Apple’s Prioritized Suppliers
According to Apple’s “Supplier Accountability Report,” the company’s suppliers employ more than 1.6 million people in 20 countries around the globe, which means that there is an increased responsibility for the corporation to prioritize and make sure that the key players are on the top level of their performance so that the production and the distribution of products occur smoothly. If to prioritize Apples’ suppliers by importance, then Pegatron, Foxconn, Quanta, and BYD are in the list of the key companies that supply their products to Apple, Inc.
The prioritization of Apple Inc’s suppliers occurs in agreement with the most valuable and high-quality components produced by the outside contractors. For example, BYD is a reliable and prioritized supplier that has extensive experience in producing rechargeable batteries, so it is crucial for Apple to monitor the performance of this company to ensure the flawless production and distribution of batteries for its devices. Another criterion for prioritizing is service response time. Compared to the three other suppliers, Foxconn exhibits the shortest service response time of three hours. Therefore, Apple is interested in maintaining business relationships with this company since it is quick in its responses and is able to provide Apple with requested data on short notice.
- Pegatron Corporation (established in 2008) is a leader in the market of electronic and computing design and manufacturing services. The product portfolio of the company is rather diversified and ranges from motherboards to LCD TVs, which means that Apple has a broad range of opportunities when working with Pegatron. One of the key benefits Pegatron offers Apple is the relatively low costs compared to other contractors.
- Quanta Computer (established in 1988) is another global leader in hi-tech markets as well as a reliable partner for providing top quality services for companies like Apple, Inc. Similar to Pegatron, Quanta Computer produces a wide variety of products ranging from automotive electronics to enterprise network systems. Currently, Quanta is the main producer of Apple’s second generation of watches since the production volumes are not as high as the previous generation.
- Foxconn (founded in 1994) is a manufacturer of electronic equipment such as cable assemblies and connectors for computer hardware. It is the third-largest IT company by revenue and predominantly works as a contract manufacturer for companies like Apple, Inc. Foxconn’s operational facilities and plants assemble the majority of Apple’s devices, including iPhones, iPads, MacBooks, as well as some others.
- BYD (founded in 1995) is a company greatly engaged in the information technology market and predominantly works with rechargeable batteries, handsets, as well as assembly services, and computer components. Because of the experience of working with batteries, BYD has become a reliable supplier for Apple, Inc.
Key Performance Indicators and Supplier Performance/Risk Assessment
Key performance indicators measured by the company include annual revenue, logistics costs, product delivery time, manufacturing costs, and the DMS market share. As to the company’s performance, the annual (2015) operating revenue was $1,213,712,976 (“Pegatron Annual Report” 68).
When it comes to the risk assessment of Pegatron, the company’s risks are associated with corporate finance, policies, and investments, future research and development, as well as litigation or non-litigation matters. Corporate finance risks such as interest rate, inflation, and foreign exchange rates are of particular concern for the company since there is a need to constantly monitor bank loans and fixed deposits in order to secure the capital.
Quanta’s key performance indicators include revenue and income, as mentioned in the company’s 2015 Annual Report. In 2015, Quanta experienced an 8.7% increase in consolidated revenue ($1,007,3 billion) with the income after tax of $19,2 billion (“Quanta Annual Report” 1). Since the growth of the personal computer market was ‘lukewarm’ in 2015, the management put a focus on its performance in identifying the opportunities before rivals, accelerating the production, and saving costs.
Similar to other Apple, Inc. suppliers, Quanta predominantly deals with financial risks that include interest and exchange rate fluctuations, liquidity risks, as well as inflation risks.
Foxconn monitors its performance through key financial indicators such as current assets, fixed assets, stocks, retained earnings, and total stockholders’ equity. According to the 205 Annual Report, the current assets held by the company for the year of 2015 were $1,788,218,973, which was 7.46% less compared with 2014. Fixed assets reported by the company for 2015 were $336,738,466, which was 22.43% more compared to 2014. By monitoring and comparing the key performance indicators for current and previous years, Foxconn identifies the main goals to be set for the future operational year.
