The iPhone 6 – A Supply Chain Story

by Sterling J. Scott, Marketing Communications Coordinator, MHI | @mhi_sterling

The iPhone, in its eighth generation and seventh year, is one of the most successful consumer electronic lines of all time and continues to break sales records with each new generation released. Apple has experienced consistent success with the iPhone; however, the company has also faced the same challenges year after year through delays in production and delivery.

The iPhone: First Generation
Apple launched development of the first iPhone in Fall 2005. In Fall 2006, just months ahead of the release date, the iPhone was nowhere near ready. From the hardware to the software, the phone was unusable. The phone was released in June 2007 to AT&T customers who showed up in droves. Over 700,000 were sold in the opening weekend.

The iPhone 3G: Second Generation
Apple awarded the manufacturing contract for the iPhone 3G to Foxconn, a Taiwanese manufacturer. With over 500,000 employees and most of its manufacturing in China, Foxconn produced many of the first generation iPhones, MacBooks, iPods, Dells, HPs, Playstations, Wiis, Xbox 360s, Kindles, and Motorola Phones. The iPhone 3G was released in July 2008 to AT&T customers, with over a million sold in the first weekend. When the phone was first released, there were issues with activation as iTunes, which was used to activate the phones, crashed. This caused delays in sales. Unlike the first generation phone, the iPhone 3G could not be activated at home and had to be activated in an Apple or AT&T store. When sales picked up again, there were shortages that led to weeks of delays for customers. At some points, very few stores had any to sell and had no idea when they would receive more or how many they would receive.

The iPhone 3GS: Third Generation
The iPhone 3GS was also manufactured by Foxconn and released in June 2009 and sold out quickly leading to shortages. Once again, the over a million iPhones were sold in the first weekend.

The iPhone 4: Fourth Generation
The iPhone 4 was manufactured by Foxconn and Pegatron.  The phone was released in June 2010 to AT&T customers and later to Sprint and Verizon customers. Over 1.7 million iPhone 4 devices were sold in the opening weekend. When the phone was first released to AT&T customers, there were problems with the phone’s antenna as well as delays in delivering the white iPhone 4, which stemmed from those antenna problems and problems with the Chinese manufacturer of the phone’s glass panels, Lens Technology.

The iPhone 4S: Fifth Generation
The iPhone 4S was released in October 2011 and over 4 million were sold in the opening weekend.

The iPhone 5: Sixth Generation
The iPhone 5 was released in September 2012 and over 5 million were sold in the opening weekend. The phones quickly sold out leading to delays in shipping up to one month. These shortages were worsened by assembly problems at Foxconn.

The iPhone 5S & 5C: Seventh Generation
The iPhone 5S and 5C experienced delays in production due to delays in screen manufacturing from Sharp as well as the phone coating materials for the iPhone 5S interfering with the fingerprint sensor. The phones were released in September 2013 and sold over 9 million in the opening weekend.

Off-Shore Production & the Rising Cost of Labor
Most of Apple’s iPhone suppliers are in China and Japan with roughly 330 and 150 respectively. Roughly 170 suppliers are in other Asian countries –  South Korea, Taiwan, Malaysia, Philippines, Thailand, Singapore, and Vietnam. 75 of Apple’s iPhone suppliers are in the United States. The suppliers in Asia include Samsung, Sony, Sharp, TDK, Toshiba, Wages are increasing in China and Taiwan, driving up the cost of labor. Wages are projected to rise  as much as 10%.  Foxconn and Pegatron, the companies responsible for assembling the iPhone 5S and 5C hired 130,000 workers for the assembly of the iPhone 6 with Foxconn hiring 100,000 workers and Pegatron gaining 30% of orders. While iPhone 6 production boosts the Chinese and Taiwanese economies while allowing Apple to produce iPhones at a lower cost, rising wages loom as a threat on the horizon that can push production elsewhere or make future iPhones more expensive. This is more of a mid- to long-range threat at the moment as Apple’s suppliers are currently preparing for the production of 80 million iPhone 6 units.

The iPhone 6 & 6 Plus: Eighth Generation
In April, Apple faced delays with iPhone 6 Plus production as the company tried to source new, thinner, lighter batteries that did not compromise battery power. Later, in August, a month before the launch of the iPhone 6, the backlights of the display had to be changed, disrupting production of the display panels.

The first iPhone 6 orders were shipped from China to the United States by air for delivery to customers by the end of the day on September 19, the launch date for the new phone. They were shipped less than one week after the official announcement of the iPhone 6 and shipping notifications are already being delivered notifying customers that their phones will arrive by the end of the day on September 19. However, for many other customers, iPhones will not be delivered for at least a month after ordering due to record demand which exceeds the preorder supply – 4 million were ordered in the first 24 hours. Foxconn is facing a great challenge in meeting customer demand even though they are producing over 400,000 iPhone 6 and 140,000 iPhone 6 Plus devices per day.

The iPhone 6 was released in the United States along with 20 other countries. China is not on the list. Whether due to Chinese government restrictions or lack of supply, China will have to wait to receive Apple’s newest phone. This highlights an issue with the supply chain. It is subject to government forces which are concerned with security or can work to promote domestic production OR not enough phones were manufactured for pre-order supply. Foxconn, the company manufacturing all of Apple’s iPhone 6 Plus devices and a majority of the iPhone 6 devices, is unable to keep up with demand. The iPhone 6 is facing delays entering one of the world’s largest markets at a time when the competition is growing – all due to an issue in the supply chain.

The challenges faced by Apple are the challenges faced by many companies. Manufacturing quality products across global supply chain networks in a cost-effective way requires state-of-the-art supply chain solutions and technology – from racks to analytics software. These solutions and technology are necessary to transform global supply chain networks across all industries.

Connect with MHI to find providers of solutions and products for your supply chain.