Supplier Contracts
Apple retains capital assets at many of its suppliers’ facilities and engages in inventory prepayments at negotiated prices. This pattern is convenient and keeps Apple’s processes lean, but there are risks. The company’s purchase commitments can be as long as 150 days, and technology moves quickly. While Apple continually reviews these holdings, with the pace of innovation, some of these inventories, whether finished products or components, can become obsolete. However, Apple needs to have some inventory ready to go, so when it comes to these types of contracts, suppliers have limited power.
Overseas Suppliers
Many of Apple’s suppliers are overseas, and the company relies on them to ensure the components and products they produce adhere to the standards of quality that Apple and its customers expect. Apple extends warranties to its customers, and in some cases, may have to make good on any quality issues before it can be reimbursed by those suppliers. In a worst-case scenario, such as a batch of defective computers, Apple may have to absorb considerable costs temporarily. Also, Apple has to trust that its suppliers’ shipments are prepared correctly and packaged appropriately for customs and safety in transit. Otherwise, items may be damaged in transit causing Apple to be unable to fulfill orders in a timely fashion.