Apple turns over entire inventory every five days

Posted:
in General Discussion edited January 2014
A report from research firm Gartner says that Apple has an inventory turn metric of 74, which means that the iPad maker turns over its entire inventory once every five days, a staggering number for a consumer electronics company.

In its eighth annual Supply Chain Top 25 (via Business Insider), Gartner analysts once again ranked Apple's supply chain as the best in the world, boasting an industry-leading 20.2 percent return on assets for the past three years as well as three-year revenue growth of 51.5 percent.

The Top 25 are calculated by creating a composite score, with the opinions of voters, Gartner analyst opinions and three-year weighted return on assets all counting for an equal 25 percent, while inventory turns and three-year weighted revenue growth account for 15 percent and 10 percent, respectively.

Apple stood out with a inventory turnover period of five days, calculated by dividing the 365 days in one year with the inventory turnover ratio or the cost of goods sold over uarterly average inventory, which in Apple's case is 74.1. The only other company to beat the Cupertino, Calif., electronics giant was McDonalds with 142.4 inventory turns equating to a 2.5 day turnover for total inventory.

Dell and Samsung followed Apple in the electronics category with turnovers every 10 and 21 days, respectively.

Kindle-maker and internet sales monolith Amazon took the second overall spot on three-year revenue growth of 37.7 percent and boasts an inventory turnover about once every 37 days. The way in which Amazon operates is novel, however, and continues to push the envelope of generally accepted inventory practices.

Top 25
Source: Gartner


The ranking results may not be surprising given the pedigree of current Apple CEO Tim Cook, who is considered an "operational genius" and took over the company's supply chain in 1998, streamlining operations by cutting excess costs and built-up stock. An example of the changes made was Cook's decision to shut down 10 of the 19 company warehouses to limit overstocking, a move that brought inventory down from a month to only six days.
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Comments

  • Reply 1 of 28
    jungmarkjungmark Posts: 6,926member


    To be fair, RIMM turns over it's inventory daily. Albeit that's what happens when the devices roll out of a dump truck and into a landfill.

     

  • Reply 2 of 28
    quadra 610quadra 610 Posts: 6,757member


    It's what happens when sales really are "smooth."

  • Reply 3 of 28
    melgrossmelgross Posts: 33,510member
    The graphic isn't working on my iPad. Just the tiny question mark.
  • Reply 4 of 28
    aaarrrggghaaarrrgggh Posts: 1,609member
    This sounds pretty impressive, but it would seem like a very large percentage of their sales are in inventory only while in transit to customers (if even that).
  • Reply 5 of 28
    kindredmackindredmac Posts: 153member


    Hogwash....  What about Mac Pros and iPod Classics?

  • Reply 6 of 28
    normmnormm Posts: 653member


    Graphic not working on my laptop either (Safari).

  • Reply 7 of 28
    dasanman69dasanman69 Posts: 13,002member
    normm wrote: »
    Graphic not working on my laptop either (Safari).

    Nor on my Win7 PC
  • Reply 8 of 28
    mdriftmeyermdriftmeyer Posts: 7,503member


    Some twinky has a space in the link for the graphic. Instead of the file being 12.05.31-Top25.jpg it links as 12.05.31-Top 25.jpg. Here it is:


     


     


    image

     

  • Reply 9 of 28
    cvaldes1831cvaldes1831 Posts: 1,832member

    Quote:

    Originally Posted by aaarrrgggh View Post



    This sounds pretty impressive, but it would seem like a very large percentage of their sales are in inventory only while in transit to customers (if even that).


    My guess is that when something is "in inventory", it is either in Apple's warehouse at the Shenzhen airport's freight terminal (where Apple pays export duties, taxes, etc.), or in an Apple Retail Store. A transfer between the warehouse and an Apple Retail Store might not be in inventory since it is likely that Apple would place the liability of goods into the hands of the freight agent.


     


    Once it leaves the loading dock at the airport, it is no longer in inventory, whether it's a direct shipment to a consumer (i.e., someone who buys from store.apple.com) or to a channel partner (like a pallet of iPads headed to Best Buy).


     


    If the online store says something will ship in 1-2 days, it's not in inventory either. It's still on the manufacturing line. If the online store says "available now or ships in 24 hours" it's in inventory.


     


    If this story is to be believed, what's more incredible is Apple's ability to manage this down to their bricks-and-mortar stores. My hunch is that Apple's online store has an inventory turnover of one or two days and that their physical stores are closer to 7-10 days. It's clear that Apple's bricks-and-mortar stores aren't like Home Depots or IKEAs with lots of inventory on site. They are paying for some prime commercial real estate and it makes little fiscal sense to use that pricey square footage for storage.


     


    This also hints at how scalable the supply chain is. Apple's manufacturing partners can mobilize extra workers or reconfigure lines very quickly. The largest Foxconn plant in Shenzhen allegedly employs 450,000 workers.

  • Reply 10 of 28
    myapplelovemyapplelove Posts: 1,515member

    Quote:

    Originally Posted by jungmark View Post


    To be fair, RIMM turns over it's inventory daily. Albeit that's what happens when the devices roll out of a dump truck and into a landfill.

     



    as much as I hate the schadenfreude about RIMM this was very funny!! 

  • Reply 11 of 28
    vandilvandil Posts: 187member


    Meanwhile, at RIM, they're sitting on an unsold inventory of Blackberries and PlayBooks with a value of over 1 Billion. Tough life.

