Supply Risk Management @ Apple Computer

Apple Computer—Managing commodity supply risk
The Apple example is now famous. In a need to assure the successful launch of its NAND-flash-based iPod nano line of MP3 players, Apple entered into forward-buying arrangements worth more than $1B to lock in adequate flash memory capacity.
Through its actions to assure NAND-flash supply for the iPod nano launch, Apple also seized a competitive advantage by locking up so much capacity that there was no opportunity for a competitor to launch a similar flash-based product in the same time period.
Apple’s presentation focused on the methods it uses to monitor and assess market conditions for constrained components like flash-memory, and decide to execute supply-assurance strategies if needed.
As one of the world’s largest volume purchasers of flash-memory, Apple’s actions in the market give it power in that market, but potentially higher risk exposure that it needs to manage.
A key learning is to recognize critical commodities and suppliers, understand risk exposure, and execute mitigation action.