The Strategies that Propelled Tim Cook from CPO to CEO (2)

Posted by Andrew Bartolini on September 21st, 2012
Stored in Articles, Chief Procurement Officers, General, People, Strategy

We continue today with more of the strategies that Tim Cook executed at Apple that helped to make him the logical heir to Steve Jobs (Part One is here). Besides the basic point that it’s just very, very cool that a Chief Procurement Officer ascended to the role of CEO based upon his procurement and supply chain success, I want to reiterate why we have been so focused on Tim Cook and Apple.

  1. Steve Jobs, visionary leader, understood the importance of procurement to business
  2. Apple’s success over the past 15 years has been driven by great products with a great cost structure and a great global supply chain
  3. Tim Cook’s execution, while excellent, includes many of the same strategies that our readers have also executed
  4. Steve Jobs and Apple chose to think differently about procurement and they have been wildly successful because they did
  5. It is time for more CEOs to think differently about procurement
  6. The rise from “CPO to CEO” is a perfect example of a “CPO Rising” (this site’s title) and no matter how you slice it, it is pretty awesome

So, back to some of the strategies that propelled Cook into his current role:

  • Direct (to customer) shipping: Cook and his team realized in 2001 that the iPods were small enough that they could be economically shipped by plane from China. As a result, delivery time was significantly shortened for online orders which would be delivered directly to customers in just a few days.
  • Spend aggregation / supplier rationalization: Cook was able to trim the number of truly strategic suppliers to around 25 – this strategy coupled with huge volumes has given Apple an extraordinary amount of power in supplier negotiations as evidenced by:
    • “Should-cost” modeling: Apple’s spend volumes allowed it to require suppliers to provide detailed quotes including the cost of materials, labor, logistics, overhead and profit.
    • Key suppliers see significant stock increases simply due to their association with Apple’s leading products (here’s a story from last week – Apple iPhone 5 Suppliers See Rise In Shares).
    • As noted yesterday, Samsung’s market capitalization shrank by $10 Billion (that’s right, BILLION), when it was announced that it had lost part of Apple’s business to another supplier.
    • Apple is able to levy high penalties on suppliers for quality issues and warranty claims.
  • Outsourced manufacturing: One of Cook’s major decisions was to outsource manufacturing to Chinese firms, most notably Foxconn. While this strategy has drawn controversy (particularly the Foxconn factory working conditions), from a product, manufacturing, cost, and overall efficiency standpoint, this decision has been overwhelmingly profitable and successful.
  • Excellent inventory management: A large part of Apple’s high inventory turnover is simply due to the huge demand for Apple products but Cook was also able to reduce inventory to 2 days worth of product. Cook has been quoted as saying that inventory in his business loses between 1% to 2% of its value every week. With $35 billion in quarterly sales, a 2% loss on a bloated inventory each week would be crushing.
  • Product time-to-market: Years ago, Steve Jobs would come onstage to introduce a new product and demonstrate a prototype that would be available in a few months. More recently, Jobs (and now Cook) demonstrate the actual product days before it becomes available (any delays today are primarily due to product secrecy and intellectual property protection).
    • Years ago, Apple shifted an entire computer line to chips made by Intel. Apple made this major shift seamlessly.
    • Apple rivals still announce new products months before their availability. Case in point: Steve Ballmer announced Microsoft’s new Surface in June; it is not yet in stores.
  • Other areas of operational excellence: Beyond procurement, supply chain, and manufacturing, Cook took over control of sales, customer support, and the Macintosh division before being named Chief Operating Officer in 2005. Steve Jobs also had Cook take over iPhone sales and operations.

Tim Cook consistently drove innovation and delivered value from his supply chain and procurement operations. His appointment to become CEO of Apple was well-deserved. Yet, the strategies that we have covered over the past two days, while wholly impressive, are similar to the work done by many CPOs today.

How many CPOs do you know of that have and continue to deliver comparable value?

I know quite a few!

The CPO is Rising!

Other articles in this series

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