Apple’s Bullwhip Effect in the Supply Chain

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Table of Contents

Introduction
Industry Forces
Market Signals
Competitive Strategy
Conclusion
References

Introduction

Apple is a leading global manufacturer of mobile telephones. It has capitalized successfully on its first-mover capability over the years. Its great industry and market performance, however, have made competitors spy on its performance keenly, including scouting on its suppliers to gain strategic insight. This paper conducts an analysis of the recent occurrences in the firm, including a bullwhip effect that involved two of its suppliers, to understand the strategic situation of the firm.

Industry Forces

Apple operates in a mobile telephone industry that is characteristically experiencing intense rivalry from many equally balanced competitors, such as Samsung and Nokia. These competitors also boast of other diverse business capabilities that include manufacturing a wide array of products, such as TVs, music systems, home, and hospital appliances, which offer the competitors revenue sources in case the mobile industry performs poorly (Jinjin, 2013). However, significant industry entry barriers exist, arising from the high technology skills, loyalty, and level of capital required to venture into the industry. Apple boasts of its brilliant innovation that fewer entrants can match over a long period. Buyers have low power, particularly against Apple brands, because of the significant product quality and the customer locking mechanism introduced by the firm. These features make it expensive for customers to switch to other brands. The supplier power, nonetheless, is moderate, given that Apple has established a significant ability to integrate backward (Jinjin, 2013). However, it still relies on third party suppliers, such as Pegatron and Foxconn (Capsim, n.d.). The threat of substitution faced by Apple is high, owing to the other numerous products, such as personal computers, which have the ability to browse the Internet and sustain communication.

Given the existence of these forces in the industry, Apple needs to pursue an offensive strategy, mainly by capitalizing on its first-mover advantage. It requires enhancing its positioning by increasing its research and development activities, such that more efficient and unique products from its production lines can reach the market ahead of the competitors. Most importantly, Apple must continuously undertake market research to get the accurate anticipation of consumer trends for purposes of aiding its planning. It will help Apple to produce products that effectively match the market demand, in addition to helping it tackle the bullwhip effect that is affecting its component suppliers negatively.

Market Signals

Apple is a leading industry player in mobile phone manufacturing, which is obviously leaving competitors in the wake of spying its actions to get a glimpse of what is happening internally. In essence, Apple has to devise an effective bluff strategy to issue misleading signals to its competitors. This will confuse the competitors into devising erroneous counter-strategies in the hope of outwitting Apple’s strategy, but in the event commit blunders to the advantage of Apple itself (Guidice, Alder, & Phelan, 2009). Apple should focus on issuing prior announcements about its intended moves, given that competitor behavior currently relies on spying Apple’s suppliers in an attempt to understand the firm’s ongoing plans and strategies. Apple is a firm that is renowned for its disruptive technology capabilities, thus a bluff announcement to the effect that it intends to launch a new product will definitely convince the competitors and influence them into acting appropriately.

It can also adopt a strategy of commenting officially to every strategic move or intention that the competitors undertake, as a way of affecting the competitors’ attention. For instance, Samsung has emerged as Apple’s fiercest competitor in recent years with its announcement of products that compete with Apple directly in numerous categories. Apple can take this scenario and ensure that it issues comments about every new product that the competitor wishes to launch into the market. Specifically, Apple can issue claims to the effect that Samsung is imitating its technology on some of its products. This will push Samsung into attempting to disprove the claims made by Apple, thereby losing focus on its planned action. Samsung’s reactions to such claims may equally end up providing other details that might not have been in Apple’s custody, as a way of attempting to clear its name from imitation allegations.

Apple can even rely on creating an artificial bullwhip effect with its suppliers to give false indications about its failing strategy. Such performance is likely to reach the competitors faster, given that they rely mostly on supplier performances with Apple to gain information concerning the company’s intentions. This is likely to prove as a conciliatory step targeting the minimization of provocation, as far as anticipated forthcoming strategic adjustments are concerned.

Competitive Strategy

Apple should consider a focus differentiation strategy to sustain its industry leadership in the mobile telephone industry (Huishuang, 2013). From the external environmental analysis results, it is critical to note that the industry is highly competitive. Rival firms have devised elaborate means to enable them to gather intelligence reports about their competition, including spying on the suppliers to gain an insight into whatever is happening. In essence, high competition implies that firms have marginal revenues and profits only because they present almost similar products to the market in terms of functionality. Adopting a focus segmentation strategy will imply that Apple cuts a niche in the market, which will serve to the maximum satisfaction of the clients. It will determine customer needs within the niche market and set out to optimize their fulfillment.

As observed, Apple has built impeccable first-mover capabilities over the many years of operation in the industry. This implies that it has the skills and capacity to research new products and release the successful results into the market ahead of the competitors in the industry. This is crucial in aiding the firm to pursue a focused differentiation strategy that is not only highly profitable but also lacks competition from rival firms. Moreover, buyers in the industry have greater bargaining power from the fact there are numerous substitutes available to them and the fact that the intenser rivalry is forcing competitors to compete mainly on price. However, a successful focus strategy would imply that Apple creates significantly unique products in the market, which will attract customers and enable Apple to lower the bargaining power of its buyers (Huishuang, 2013).

Conclusion

The industry rivalry and buyer bargaining power are high in the mobile phone industry, owing to the presence of numerous well-established manufacturers and the presence of substitute products. Entry barriers are equally high, given that mobile phone manufacturing requires significant capital outlays and higher skill levels. However, suppliers have moderate power because most of the manufacturers are well-established firms with the ability to integrate backward. As part of its strategy, Apple should consider adopting bluffs as a way of providing erroneous market signals to confuse the competitors. A focused differentiation strategy will help to strengthen Apple’s competitive position, thereby enabling it to serve a niche market only.

References

Capsim. (n.d.). Like to know what apple is ‘cooking-up’ next? Web.

Guidice, R. M., Alder, G. S., & Phelan, S. E. (2009). Competitive bluffing: An examination of a common practice and its relationship with performance. Journal of Business Ethics, 87(4), 535-553.

Huishuang, H. (2013). Product differentiation and cartel stability with costs of collusion. Canadian Social Science, 9(3), 46-50.

Jinjin, T. (2013). Strategic analysis of Apple Computer Inc. & recommendations for the future direction. Management Science and Engineering, 7(2), 94-103.

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Apple’s Bullwhip Effect in the Supply Chain

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