Supplier Code of Conduct and the Supplier Responsibility Standards in 2005, in alignment with international labour and human rights standards, including those from the International Labour Organization (ILO), the United Nations Guiding Principles on Business and Human Rights (UNGPs), the Organisation for Economic Co-operation and Development (OECD), the Responsible Business Alliance (RBA) Code of Conduct, as well as industry-leading health and safety organisations. Apple updates these codes of conduct constantly to reflect changing developments in international law, and mean Apple has a higher degree of assured compliance throughout its procurement process.
From a zero tolerance policy for debt-bonded labour and remediation of working hours violations to promoting more sustainable practices in the sourcing of raw materials, Apple is able to shape not just its own internal practices, but those of organisations throughout its supplier ecosystem.
Criticisms of the Apple procurement process
It is worth pointing out, however, that while Apple’s structuring of its supplier ecosystem has resulted in record profits and share prices, it has not always successfully protected the workers throughout the company’s procure-to-pay process.
As recently as 2019, undercover investigators working for a Chinese labour watchdog found a factory in Zhengzhou factory was forcing workers over 300,000+ employees to work 100 hours of overtime. Factory managers also ‘punished’ workers for not meeting targets, and paid wages insufficient to support a family living in Zhengzhou. Their social insurance contributions also fell short of the legal requirement.
Developing people
Elsewhere in its supply chain, Apple also works to develop the skills and knowledge bases of its suppliers to a greater degree than many organisations.
Over 3.6 million employees throughout Apple’s supplier ecosystem have participated in the company’s Clean Energy Academy since 2008, and early last year, Apple partnered with the International Labour Organization, the International Organization for Migration, and global education experts to launch a $50 million Supplier Employee Development Fund to expand initiatives and develop the skills of the people across its supply chain.