  • Reply 12 of 28
    jragostajragosta Posts: 10,473member
    aaarrrgggh wrote: »
    This sounds pretty impressive, but it would seem like a very large percentage of their sales are in inventory only while in transit to customers (if even that).

    It's actually quite plausible. At one time Dell had extremely high inventory turns, as well.

    The key is to not own inventory. That can be done in a number of ways:

    1. Ship directly from subcontractor to customer. A device is ordered from Apple by a customer. Apple then orders the device from Foxconn. Foxconn ships directly to the customer. Apple never has the device in inventory, but gets to count the revenue. Given Apple's massive subcontracting, this undoubtedly accounts for a major part of their stellar performance.

    2. Consigned inventory. The way it works is you receive the inventory and store it in your plant but do not take ownership until you actually use it. So your shelves do not have any of YOUR inventory, but are rather full of inventory that's on your supplier's books. Works best for fast moving parts. I doubt if Apple does this - usually, when you ask for consignment, the supplier charges a bit more or changes the terms in some other way. Since Apple is so cash rich, there's not much value to them to do this and certainly not if it means a higher price.

    3. Just in time inventory. Let's say you're using 1,000 batteries per day. In the old days, you'd store several weeks supply on hand just in case of a supply disruption and then you'd take shipments of perhaps a couple weeks' supply. Today, many companies have gone to JIT inventory where you keep only a small buffer stock (days or perhaps even hours of production) and receive small, consistent shipments very frequently. In some cases, the supplier might have a small warehouse near your facility to ensure delivery. JIT works great and has a nice impact on plant flexibility and operation, but you need to trust your partner because a short delay in deliveries can be catastrophic. I believe I read that Apple uses JIT inventory.

    4. Minimum SKUs. While some companies have a very broad product line, Apple keeps theirs focused. They don't have 100 different models of phones, they have 3 (with only minor variations of each one). They don't have 100 different desktop computers, they have 3 (again, with very limited variety). The broader the range of products you offer, the more inventory you need - and in my experience, inventory grows more than linearly with the number of SKUs.

    Even with all of these tricks, Apple's numbers are phenomenal - particularly when you realize that a signify a significant percentage (about 11%) of their total sales - and they need to keep inventory for the retail stores. Without that, the numbers would be even better.
  • Reply 13 of 28
    SpamSandwichSpamSandwich Posts: 33,407member

    Quote:

    Originally Posted by melgross View Post



    The graphic isn't working on my iPad. Just the tiny question mark.


     


    Speaking of graphics that don't work... when is someone going to fix the smiley situation here? The site update has been an unmitigated disaster.

  • Reply 14 of 28
    christopher126christopher126 Posts: 4,366member


    I remember in their heyday it said about Porsche, "their inventory is on the boat!"


     


    Can't get more organized than that-Good for Apple! :)

  • Reply 15 of 28
    jragostajragosta Posts: 10,473member
    Speaking of graphics that don't work... when is someone going to fix the smiley situation here? The site update has been an unmitigated disaster.

    I'd suggest another change. When you log in, 'remember me' is checked by default. That's backwards. The default should be the more secure (unchecked) status.
  • Reply 16 of 28
    ljocampoljocampo Posts: 657member

    Quote:

    Originally Posted by mdriftmeyer View Post


    Some twinky has a space in the link for the graphic. Instead of the file being 12.05.31-Top25.jpg it links as 12.05.31-Top 25.jpg. 



     


    It displays just fine in Safari on my iMac running the latest software. It could be how your system is handling spaces in file names.

  • Reply 17 of 28
    ljocampoljocampo Posts: 657member

    Quote:

    Originally Posted by SpamSandwich View Post


     


    Speaking of graphics that don't work... when is someone going to fix the smiley situation here? The site update has been an unmitigated disaster.



     


    Yeah and the space problem is most likely in how the server software at AI is setup. Good UNIX servers are smart enough to handle spaces in file names. Windows has a habit of being dumb. This new forum software is something my teenage son could've done better than AI did. The problems we are seeing, are the fault of AI's IT staff. This is what happens you get when a PC IT person (I'm guessing they are from the lack of quality) gets to pick out the software they like and familiar with. It's mostly speculation on my part but I think that the AI staff are Windows people because the forum software works as well as Windows. ::rolleyes::

  • Reply 18 of 28
    asciiascii Posts: 5,936member


    That's quite logistically impressive. Almost unbelievable, in fact. Are they sure this is not an error?

  • Reply 19 of 28
    waybacmacwaybacmac Posts: 309member


    I find it unfortunate that many people still think of logistics as stevedores on a dock or some fat guy shoving boxes into a truck. Here's a flash: rocket science IS logistics!

  • Reply 20 of 28
    jragostajragosta Posts: 10,473member
    ascii wrote: »
    That's quite logistically impressive. Almost unbelievable, in fact. Are they sure this is not an error?

    I don't think so. You can verify the numbers on Apple's 10-K. Apple has roughly $1 B in inventory on roughly $100 B in sales. Typically, one calculates inventory turns on the basis of cost, rather than sales, so that $100 B in revenues is equivalent to $60 B in cost (at 40% GM). $1 B in inventory to sell $60 B in cost per year is a 60x turns. That's fairly close since this is an approximation and the actual number depends on time period. For example, if they only considered the most recent quarter, the inventory turns approaches 80.

    So their number is well within the right range.
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