When Apple (www

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When Apple (www.apple.com) introduced the Apple Watch in April 2015, industry analysts had a hard time predicting how consum­ ers would react. Their estimates ranged from 5 million to 40 million Watches sold in 2015. This huge range in a market forecast creates havoc in planning for a supply chain. In fact, industry experts call it supply chain strain.

So, how did Apple's supply chain gear up for such a high de­ gree of sales uncertainty? First, the firm allowed a certain number of Apple Watch preorders. Based on those preorders, Apple could estimate the potential market demand and alter production ac­ cordingly. Second, even after releasing the Watch, Apple accepted only online orders for a few months. By controlling the ordering and shipping itself, Apple had accurate data regarding demand. As a result, the company did not have to manage demand by stocking inventory on store shelves.

The plan went off without a hitch, until it stumbled. Apple has multiple partners in its supply chain, and it holds all of them to extremely high standards. For Apple's supply chain to meet the demand for Watches, not to mention consumer expectations of quality, all of its partners had to operate at peak efficiency. With the Watch, one of the suppliers was not up to standards. Produc­ tion of the Watch was functioning well until the company discov­ ered that one of the key components, produced by a supplier, was faulty. That component was the taptic engine, which imparts forces or vibrations to the wearer to convey information.

The taptic engine supplier was China-based AAC Technologies (AAC; www.aactechnologies.com), maker of several common com­ ponents in mobile devices. AAC was unable to meet either Apple's

demand or its quality standards. The discovery of the faulty parts caused delays and other impacts on Apple's other suppliers as well as its customers. Apple reportedly threw out all of the defective Watches to avoid having to recall them.

Apple then handed over production of the taptic engine to another partner, Nidec Corporation (www.nidec.com) of Japan. Nidec manufactures parts for various industries including auto­ motive, manufacturing, and consumer electronics. It took some time for Nidec to begin making the taptic engines. While Nidec was ramping up production, Apple came under considerable fire over the delayed Watch and extremely long-range shipping times.

Once supply caught up with demand, Apple's supply chain functioned as planned. Apple then lifted its Web-only sales policy and allowed the Watch to be sold in Apple Stores and other retail outlets. This shift is an indication that the firm is better able to manage its demand forecast as well as the Apple Watch supply chain.

Overall, Apple did an excellent job of creating a new product with some completely new components, developing a sales and marketing plan that would go hand-in-hand with its supply chain, recovering from a faulty component from a supply chain partner, and still getting their device to market with great consumer fanfare. Although not everyone will find a use for an Apple Watch, the one thing you do not see is complaints about its quality. That, too, is proof of Apple's ability to maintain ultra-high-quality standards in the face of unknown demand and supply chain strain.

Questions

1. Discuss the importance of forecasting demand for supply chain planning.
2. Explain how a defective component can disrupt the flow of materials through a supply cha