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Articles - Publication Date 3.15.1999
What's Really Driving Apple's Recovery
Ex-Compaq exec Cook brings supply-chain religion to PC maker.
By Doug Bartholomew
If you believe the common wisdom in the business press, Apple Computer Inc. was saved from being turned into cider by the return of cofounder Steve Jobs and the advent of a new product, the hot-selling iMac.
Truth be told, that's only half the story.
It's a fact that in 1996-97, the Cupertino, Calif.-based computer maker lost nearly $1.9 billion. It's also true that last year a 40% smaller Apple -- a pared-down core of its 1996 self -- earned $309 million, with the iMac representing about one-third of total Macintosh sales during the latest quarter. But beneath all of the iMac's new colors, what's really driving Apple's resurgence is a whole new strategy for manufacturing and supply-chain management conceived by a former Compaq Computer Corp. executive.
That's not to say that Jobs, the legendary industry visionary, doesn't deserve his share of the credit for Apple turning in five consecutive profitable quarters. Having taken over in mid-1997, Jobs accelerated the company's restructuring. On his watch, the company shed 15 of 19 products including printers and the slow-selling Newton personal digital assistant, closed plants, and laid off thousands of employees. Jobs instilled new confidence among investors, with Apple shares rebounding from a low of $12.75 a year ago to $39 in February. He even had the audacity to sell Apple stock to archenemy Microsoft Corp. in exchange for a cash infusion of $150 million.
Finally, Jobs enlisted a new executive team, paying signing bonuses where needed to get the best people to keep an already tarnished Apple from spoiling altogether. Of the seven-person executive team, only CFO Fred Anderson joined the company before 1997.
Perhaps the most important of those executives Jobs brought on board was Timothy D. Cook, whom Jobs lured away from industry leader Compaq with a $500,000 signing bonus and a $400,000 base salary to become Apple's senior vice president for worldwide operations. At Compaq, Cook was vice president in charge of corporate materials. A computer-industry veteran, Cook also worked for a major computer reseller and spent a dozen years at IBM Corp., where he was head of North American fulfillment. Cook has been religious in his fervor and dedication to remake Apple's lazy, bloated supply chain and wring out inefficiencies in its production processes.
Aiming at twin goals of slashing inventories to the bone and cutting order-to-delivery times, Cook has pushed Apple as if there were no floor under the accelerator pedal. "I'm really big on asset velocity," he says, referring to how fast a company can turn its inventory. "For a PC manufacturer, that's perhaps the most key metric. In the business we're in, the product gets stale as fast as milk."
Historically, one of Apple's greatest weaknesses has been its supply chain. Managers did a poor job of matching production to demand. One reason for the mismatch was that sales forecasts often were way off. "Apple's problem was a supply-chain management problem," says Tom Grace, senior manufacturing analyst at AMR Research Inc., an IT research firm in Boston. "They always had shaky forecasting ability."
As a result, the company either missed potential sales because it couldn't fulfill demand or piled up huge excess inventory that later had to be written off at a crippling cost. For years the company struggled with the twin demons of insufficient supply and excess inventory.
Most of Apple's huge losses, in fact, can be attributed to sloppy inventory management, Cook says. "The company lost $1 billion in 1997 mainly as a result of asset problems, such as being too long on inventory," he says. "We had five weeks of inventory in the plants, and we were turning inventory 10 times a year." In general, other manufacturers in the industry were turning inventory about 10 to 12 times, although Dell Computer Corp. was at 40 and Gateway Inc. somewhere in the middle. "We set our eyes on beating Dell," Cook says. "We're looking at<
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"In the business we're in, the product gets stale as fast as milk."
Timothy D. Cook, senior vice president for worldwide operations, Apple Computer Inc.
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