Apple's Astonishing Operational Advantage

If there's any competitive advantage that investors continually underestimate for Apple (NASDAQ: AAPL  ) , it's the company's operations. Nowhere is this more evident than in Apple's increasingly rapid product rollouts. Case in point: Apple's new iPhone 5s. Despite a broader global rollout, it's already reached nearly 100% availability in the U.S., Apple's most important market.

iPhone 5c in Apple's holiday window display.

Higher standards
Two years ago, the iPhone rollout was much smaller and slower. As of mid-October 2011, the iPhone 4S was only available in seven countries. Availability expanded to 22 more countries by the end of October. On Nov. 11, the iPhone 4S launched in 13 additional countries (including the important Hong Kong and South Korea markets). Nearly three months after the initial rollout, the iPhone 4S finally arrived in China.

Today, Apple has improved its iPhone rollout by leaps and bounds. The initial iPhone 5s and iPhone 5c rollout on Sept. 17 included 11 countries -- China and Hong Kong among them. The far more robust initial rollout was reflected in record iPhone sales during the opening weekend: 9 million compared to 4 million two years ago. With both launches facing supply constraints, the improvement in launch weekend sales is largely a representation of Apple's ability to ramp up its rollout. By Nov. 1, the iPhone 5s and iPhone 5c had rolled out to more than 50 additional countries. 

Now, going into Christmas, Apple has managed to reach near 100% availability of the two new iPhone models in the U.S. (despite the much faster rollout), according to Piper Jaffray analyst Gene Munster's latest research on iPhone availability at Apple retail stores. Similarly, online shipment estimates in the U.S. have improved to one to three days from the five to seven days often quoted last month.

Chances are that Apple's ability to ramp up production of new products will show improvements in 2014, too. This conclusion is derived from Apple's plan to accelerate capital expenditure spending in 2014 -- particularly spending that will improve operational effectiveness.

Apple's operational weapon
It's no secret that Apple CEO Tim Cook is the company's former chief operating officer -- and a very successful one at that. Given Cook's operational background, it's not surprising that the company seems to rely heavily on operational tactics to stay ahead.

For years, Apple has been known for its operational keenness. And now, as the world's most valuable publicly traded company, Apple can use its size -- a weapon that no other smaller company can match -- as a weapon, too. The result is a first-class operation all the way from outsourced suppliers to product delivery.

The tactics at the supplier level include outspending peers on tools and machinery deals involved in the manufacturing process, and then placing this cutting-edge technology in the factories of its suppliers, according to people "familiar with the work" in a November Bloomberg report. In landing favorable contracts, Apple often flexes its size. "Because of its volume -- and its occasional ruthlessness -- Apple gets big discounts on parts, manufacturing capacity, and air freight," Bloomberg Businessweek authors Adam Satariano and Peter Burrows explained. 

Unsurprisingly, Apple has topped Gartner's list of the world's top supply chains for six years in a row.

Aiding Apple in low-margin categories
Apple's operations excellence, combined with its brand value, have helped Apple successfully enter low-margin categories like MP3 players and cell phones, and turn them into major profit centers. With more scale and plans for capital expenditure spending than ever before, could Apple do the same thing in new categories that are typically low-profit -- (maybe television?) -- in 2014?

Whether Apple enters a major category or not in 2014, its rapid launch and availability of its new iPhone models shows that Apple's supply chain is at its best. Apple should have no problem meeting its guidance for its highest revenue quarter ever when it reports first-quarter earnings in January.

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