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Apple threatens suppliers with ‘extreme pain’

The news stories continue to cascade from the global weather crisis. While manufacturers, traders and consumers continue to get buffeted, KitGuru takes a look behind the scenes at the kind of maneuvers that are taking place around HD stock and supply.

Normal folk go into stores and buy products. This is the way we've done business since the dawn of trading and it makes sense.

Unless you are a massive, multi-national organisation. Then things change. Especially with the introduction of the term ‘consignment'.

This rather unusual approach to the whole purchasing cycle, creates huge advantages for the biggest companies.

Essentially, the buyer has so much money and can place such big orders, that the supplier cannot possibly ignore them. So when the buyer says, “Forget everyone else you are dealing with, I want to order 1.2 million units in 2011 and I'd like them dropped off with me at the rate of 100,000 a month, but I won't be buying them until I sell them… Oh, yes, and I won't pay for them until 3 months after I sell them”, then the supplier has no choice buy to drop their pants and bend over.

It's the way that companies like Dell have been doing business for years and it's certainly an accepted practice – with both sides fully aware of the issues.

However, if you suddenly introduce a massive restriction on supply, then you change the game completely.

Now the supplier has all the cards. With demand so high elsewhere, that it can ‘give a story' to its regular customers, and go off in search of massive profits elsewhere.

Right now, the world is crying out for hard drives in the wake of the much publicized Thai floods. Drives look set to quadruple in price, even though they don't really cost more to make. Normally, manufacturers would be rubbing their hands together and looking forward to announcing a record quarter.

Not the case if you are supplying Apple. Their drive buy prices have been fixed. Totally.

Apple's purchasing teams have made it crystal clear [Torquemada style? – Ed]  to hard drive suppliers across Europe that the consignment stocks they are holding (and which have been promised to Mr Job's company) had better remain untouched by greedy hands, or the consequences will be ‘severe and long lasting'.

So, while the entire market scrambles to find a handful of hard drives to try and satisfy customer requirements, Apple is quietly confident that its suppliers will tow the line and ensure constant supplies through Xmas.

No one quite knows what happens to suppliers that try to change business terms with Apple, half way through a contract

KitGuru says: What is unclear in Apple's move to secure its supply channel, is whether or not the system/software giant intends to hold its present prices or allow an increase in profits by claiming some kind of ‘hardship due to flooding' – even if it is, in fact, protected.

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