The company is predominantly concerned with financial risks, such as market risks, credit risks, and liquidity risks (“Hon Hai Precision Industry Co., Ltd. Annual Report” 29). While the market risks are controlled by external factors, other types of financial risks are managed externally by identifying the most unpredictable factors, mitigating, or completely removing them from business processes. In such a manner, the company’s management can reduce the identified to zero in order to ensure the maximum achievement of Key Performance Indicators.
Key performance indicators for the company include the cost of sales, gross profit, income tax expenses. As to the company’s annual (2015) performance in the cost of sales category, the company reported $65,752,741,000, while the gross profit was $11,859,244,000 (“BYD Annual Report” 40). The profit before tax constituted $3,794,986,000 in 2015 which was significantly higher compared with $873,952,000 in 2014 (“BYD Annual Report” 41).
Financial risks (interest, exchange rate) experienced by the company are controlled by the Financial Division, which operates within the framework of established policies. The company is constantly working towards maintaining a reliable mix of debt and financial equity in order to ensure a reliable structure of capital within the established time period (“BYD Annual Report” 56).
Because BYD, Foxconn, Quanta, and Pegatron are in the list of key suppliers for Apple, Inc., they are also under the supplier responsibility risks to perform according to the standards set by Apple. For example, Apple conducts onsite audits to monitor the performance and work conditions to make sure that the suppliers do not violate the code of conduct established by senior management. Because the majority of factories are situated in the East, the issue of environmental sustainability is of major concern for all suppliers; otherwise, Apple has a right to terminate its relations with contractors. According to Apple’s “Supplier Accountability Report”, Apple terminated contracts with twenty suppliers and conducted 633 onsite audits.
Comparing Reliability of Suppliers
To assess the reliability of the suppliers, it is important to compare the ratings describing their performance (Schuh et al. 30). According to the gathered data about the Apple’s main suppliers in 2015, Foxconn had the lowest service response time – 3 hours, and the lowest percent of defective production – 0.5%; to compare, BYD, Quanta, and Pegatron had the response times of 5, 4, and 4 hours, and the defect rates of 1%, 1.5%, and 2%, respectively. Simultaneously, Foxconn had the lowest lead time: 30 in comparison to 35, 40, and 45 in BYD, Quanta, and Pegatron, respectively. Thus, Foxconn had the best quality of the products among the main suppliers, answered service applications fastest of all, and took the least time to complete the required tasks. Apparently, Pegatron scored worst of all in this rating, having the highest percentage of defective production (2%) and the greatest lead time (45). BYD performed better than Quanta; these companies had the 2nd and 3rd rating on the list, respectively.
In addition, Foxconn seems the most reliable supplier when it comes to assessing the asset/liability ratio; Foxconn had a ratio of 1.69, whereas BYD, Quanta, and Pegatron had the ratios of 0.82, 1.28, and 1.46, respectively. Foxconn also had the largest return on assets (and the largest return on equity): 6% (14%) comparing to 3% (9%), 3% (13%), and 1% (1%) in BYD, Quanta, and Pegatron, respectively. Thus, it is apparent that Foxconn, being a stable business with high financial indicators, as well as with the highest quality of products and the best service and lead time, is the most dependable provider for Apple; on the other hand, BYD, a company whose liabilities are greater than its assets, that has the lowest return on assets and return on equity, appears to be less reliable than the other suppliers that were considered.
Supplier Performance/Risk Assessment Rating
As evidenced by the performance and risk assessment of Apple, Inc’s prioritized suppliers, the main bulk of concern for BYD, Foxconn, Quanta, and Pegatron comes from the instability of the technology and innovation market as well as the fluctuation in interest rates, inflation, and foreign exchange rates.
When comparing the reliability of suppliers based on the financial situation of the companies, it is apparent that Foxconn is the most dependable, and BYD is the least dependable supplier of the four suppliers that are considered; however, BYD had greater quality of the products, and better service response and lead times than Pegatron; Foxconn was also the leader in this respect.
“BYD Annual Report.” Hkexnews, Web.“Hon Hai Precision Industry Co., Ltd. Annual Report.” Foxconn, Web.
“Pegatron Annual Report.” Corpasia, Web.
“Quanta Annual Report.” QuantaTw, Web.
Schuh, Christian, et al. Supplier Relationship Management: How to Maximize Vendor Value and Opportunity. Apress, 2014.
“Supplier Accountability Report.” Apple, Web.