Page 123 - DMGT525_MATERIALS_MANAGEMENT

Materials Management

Notes
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Case Study Apple Inc – Setting New Inventory
Management Standards

pple Inc, one of the most innovative companies in the world not only sells some
of the most popular Gadgets of the century but also manages its inventory well.
AThe company worked on new inventory management strategies which became a
benchmark in the electronic industry.
The benchmarks not only minimized inventory costs but also at the same time helped it
smoothly sail through the big ticket product launches without giving scope to its
competitors, to catch up. The case not only covers the inventory management techniques
at Apple but also provide the basis for calculating the internal fund requirement of the
company based on the projection on sales.
In 1983, Apple introduced the first commercial computer Lisa. Lisa was incorporated with
graphical user interface (GUI), and Windows operating system that allowed several

programs to run simultaneously. Lisa was priced at $9,995 and was a commercial failure
due to its high price and limited software capabilities. In 1983, John Sculley (Sculley)
became CEO of Apple. Sculley had previously been the CEO of Pepsi.
In 1984, Apple launched Macintosh (Mac), which also incorporated GUI and ran of Mac OS
(Mac Operating system). It was priced $2,495. At that point of time, Apple estimated that it
would sell 80,000 units. However, the company could not achieve its target and sold only
20,000 units.

Due to over production of computers and actual sales being less than the estimated sales,
the company piled up large inventory which led to loss of 17% of the net income to the
company. In the meeting of April 10 and 11, 1985, Sculley asked Jobs to step down from the
position of vice president and general manager of the Macintosh department. In September
1985, Jobs resigned from Apple with some of the employees and started Next.
In 1993, Apple introduced the Newton, a Personal Digital Assistant (PDA), into the market.
Newton was a commercial failure. After the Newton’s failure, Apple lost market share
and its technological edge in its businesses. In mid-1993, Mike Spindler (Spindler) who
was the Chief operating Officer (COO) of the company was appointed as CEO and Sculley
who was then CEO was promoted to the Chairman. But after 5 months, Sculley resigned
from the post.

The period 1993 to 1996 was tough for Apple. Spindler also could not do much. In January
1996, Apple reported a loss of $69 million due to the price war in Japan and mismanagement
of inventory. Apple cut prices in an attempt to clear out the bloated inventories of low-end
Macs. In February 1996, Gil Amelio (Amelio) became CEO of Apple. Amelio planned to
streamline Apple’s product line and increase the cash reserves. He wanted Apple to cater
to the higher margin segments like servers and Internet access devices. In 1996, Amelio
requested Jobs to function as an informal advisor. In 1997, Apple purchased Next for $400
million.
Inventory Management from 1995 to 1997
During 1995 to 1997, the company’s revenue growth was declining and in the same line the
net profit also declined from $424 million to ($1,045) million from the financial year 1995

Contd...

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