Having so much cash in the bank allows Apple to invest in things that pay long-term dividends: they are building a beautiful new campus in Cupertino that is part garden, part spaceship, and they are investing heavily in a secret project – supposedly known as ‘Project Titan’ – to build a commercial electric vehicle. So not only can Apple operate comfortably in the present, but it can also ensure its success in the future too.
Apple’s dominant position can in part be attributed to the current CEO Tim Cook. Though the average person on the street may have been surprised by his appointment in 2011, the humble Alabamian had been quietly at the helm of Apple’s operations since 1998. Let’s take a look at a few reasons why Cook’s inventory genius contributed to their cash reserves – and maybe even pick up a few tips on how you can replicate their success.
Whether or not Cook actually said this phrase is a matter of debate – I can’t find the source anywhere. But the principle is essentially sound. Money that is tied up in stock left sitting on shelves is a big waste of your cash. If you can reduce both the amount of time you own stock and the total amount of stock you own at any one time, you’ll find your equity increases. “You kind of want to manage it like you’re in the dairy business,” Cook has said. “If it gets past its freshness date, you have a problem.”
The first key part of reducing your inventory is getting on good terms with your suppliers. If you can order stock or components as and when you need them, you will be able to bring down the number of days the stock sits on your balance sheet. Part of the risk of using a Just-in-time method can be negated using reporting technology to forecast demand. Apple requires its component suppliers to be as close as possible to its assembly line for the very same reason.
Secondly, and this follows exactly the same logic – if you can shift stock to your trading partners at exactly the right time, then you decrease the amount of stock on your shelves. You can reduce the turnaround time for orders using technology such as EDI. Better still, monitor the stock your biggest trading partners currently have – a concept known as Vendor Managed Inventory, or VMI – so that you can replenish goods at exactly the right time. This benefits the whole supply chain too.
Like Ferraris, Apple’s products are known for looking just as beautiful under the hood as on the exterior. Delving into the case reveals more than just smart technology. Apple is notoriously frugal with components, reusing any wastage in its next line of products, to further reduce old inventory and reduce the cost of new products.
Bringing down costs doesn’t necessarily entail using the cheapest components, but making smart decisions at the right time – Cook and right-hand man Jeff Williams once invested over a billion dollars in flash drives, correctly predicting they would form a large part of their future product lineup, simultaneously shutting out competition from an emerging market. While you might not have the nerve (or money) to play hardball like this; taking time to think about the long game can only help make your business leaner and more successful.
Whether you are just starting out or growing quickly, the basic principles of inventory management can put you ahead of the game – and, just like Apple’s Tim Cook, reap the benefits of becoming a supply chain genius.
Find out more about EDI and how to cut inventory and increase your cash.
Read our Beginner’s Guide to Inventory Management.
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