Custom «How Apple Forecasts Demand and Manages Inventory» Essay Paper

Introduction

Apple Inc. is one of the largest technology companies in the world. The company develops consumer electronic gadgets such as smartphones, computers, desktops, laptops, iPods and tablets. The company was formed in 1976 by Steve Jobs with an intention of making computers but later it changed its focus to include the manufacturing of consumer electronics. However, the company was dealt a big blow when its chief executive officer and founder Steve Jobs died. The company will therefore have to search for ways in which it will maintain its market dominance as well as capture new and emerging markets. This research therefore seeks to establish how Apple forecasts demand and manages its inventory (Apple Computer Inc., 2006).

Demand Forecasting and Inventory Management

Forecasting the demand for Apple products is one of the most important steps that the company has undertaken. It is important for the supplier, manufacturer and retailer to conduct the forecast analysis of Apple’s products in order to determine the quantities that should be manufactured by the company. Apple Inc. forecasts demand since this is the basic operation process and helps the company to determine the quantity it should manufacture and distribute to its retail outlets (Booker, 2007). The company is the third largest mobile phone manufacturer in the world after Samsung and Nokia. It has also been crowned to be the most admired company in the United States in 2008 and the most admired company in the world from 2008 to 2012. Apple Inc. is the largest publicly traded company in the world by market capitalization. The company has an estimated value of $626 billion listed in the New York Stock Exchange. This means that market capitalization of the company is larger than that of its competitors, Google and Microsoft put together (Creamer, 2012).

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According to Herner (2011), in order for the company to gain such high levels of growth and development, it has embarked on the demand forecasting and inventory management. Apple Company forecasts the demand in order to determine the quantity of the products it will manufacture through a series of approaches. This includes judgmental approaches. The importance of this strategy is to address the forecasting subject by assuming that consumers are aware of high quality of the company’s products and can recommend others to buy the same product. While utilizing this approach, the company gathers the knowledge and opinions of the people, therefore they become in a positions where they would know the appropriate demand for their products. Because of utilizing this strategy, Apple Company’s worldwide annual revenue grew by $65 billion in 2010, and increased to $156 billion in 2012 (Mehling, 1997). One of its products, the iPhone, when was first launched, has been so comprehensively respected that it was dubbed the "Jesus Phone”. Five years later, its impact was so huge that its latest recapitulation possibly would accomplish the astounding achievement of redeeming the US economy. The tremendous growth of its iPhone, iPod Touch and iPad products has brought about the large growth of the company. In order to forecast the demand for its product through judgmental approach, the company carries out surveys as an approach which is called “bottom up” approach where everybody contributes his or her opinion that makes up their final forecast (Apple Computer Inc., 2006). This strategy has enabled the company to introduce innovations in cell phones, transportable music players, and private computers that has increased the demand. For instance, the company carries out a poll for the company’s customers in order to estimate demand before the launch of the company’s products. This approach is leastwise credible in the meaning that the company asks people who can know anything about future demand. Moreover, the company uses consensus methods under the judgmental approaches to forecast its demand. This method uses just a few people to make general forecasts. For instance, a group of the company’s top managers would meet and create general forecast of demand through debate and discussion. For example, in the release of the iPhone 5 in August, the executives predicted that its sale would substantially influence the gross domestic product (GDP) in the US in the last quarter of the year. Moreover, the company encouraged each individual to contribute his or her insight and understanding based on the view of the market, the product and the competition.

According to Business Brief (2012), Apple Inc. also uses tentative approaches to forecasting in order to receive some estimation of the potential demand rate for the product. The company uses customer surveys that are at times conducted with the use of phones, on the streets or at shops. The company displays and describes its new product and potential clientele is questioned if they would be interested in buying the one. Apple Company also uses consumer panels during the early stages of manufacturing the company’s product to assess the future performance of the company’s product in the market. While using this strategy, small groups of potential clientele gather together in order to try the product and discuss its features and qualities.

According to Foremski (2000), Apple Inc. uses test-marketing technique to make a forecast of the demand for its future products. This strategy is used for preceding the all-embracing national introduction of a new version or product. This strategy helps in testing the market, measures the product awareness as well as the market penetration. It also helps in fine-tuning the common marketing program and ensuring that no potential troubles or problems have been missed. Being the most admired and accomplished phone maker in the world, iPhone creates a huge demand from it admirers for its products. Hawaleshka (2001) notes, that the huge demand for its products in turn exceeds the supply that the company can ensure to its consumers at a time. This effect creates more speculation of improved performance in the company’s shares. The US economy is mostly dependent on the way in which the consumers spend. Good utilization of demand forecasting strategy has enabled the company to create employment opportunities for more than 500,000 people in the country. This figure includes 47,000 of employees who work at Apple and 200, 000 people who rely on the Apple economy. The sale of Apple’s products has the ability to increase share prices, customer expenditure and supply chain that involves component makers.

In order for the company to grow and gain large market share, the company has embarked on the inventory management strategies. This is the strategy decisions that have seen the company grow and make a benchmark for other like-minded companies. The company does this through synchronizing promotions for their products. The company uses this strategy by relying on tying creative marketing plans to sell their products. The company has also developed the companywide planning calendars and forecasts for all promotions in all its channels of distribution. This also includes catalogs, online sales, and sales through emails, stores and space advertisements (Apple Computer Inc., 2006).  

International Business Times (2011) posits that the company uses inventory management strategy by revamping the organization structure. This is done in order to implement more streamlined inventory practice that leads to the company’s growth. In Apple Inc. the selling department manages the product assortment, sourcing and advancement and works together with the artistic department on promotions. The inventory control department is mainly responsible for overseeing the previous season's group and item history, working with dealers on variety planning, handling the inventory, estimating, reorganization, acceptance planning, after-sale assessment of item performance, retailer communication and acquiescence.

The company also manages its inventory through a series of metric approaches that has enabled it to keep track of its product development and sales. The company employs various methods, such as “first in, first out” method, “last in, first out” method, top-line and bottom-line growth approach, maintained gross margin approach, and gross margin return on investment (GMROI) approach.

According to Herner (2011), Apple Inc. is the world’s leading inventory management company. Its inventory management strategy helps the company know the best section of the market where it is supposed to sell its products. The inventory management strategy implemented by the company has led to the company acquiring astonishing increase in sales, incomes, returns and business ratings. The company has implemented an inventory management strategy that involves creating a product for each use. Moreover, the company is able to sell the products at the right price for only the profitable market segment. Using this strategy, the company has also been able to identify the market segment that pays higher for the specific product that the company provides. Inventory management strategy has enabled the company to ignore prospective buyers who are not willing to pay the right price for their product.

In conclusion, we can learn that the Apple Company’s forecasts demand and inventory management strategies have encouraged the company to grow and scoop high profits higher than two of the largest competitors combined. This is because the company has focused on forecasting demand and inventory management that it has used to achieve its success. The company has used this strategy to access leading scientific research on the product development, to gain highly skilled and trained productive development team. Moreover, through the market segmentation, the company has developed a highly competent sales team, as well as improved the company’s reputation on the development of high-quality products and innovation.