What is the best way to manage your inventories?

iPad 2 line Wednesday at Apple's Fifth Avenue store.

Photos from reader Ric S. [1]

This week our topic is about inventory management in supply chain. It is well known that the inventory strategy is a key element to determine a company’s overall performance. For example, in the financial analysis, the inventory turnover ratio is vital to a potential investor to look at. Also, let’s take a look at the above picture. Does it look familiar to you? Have you ever stayed up at night in the freezing street only wishing to buy any Apple products before it sold out quickly? Have you ever made any complain and wish your Apply store to get more storage? Has it ever occurred to you that maybe Apple is using a special market strategy and limit its supply on purpose? Or, maybe Apple is facing some problem in their inventory control?

As we learned, a company can control its inventory in many ways, considering the location and distance from its customer, factory, or warehouse, the time period and speed of supplying and supplement, and the amount of supplement for each time, etc. Should I take more care of my key custom and assure their need? Should I take a just-in-time method to reduce cost or a just-in-case philosophy on the opposite? Where should I build my assemble center? How much is my cost for shipments? Those are all part of the questions for a manufacture to consider in order to making a right decision on their supply chain management.

What could go wrong if you applied a wrong strategy? How to identify the more important factor and make your decision? What are your benchmarks? Well, I guess it is not easy to answer these questions. However, we should always remember that in the market, on the other side of supply, there is another key factor— the demand, which unfortunately is changeable from time to time, though could be predict.

Back to Apple’s case, Apple is successful for its high amount of sales and quick inventory turnover rate. It used several ticks to keep their actual inventory and supply chain management as a myth.

For example, it changed its Web order number generating method to a random number so online order numbers have no relation to how many units have been sold. In this way, customers have no idea of the actual amount left and will be more desired to buy as quickly as possible. Thus, their bargaining power becomes low and Apple suppliers take the advantage to name their prices at the maximum profit. However, the popularity of its product is a two-side sword. Apple is now known (sometimes rumored) for facing supply chain bottlenecks. They find trouble keeping up with the high demand which causes too many complaints from its customer that some of them have already lost their loyalty.

Beside the influence of the market, the inventory strategy is also influence by polices in local assemble center. The law issues can particular influence a company’s situation in an extreme way.

As Apple is engaged in a number of patent battles globally against Samsung Electronics and HTC, including the markets in US, Germany and Australia, it is sweat to see that the final judgments are so far mostly been decided in favor of Apple. However, the recently China trademark lawsuit will certainly give Apple a hard time and make their inventory and supply problems even worse.

Source: http://www.gizchina.com [2]

Since late last year, Apple has been fighting a trademark infringement case against Proview Technology. It is claimed that Apple is infringing Proview’s trademark by using the iPad name in China. Apple thought it owned the trademark, but Proview Taiwan, a separate entity, sold the trademark for use of the name in China without permission. Apple has now lost the trademark case in China, and Chinese government officials have started seizing iPads from retailers as they are no longer allowed to be sold. [3]

As China is Apple’s main manufacture place for iPad, this could lead a worldwide shortage for Apple. It would also mean the expected launch of the iPad 3 next month couldn’t happen unless Apple already has a mass of stock outside of China. How should Apple survive from this? Despite there is still a chance for Apple to pay a large amount of money and settle the problem out of court, the current storage and the myth strategy of inventory for iPad3 worldwide seems to be more worthy to know.

Do you have any idea to assist Apple? Let's wait and see how Apple would response.

References:

[1] Hughes, Neil. "Apple Rethinks Inventory Management for IPad 2." AppleInsider | Apple News and Rumors since 1997. AppleInsider, 16 Mar. 2011. Web. 14 Feb. 2012. <http://www.appleinsider.com/articles/11/03/16/apple_rethinks_inventory_management_for_ipad_2.html>.

[2] "IPad Now Banned in China! | Gizchina.com." Giz China, Chinese Gadget Guide. Technology in China. IFeng, 13 Feb. 2012. Web. 14 Feb. 2012. <http://www.gizchina.com/2012/02/13/ipad-banned-china/>.

[3] Matthew Humphries. "Apple Facing IPad Export Ban in China, Could Lead to Worldwide Shortage – New Tech Gadgets & Electronic Devices." Geek.com. Financial Times, 14 Feb. 2012. Web. 14 Feb. 2012. <http://www.geek.com/articles/gadgets/apple-facing-ipad-export-ban-in-china-could-lead-to-worldwide-shortage-20120214/>.