The Strategies that Propelled Tim Cook from CPO to CEO (1)

I continue to absolutely thrilled and fascinated by Tim Cook’s story (something I only discovered in August). Cook, after all, is the man who went from Chief Procurement Officer to CEO of the world’s largest and most successful company, Apple. From our traffic numbers, I can tell that many of you share my enthusiasm.

Last week, we highlighted Tim Cook’s views on his career and career strategies in general by sharing his his ideas and direct quotes on the topic. Today and next time, we’ll highlight some of the key actions that Cook took at Apple that helped to make him the logical heir to Steve Jobs.

Here are is the catalog of recent articles written about Apple and Tim Cook:

You will recall that Steve Jobs hired Cook in 1998 to clean up Apple’s procurement and supply chain operations. When Cook became CEO in 2011, Apple’s supply chain was universally hailed as one of, if not the best, in the world. Here are some of the key strategies and initiatives that Cook drove at Apple as well as some commentary by Cook, myself, and others:

From the start (1998), Cook believed that Apple needed to exit the manufacturing business and he immediately began working on that process by establishing relationships with many Asian-based contract manufacturers (“CMs”)
While one of Cook’s major strategies was to to outsource production, that transformation was going to take time; so while he forged ahead with CMs, he focused on streamlining Apple’s current production, procurement, and supply chain operations:

Cook quickly cut the time to make an Apple computer in half
Cook reduced the number of strategic suppliers by 75%
With the concentrated spend placed with a much smaller group of suppliers, Cook was able to negotiate aggressive discounts and other concessions like keeping two weeks of inventory on hand, relocating to within one mile of Apple plants, and 90-day payment terms
Cook cut the number of Apple warehouses from 19 to 10
Cook attacked Apple’s inventory with a vengeance reducing inventory by 80% in his first three quarters at Apple
Cook would continue to cut Apple’s inventory, getting it down to two days worth of product within two years
Cook believes that inventory is “evil” and that “you kind of want to manage inventory like you’re in the dairy business. If it gets past its freshness date, you have a problem.”

The savings and efficiencies gained from Cook’s initial strategies made a huge impact on Apple’s working capital and balance sheet
The balance sheet which was obviously also bolstered by wildly successful sales gave it tremendous leverage when dealing suppliers. The balance sheet power plus huge volumes enable Apple (and Cook) to ensure availability, quality, and low prices by

“Paying up” to ensure exclusivity as it did with the embedded lasers found in the MacBook
“Buying out” a supplier’s capacity as it did with Toshiba’s disk drives used in the iPod
Cornering the market on certain commodities as it did with flash memory ahead of the iPod Nano launch and with iPhone screens several times over the last few years
Pre-paying suppliers for huge commodity (or component) orders
Buying the capital equipment needed for production and leasing it to its suppliers

By many accounts, Tim Cook is a very different type of leader/person than Steve Jobs – specifically Cook was viewed as the counterbalance to Job’s creative (and volatile) genius. Cook, an engineer by training, is highly analytical band measured.
By those same accounts, some of the attributes that they shared were obsessiveness, intensity, and a demanding management style:

His day often begins at 4:30 am and he practices a “first into the office, last out” mantra
For years, Cook held a standing Sunday night staff meeting by telephone in order to prepare for the week ahead
Cook is reportedly fierce in meetings and does not suffer fools or any wrong answers lightly

Apple’s supply chain has changed dramatically over the past 14 years, including the launch of retail outlets. Next time, we’ll continue our look at what Tim Cook accomplished over this time period.

I will leave you with one powerful example of the procurement power that Apple now yields based on this news report from May, 2012:

“Seoul: Shares in South Korea’s Samsung Electronics extended their heavy slide on Thursday, on speculation that arch rival Apple Inc is looking to cut its reliance on Samsung memory chips and turn increasingly to Japanese chipmaker Elpida. Samsung shares fell to a two-month low in morning trade, having shed more than $10 billion since it was reported on Wednesday that Apple had placed large new orders with the struggling Elpida for dynamic random access memory (DRAM) chips used in mobile devices.”

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