O’Marah

"As O’Marah says of Apple’s supply chain: “It’s not really a global supply chain. In principle, it is; but in practice it’s this totally engineered stack of process and product, engineering and production, and it’s all synced up in one place.” After thinking about this for another moment, he adds, “They’re going to have a helluva time getting out of there.”"

"Instead of selecting components off the shelf, Apple was designing custom parts, crafting the manufacturing behind them, and orchestrating their assembly into enormously complex systems at such scale and flexibility that it could respond to fluctuating customer demand with precision. Just half a decade earlier, these sorts of feats were not possible in China. The main thing that had changed, remarkably, was Apple’s presence itself. So many of its engineers were going into the factories to train workers that the suppliers were developing new forms of practical know-how. “All the tech competence China has now is not the product of Chinese tech leadership drawing in Apple,” O’Marah says. “It’s the product of Apple going in there and building the tech competence.”"

"So Apple did something totally novel. It purchased hundreds of millions of dollars of machinery, placed it in the factories of its supply partners, and “tagged” it for Apple use only. “They were doing more capital equipment buying than anybody I could see in the world, and yet they were not owning it themselves—they were putting it in other people’s plants,” O’Marah says. From when the iPod launched in 2001 to when the iPhone went on sale in 2007, the “machinery” that Apple owns—equipment used in supplier operations—quadrupled from $245 million to $1.1 billion. Such capital expenditures stunned O’Marah, yet in the next five years that number would soar to $16 billion. The investments allowed its suppliers to operate at a level they’d otherwise be incapable of. And it gave Apple considerable advantages. Not only did Apple disallow the supplier from using the equipment on rival products, but at any point Apple could drive a truck to the vendor and reclaim the machinery. If Apple wanted to reduce orders at one supplier and favor its rival, “Apple would have the machines shipped to another factory—no question, no discussion,” says a manufacturing design engineer. In fact, around 2011 when Foxconn was attempting to exert leverage based on its dominant role assembling iPhones, Apple engineers showed up at a Foxconn assembly line and began unmounting expensive machinery from the floor, in broad daylight, before transferring it over to Pegatron. It wasn’t necessary to shift a large percentage of orders to the Foxconn rival—just making the point was enough to instill order."

"O’Marah recognized that Apple’s strategy was brilliant. It accounted for why the company was running circles around the competition, turning revered companies like Nokia and BlackBerry into case studies of strategic failure. But it had one major flaw. Whereas smartphone rivals like Samsung could bolt a bunch of off-the-shelf components together and make a handset, Apple’s strategy required it to become ever more wedded to the industrial clusters forming around its production. As more of that work took place in China, with no other nation developing the same skills, Apple was growing dependent on the very capabilities it had created."

"O’Marah, by tearing open devices to examine the parts and going through Apple’s detailed job listings, was uncovering the least understood part of what makes Apple successful. It wasn’t that its artists designed great products and then employed capable factories in China to produce them at scale. Apple’s engineers were deep in the weeds building, and even inventing, those capabilities. Apple was doing this on such a scale that it created an entire organization within Ops dedicated to the procurement, planning, and deployment of this capital-intensive machinery. Apple understood manufacturing better than the manufacturers themselves. And when Apple cocreated processes with a supplier, it was often Apple that owned the intellectual property rights. True, how to enforce such rights in China could prove tricky, but the combination of ironclad contracts and large-scale orders was often enough to keep suppliers in line for a specified period, after which they might be allowed to use their newfound skills."