A Case Study of Apple Computer’s Supplier Hubs: A Tale of Two Cities

In June, 1994, Clark Winchester, the director of Apple Computer Incorporated’s Sacramento site (the Sacto OPS Center), called a meeting to discuss the need to boost manufacturing capacity at the site in order to meet rapidly growing demand for its desktop PC and server PC products.

One major issue to be resolved concerned how to free up at least 30,000 square feet of space for more production lines which were to be added November 1. As Winchester put it, “This is the kind of problem which all manufacturing organizations like to have—the challenge of growth.”

It was agreed that the action that would have the least negative impact on daily operations and customer service was a reduction in the volume of raw materials (purchased components) stored at the site.

Materials could be stored off-site in bulk, with frequent replenishment of inventory kept on the production line to feed production. Four alternatives for decreasing
on-site components inventory were identified:

• Establish a company-managed warehouse nearby
• Contract for warehousing with a logistics company
• Have suppliers establish a local source of supply by manufacturing or stocking the components they supply locally and delivering them using a kanban/JlT program
• Contract with a logistics company to implement a supplier hub.

A supplier hub is an arrangement in which suppliers stock material that they have manufactured and that they still own in a shared warehouse close to the customer’s site. The warehouse is managed by a logistics service provider, typically a freight forwarder.

The supplier hub concept is based on the premise that each supplier is responsible for providing a responsive, local source of supply, and that there are advantages to sharing a facility with other suppliers and to having it managed by a local agent, the freight forwarder.