Apple Turns Over Its Inventory Once Every 5 Days

This seems like a measurement you have to be careful with. It's measuring completed products shipped only, as far as I can tell. So the fact that Apple is selling hot products which can't stay on shelves (alternative: selling products with such high value that customers demand doesn't drop when they have to order them) counts as "good supply chain management" when it's really a reflection of the desirability.<p>If Apple was, say, sitting on a warehouse of unsold A5's, it wouldn't count against them. And if their battery supplier goofed and they ended up with a million incomplete iPads, they'd still be "selling" all the inventory they had.

Apple is one of lean manufacturing's greatest success stories. I mean lean in the original Taiichi Ohno sense: reducing waste during the manufacturing and fulfillment process.<p>In 1997, Apple had 437 million in inventory with 7 billion in revenue. By 2006, Apple had just 270 million in inventory - with 20 billion in revenue. Today, it's 1.2 billion in inventory on a staggering 108 billion in revenue. Since the instatement of Tim Cook as the top guy in Apple's operations department, Apple has become one of the most efficient consumer electronics manufacturers in world.<p>By comparison, HP currently has 7 billion (!) in inventory with 127 billion in revenue - that's nearly 5 times as much inventory per sales dollar than Apple. Sony has something like 8.6 billion in inventory on 89 billion in sales - almost 10 times worse than Apple.

The Steve Jobs biography mentioned Apple's supply chain success. Tim Cook was noted as being responsible for great improvements in inventory management.<p>"When Cook took over the supply chain, he cut the number of component suppliers from 100 to 24, in a move to force the companies to compete for Apple's business. Cook then shut down 10 of the 19 company warehouses to limit overstocking, and by September 1998 inventory was down from a month to only six days." <a href="http://www.appleinsider.com/articles/11/10/21/jobs_trusted_cook_to_know_exactly_what_to_do.html" rel="nofollow">http://www.appleinsider.com/articles/11/10/21/jobs_trusted_c...</a>

And <i>that</i> is why Tim Cook is CEO.

Consider the huge number of iPads/Macs/etc sold through apple.com that never hit inventory, they ship right off the line straight from China. Adding a lot of 0's to the numerator can really drive down an average.

Some misconceptions in this thread on how inventory turnover is calculated.<p>It is (commonly) calculated as COGS / Average Inventory.<p>Let's say your COGS for a Macbook is $500. You buy material on Jan 1 to make it, assemble on Jan 2, and ship Dec 31. Your turnover is $500 / $500 = 1 for the year.<p>If you buy parts to make 2 Macbooks on Jan 1 your inventory turnover would be 0.5 ($500 / $1000).<p>This accounts for unused A5 chips in stock (or anything else unused), and online sales don't count as "0 days".<p>More here: <a href="http://en.wikipedia.org/wiki/Inventory_turnover" rel="nofollow">http://en.wikipedia.org/wiki/Inventory_turnover</a>

I believe it.<p>Back in 2005, I ordered my sister an iPod on apple.com, complete with custom etched message on the back on Monday afternoon. It was shipped from China and arrived in New York on Thursday, not even 70 hours later.<p>It seems like Apple has figured out what things are really worth spending money on and invested heavily in those those things. Almost as if they had applied the Taguchi method to the enterprise.<p>Certainly, the speed with which materials and products move through a company is a thing worth optimizing.

I'm very impressed with Apple's ability to turn over inventory, it seems to be an extremely well oiled machine.<p>But... I have to wonder if these optimizations work against Apple if there is a sudden significant downturn in demand. Since Apple pumps so much money into the supply chain to keep it consistently rolling at a high level, would it hemorrhage cash at epic proportions if a significant drop in demand occurred?<p>If I draw a parallel to the 80's video game crash, the big players were the ones that seemed to take the biggest hit while the significantly smaller players did not have to shift their operations so drastically to survive. They were able to sustain themselves on crumbs. Right now we're seeing largish companies like Palm and Rim try to live off of crumbs and it's not going too well.

I used to work at an Apple retail store, and I'm pretty sure we didn't have turnover every 5 days. Of course this is an average, and I'm not exactly sure what it's measuring, and regardless we definitely got a lot of stuff shipped every day.<p>From what I hear of my wife's job, though, it sounds like Trader Joe's turns over its inventory every 1-2 days.

&#62; We calculated these times from the report's "Inventory Turn" metric, which estimates the number of times a company's inventory is sold in a given time period. Apple's number is 74, according to Gartner (or 76, according to Forbes). From there, it's a common practice to divide by 365 to "estimate the number of days [of] sales sitting in inventory."<p>Shouldn't it be 365 divided by the number of times per year they sell their average inventory?<p>They're going to have the reciprocal of the actual answer. Like, if it takes an entire year to sell off their inventory then their formula will give you 1 day turnover.

This is just absurdly high if it includes Apple retail stores. It makes sense that samsung would have high inventory turns since they don't hold finished products in inventory, but Apple must keep finished inventory in the retail stores, which makes the number that much more impressive.

I remember Evan Koslow talking about[1] this back in 2010 at the University of Waterloo. Really thought provoking stuff.<p>[1]: <a href="http://www.youtube.com/watch?v=9RYXqCtsZsc&#38;feature=player_detailpage#t=1280s" rel="nofollow">http://www.youtube.com/watch?v=9RYXqCtsZsc&#38;feature=playe...</a>

As micks56 said below, this has everything to do with how the combination of Apple selling product for enough profit to be able to do things like pay advance cash to their suppliers. This pushes almost all the inventory (material &#38; finished goods) off their books entirely, and by enabling things like direct ship by Foxconn they basically then only have to semi-accurately forecast demand at their retail stores and minimally ship to stock for the shelves and small warehouses that support them.<p>This doesn't belittle Apple's achievements at all, but considering they only have ~20 component suppliers and 1 integration partner, it's a pretty damned simple supply chain.

The numbers I've heard here in China are three weeks from the factory door to a warehouse on the West Coast of the USA (don't forget loading/unloading and time clearing customs). Typically, factories require you to complete payment and take possession before the product leaves their factory doors. There is often an inspection of completed goods at the factory before payment is made, and the buyer takes possession.<p>Perhaps Apple has told their manufacturing partners they will only take possession once the product arrives at their warehouse in the US, moving this time window from Apple's books to their supplier's books.

According to the article, that's over twice as fast as Dell. I guess if Dell can't compete, they should just liquidate the company and give the proceeds to the shareholders.

Consider how many distinct items are sold by Apple compared to Samsung, Dell and a grocery store and Apples feat seems less impressive.

I wonder if a story like "Dell turns over its inventory once every 5 days" would have made it to the frontpage for a whole day...

Surely stock piling is happening somewhere to cope with Christmas?

Such an incredible company.