Since the beginning of this year, Capital Flywheels has written about global supply chain issues on several occasions, including the Suez Canal blockage, auto chip shortage, and potential supply chain stress from China’s energy crisis.
In isolation, each of these incidents are more than manageable.
But together, repeated stress will eventually lead to breakage.
The way things break is not always obvious because we live in a non-linear world. Things that are fine one moment, might not be fine the moment after.
It’s never easy to see.
But sometimes there are warning signs that just stand out.
The proverbial canary in the coal mine. When the canary stops singing, the miner knows he needs to be on high alert.
I think we are starting to see the canary go quiet:
Apple Inc. is likely to slash its projected iPhone 13 production targets for 2021 by as many as 10 million units as prolonged chip shortages hit its flagship product, according to people with knowledge of the matter.
The company had expected to produce 90 million new iPhone models in the last three months of the year, but it’s now telling manufacturing partners that the total will be lower because Broadcom Inc. and Texas Instruments Inc. are struggling to deliver enough components, said the people, who asked not to be identified because the situation is private.
Apple’s woes show that even the king of the tech world isn’t immune from global shortages made worse by the pandemic. In addition to facing tight iPhone availability, the company has struggled to make enough of the Apple Watch Series 7 and other products.Source: Bloomberg
Many companies have had supply chain issues over the last 12-18 months.
What’s the big deal of one more addition among the crowd?
Unfortunately, most companies are not Apple.
While Amazon is unequivocally the king of logistics and distribution, Apple is unquestionably the king of product manufacturing.
Out of all the companies on Earth today, Apple is indisputably the single company with the greatest handle on global supply chains and manufacturing. Not only does Apple manufacture some of the most precise and technically challenging products ever created, Apple manufactures them at scale. A scale that expands more than 400 million devices (iPhones, iPads, Macs, Apple Watch, AirPods, etc) every single year.
You don’t get there without being the absolute best at supply chains and manufacturing.
And the advantage of having such scale is that Apple is always first in line for everything…as long as it’s available. Having $200 billion in the bank (more than any company on Earth) also works magic in getting what they need.
And Apple is now revealing that they can’t get what they need.
This can only suggest that supply chain issues have only gotten worse and is about to get a whole lot worse for everyone else not named Apple.
In practice, people tend to think of objects as one whole thing. But in reality, every product is made up of many, many components. An iPhone is not one thing that can be churned out of a factory like loaves of bread. An iPhone is really a thousand little things put together. Missing any one single piece of input means you cannot produce an iPhone even if you have 99.9% of all the things you need.
Indeed, a perfect example of non-linearity at work.