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Apple's iPad 2 has a hidden advantage over its competitors, and that is their supply chain. This supply chain gives the iPad access to parts its competitors can't touch and at prices they can't reach. With Apple's war chest of cash and high volume production, will their competitors be able to compete?

Steve Jobs has greatly improved Apple's supply chain management since his return to Apple back in 1996. Back in 2000, Dell was viewed as having the best supply chain management. They excelled in a commodity driven computer industry. Apple replaced Dell when the iPod Nano was released by cornering almost the entire flash memory business. Flash memory production increased after that, but by then is was too late for Applecompetitors. Apple was the second best supply chain management back in 2007, with Nokia being number 1. Now Apple is continuing its success with the iPad and iPhone.

With the growth of the tablet PC, touch screen manufacturing continues to grow with an estimated 60 million for 2011. Apple will dominate by consuming over half of those touch screens. With that kind of volume, Apple is able to pick and choose the premium parts at the best prices. This leaves their competitors with whatever is left over, which is not a good position to be in if you are trying to build a better product.

Before Apple came out with the Retina display, its competitors were arguing they had a better screen. Those competitors were using AMOLED screens with deeper blacks and higher resolution screens. Now, those same competitors are silent, as it is very hard to compete with a retina display that has over 300 pixels per inch. Since Apple came out with a retina display almost 9 months ago, no one has come close to competing with it. Apple consumed high resolution type displays as they did with flash memory. They will do the same when they add a retina display to the iPad.

When Apple acquired P.A. Semi Subsidiary back in 2008, they gained technology and know-how to help them build custom ARMs like the A4 and A5. One of those technologies is PoP (Package on a Package), which allows Apple to stack memory underneath the main processor. Apple can now reduce the size of both chips since it eliminates the need for a system bus. PoP also provides better electrical signals which reduces power and increases speed. Suppliers like Samsung and Elpida are starting to come out with faster and lower powered DDR2 DRAM memory for PoP systems. With high demand for new iPad 2 and iPhone, Apple will be able to buy most of the available supply leaving their competitors out in the cold.

Apple has mastered the art of supply chain management. They are continuing to improve their supply chain by investing in key components. Displays, Touch-screens, and memory are just three examples, but there are more. They will use this skill to make it even harder to compete. With most of the high-end parts locked up in Apple products, competitors with have to pay more for lower quality parts. What happened to the MP3 market is now happening to the tablet market.

1 Comment

1. TheMacAdvocate ~ March 17, 2011 13:38
   I absolutely agree Apple's purchasing prowess is one of the oft-overlooked keys to its success. It's interesting to see how other parts of the company's strategy mesh with it. Apple's "skate to where the puck is going to be" product development philosophy means that since the iPod they're basically creating PNP markets. Being able to dictate what kind of products you compete with by being first mover allows Apple - with their enormous pile of cash on hand - to secure supply in a way that assures their runs at ultra-low prices while choking competitors' access to supply. Apple really is a company that's firing on all cylinders.

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