iSuccess: How manufacturing cost reductions and strategic sourcing help Apple become the world's most valuable company  As the world's most valuable technology company by market capitalization, Apple is the undisputed leader in the electronics sphere. Experts assert the firm's success over the past decade in streamlining its supply chain and achieving business cost reductions not only helped bolster its earnings, but also contributed to its surge in popularity among consumers.

Apple was long known for its product lineup of what essentially amounted to nifty gadgets with expensive price tags. The sleek design and intuitive interface of the company's iPhone, iPod and MacBook computers, among other electronic goods, did not come cheap – and still do not, for that matter – but prices have declined over the past decade.

Secrets of a number of Apple's successes have been elucidated with the publication this week of Walter Isaacson's authorized biography of Jobs. While analysts had long heard rumors of many of the stories presented in the book, the narrative has helped to clarify misconceptions through anecdotes splattered throughout its 600-plus pages, much like the negative of a photo brought to life in vivid color.

Prior to his death, Steve Jobs, the company's cofounder and former chief executive, hired what he considered to be one of his most trusted colleagues, Tim Cook. Cook, who replaced Jobs in August as head of the Cupertino, California-based technology giant, was armed with an engineering background and degrees in management from elite universities, a polar opposite of his predecessor who was a college dropout.

Jobs managed to persuade Cook to leave his former post at Compaq, and he arrived at Apple in 1997, where he assumed control over the company's then-fragmented and exceedingly complex supply chain. Cook's tenure as chief operating officer was marked by his fastidious commitment to overhauling and improving efficiency.

Cook's attention to detail, along with his work ethic and determination, enabled Jobs to focus his attention on the integration of design and usability in the company's products, creating what became one of the most productive business relationships in corporate history.

Cook negotiated new contracts with vendors; oversaw the creation of manufacturing facilities that could effectively generate products at a breakneck pace; shifted production to Asian markets where labor was comparatively cheaper; and significantly improved the company's ability to transport its product offerings from factories thousands of miles away to retail stores and shipping centers.

The supply chain improvements helped drive business cost reductions, while the strategic sourcing of raw materials and other components prompted manufacturing cost reductions. The efficiency gains spurred by the continual tweaking of its far-reaching supply chain helped drive record earnings that enabled Apple to lower the prices of many of its products.

The New York Times reports that although Apple products once carried some of the heftiest price tags of all its competitors, that is no longer the case. The latest iteration of the world's most popular smartphone, the iPhone 4S, is $199, but similar models from Samsung, HTC and other competitors top $300, according to Best Buy.

Apple products are by no means the least expensive on the market, but they are no longer so highly priced that they represent a fragment of the overall market.

"They're not cheap, but I don't think they're viewed as high-priced anymore," venture capitalist Stewart Alsop said in an interview.

Apple has been aggressive and at times audacious in its strategic sourcing, according to The Times. In 2005, for example, it inked a five-year deal worth $1.25 billion with manufacturers to secure flash memory chips for its devices, a risky move that paid off in the long-term as prices soared.

The company has continued to issue a competitive pricing structure for many of its offerings. The strategy has paid off handsomely for a company with more than $75 billion in cash-on-hand.

With Jobs untimely death, however, analysts are debating whether the company's decade-long winning streak can continue, especially given mounting competition and a tepid economic climate.






 
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