Making money in the margins: the story behind Apple Watch

The Apply Watch and Lean Best Practices
The Apply Watch and Lean Best Practices
The Apply Watch and Lean Best Practices

Making money in the margins: the story behind Apple Watch

Photo: CNET

As a student of Kettering University’s Master of Science in Lean Manufacturing online program, no doubt you are up-to-speed with the latest lean concepts. Maybe you’ve integrated a few ideas into your production line and are starting to see results? Apple, on the other hand, has been implementing lean concepts for years. Apple is the king of lean manufacturing; and with the highest ever margins achieved by Apple Watch, the world is taking notice. So how does Apple do it?

Global Manufacturing and 24/7 Wall St speculate that the actual cost-to-price ratio of Apple Watch is only 24%. If this is true, Apple Watch is the “highest margin product Apple has ever produced” and will make a major impact on Apple’s bottom line if sales match the predicted interest in the product. Apple is able to achieve bottom-of-the-barrel pricing by purchasing in large quantities. They also work closely with FoxConn in their production processes, which reduces costs significantly.

However, these “tear down” methods of cost analysis, can frequently be inaccurate. The analysis does not include things like capital, overhead, software or licensing fees that are hidden in the supply chain; so it is important to note that the profit is inflated. It is purely a ratio of materials and labor cost to retail price. Speaking to dissuade these claims, Tim Cook, an Apple chief executive, says that these cost breakdowns are usually very far from reality.

Regardless of who is speaking more truth, the profit margin is massive.

So how do you begin to think like Apple? Obviously not every company can outsource to FoxConn; not every company can purchase batteries in excessively large quantities and have contracts with suppliers on lockdown. You can, however, strive to maximize production efficiency and maintain control over each step in your manufacturing process – from concept to customer. You’ll want every single activity, from sweeping the shop floor to retooling a part, to impact your bottom line. You’ll want to survey the basic design and workflow of your manufacturing facility and improve your operations within the lean paradigm.

You also will want to master these key skills:

  • The decision-making tools necessary to design value in the global supply chain, from concept to customer
  • Demand forecasting and enterprise planning for the purpose of increased profit and value to stakeholders
  • Basic concepts in strategy, forecasting, demand planning, inventory control and value stream mapping
  • The integrated approach to enterprise planning and its evolution from MRP I and MRP II
  • The core structure of ERP systems and the characteristics of emerging ERP-based organizations
  • The fundamental success factors in moving from traditional business functions to an integrated, process-based ERP environment
  • A conceptual framework for understanding Supply Chain Management (SCM)
  • Concepts, trends and technologies that enable global SCM
  • How customer needs, competitive advantage, operational measures and financial performance support successful implementation of SCM
  • How operational activities including information systems, procurement, demand planning and forecasting, inventory management and logistics support organizational goals

Mastering these topics is how Apple has been able to achieve such incredible profit margins, and these are the precise topics taught in our online Master of Science in Lean Manufacturing program with a certificate in Supply Chain & Enterprise Resource Planning.