How Apple, Amazon.Com, and China are Rapidly Moving to Dominate Their Supply Chains — in Manufacturing Technology, Control of Raw Materials, and More, by Brad Reddersen, 7/10/12
Those working on long-term strategic moves in technology know how important it is to manage their supplier connections. But where in the past it was as simple as making sure you were first to acquire supply and perhaps even locking up commitments to a certain time period of exclusivity, the game is changing. Fast and often in ways that competitors not only cannot easily track but also if they do not move fast enough they may find themselves permanently out of business in critical ways.
To illustrate this, let us take a look at three critical strategic move-makers and some of the latest press surrounding some of their tricks to keep them ahead of the competition.
First on our list is the recent storm of product announcements and high-level rumors you have all seen in the tablet and laptop area. Samsung, HP, and even Intel recently released information on their latest forays into the ultra-thin and ultra-hot PC laptop market. Apple demonstrated its new dramatically thinner and high-resolution MacBook Pro laptop line, complementing both its iPad3 and updated MacBook Air releases earlier in the year. The very next week, Microsoft demonstrated its Surface line of tablet PCs, to various degrees of praise and derision, both because it was about time they did something like this and because maybe it was too late. The following week Google unveiled the new and well-reviewed Nexus tablet. Details leaked shortly thereafter about Amazon’s near-term and possibly rushed changeover of its Kindle Fire tablet product line. And behind the scenes, rumors were coming out that Apple would release a mini iPad not too long before Christmas.
While many reviewing these products were focusing on the performance, specifications, and shipment schedules for each of them, it was quickly emerging that some of the more important battles might just be happening behind the scenes in the supply chain for each of these. And Apple was winning all of them.
What was happening was that Apple was both locking up the supply of precision overseas aluminum machining capacity [1] as well as even a high percentage of the availability of the very high quality aluminum raw materials needed to produce the cases for all their products, from their Australian raw materials suppliers.[2] Similar reports are coming out about Apple having cornered the market on the highest-quality touchscreen display materials for the iPad, the high resolution displays for the latest MacBook Pros, and presumably the same suppliers to support the rumored new iPad mini whenever it is released.
Meanwhile, China, who of course is one of the main countries where Apple mass-manufactures its products, has been making its own strategic moves in manufacturing as well. Much of the mainstream press has been preoccupied with its rapid emergence as the high volume and low-cost manufacturing source in a wide variety of industries. Behind the great wall there, however, also emerges a very interesting battle regarding the critical rare earth materials used in many of the world’s highest performance and miniature electronics products.
Just as the Middle East was gifted with enormous reserves of crude oil just by location alone, so too has China received the major benefit of controlling virtually 95% of the world’s production capacity for rare earth materials. Just as OPEC can manipulate prices and control key parts of the world’s economy just by adjusting the rate of oil shipping from the region, so too can China direct much of the world’s capability in high-end electronics.
In this latter area the movers and shakers are not just sitting around of course. As a recent article in Forbes Magazine notes [3], more than 35 major rare earth exploration projects are in place and moving rapidly outside of China, precisely to deal with this situation. China knows the critical importance of its lead, however, publicly announcing new export caps for its rare earth materials to preserve that lead in the near term. And while the rest of the world is screaming about those caps and demanding they be lowered, China – along with others of course – is establishing its own beachhead on rare earth mining investments outside its borders. [4], [5]
And as a third example of the Supply Chain wars, consider the moves Amazon.com has already put in place to provide major barriers for others to succeed in its ecommerce supply chain. To a casual observer Amazon is simply a volume distributor of both “real” and digital goods, with the benefits and lower costs not having brick-and-mortar stores and high sales volume can offer. But the true secret of Amazon’s long-term financial success is looking more and more on how it manages service fees associated with its supply chains. And through locking up contracts for such fees with those supply chains, it ensures both highly-competitive bottom-line prices for its end customers while at the same time providing far more lucrative profits than most people probably would imagine.
A great summary of what Amazon has been able to pull off in this area was in the July 9, 2012 article in the Financial Times entitled “How Amazon Changed ecommerce”. [6]
For all three giants of industry, Apple, China, and Amazon, as well as the existing and hopeful future competitors to them, the messages from this are becoming very clear. While the products those companies develop must continue to be the best in class, the supply chain is once again emerging as one of the key risk factors to manage. Both for those who are already in the lead in their industries as well as those who seek to reach the top themselves.
References cited in this post:
1. “Apple said to be Hogging Metal Chassis Supply”, 6/26/12 article in TechReport
2. “With Tablet, Microsoft Takes Aim at Hardware Missteps,” New York Times, 6/24/12
3. “Rare Earth Minerals: An End To China’s Monopoly Is In Sight”, Forbes Online, 6/8/12
4. Great Western Minerals Group and Ganzhou Qiandong Rare Earth Group Sign Rare Earth Separation Agreement, press release dated 6/10/12
5. “Rare Earth Mining in South Africa”, Rare Earth Investing News, 6/18/12
6. “How Amazon changed ecommerce”, Financial Times online, 6/9/12