9/25/2012

Supply and Demand


The first several chapters of the book have dealt with demand, elasticity and supply. When we speak of demand and supply, we shouldn’t overlook the issues that seem to be swirling around the release of Apple’s new iPhone 5. These represent real-world supply and demand issues. According to Bloomberg Businessweek, Apple is suffering from a supply shortage due to the popularity of the new iPhone, or too high of demand. According to their article, there are several factors that are restricting supply. The first is the new ‘in-cell screen technology’ which requires a more painstaking process to manufacture than the previous technology that was utilized by Apple in former versions of the iPhone. This appears to be causing a bottleneck in the production of iPhones, however, the article goes on to say that other issues at hand involve other technologies that are also emerging and evolving, one of them being the LTE or long-term evolution chips that power the phone. According to Qualcomm, they are reporting ‘constrained’ supplies due to the new manufacturing process. 
While there may be issues with supply, the demand doesn’t seem to be far enough ahead of the supply to require alarm as several news agencies are reporting. Apple, by their own account, has shipped over 5 million phones during the first three days of production, with orders to ship many more. According to Bloomberg, they are projected to sell over 170 million phones in the next year. The shipment of over 5 million phones in the first three days seems a bit absurd to state that there are serious restrictions on supply. On top of this, it doesn’t seem like there are too many people crying that the new iPhone is just not available. Everyone who orders a phone receives an expected delivery date. Furthermore, Apple is very good about taking care of its customers and following through on their promises. I say to be able to keep up with demand in the fashion that only Apple can do, is remarkable. Any management team that can deliver that kind of supply, under the conditions that Apple routinely does, should not only be applauded, but also replicated to the success of that business.

3 comments:

Dr. Tufte said...

Da Boy: 100/100.

I'm not really sure that there's a lot of ManEc in the argument you're making. To me is sounds more like supply chain management.

Moh A said...

I think there is more to the story than just supply and demand. The cell phone industry is a monopolistic competitive market, with many firms and differentiated products. One of the critical components of strategy in this market is to advertise, and highlight the perceived difference between brands. Apple has done this very successfully with each iteration of the iphone.

I find it hard to believe that after so many generations of iphones and their dominant market share across the globe that the people at Apple would consistently underestimate demand for their product.

More likely is that Apple has a segment of extremely loyal customer base who are willing to wait in long lines. Every time a shortage exists, local blogs and newspapers pick it up and add to the allure of the iphone. The physical presence itself is enough to turn heads at busy shopping malls and sends yet another not so subtle reminder that "people want to buy iphones".

Dave Tufte said...

Moh A gets 50/50.

I think you're right. Apple is a potential textbook case for the wya it practices price discrimination.