Apple spends lavishly on all stages of the manufacturing process, giving it a huge operations advantage

Apple’s massive competitive advantage is operations.

This is the world of manufacturing, procurement, and logistics in which the new chief executive officer, Tim Cook, excelled, earning him the trust of Steve Jobs. Apple has built a closed ecosystem where it exerts control over nearly every piece of the supply chain, from design to retail store. Because of its volume -- and its occasional ruthlessness -- Apple gets big discounts on parts, manufacturing capacity, and air freight. “Operations expertise is as big an asset for Apple as product innovation or marketing,” says Mike Fawkes, the former supply-chain chief at Hewlett-Packard and now a venture capitalist with VantagePoint Capital Partners. “They’ve taken operational excellence to a level never seen before.” This operational edge is what enables Apple to handle massive product launches without having to maintain large, profit-sapping inventories. It’s allowed a company often criticized for high prices to sell its iPad at a price that very few rivals can beat, while still earning a 25 percent margin on the device, according to the estimates of Piper Jaffray analyst Gene Munster. And if the latest rumors are to be believed, Apple’s operational expertise is likely part of what gives the company enough confidence to enter the notoriously cutthroat television market by 2013 with a TV set that would tightly integrate with existing Apple software like iTunes. The widespread skepticism over Apple’s ability to compete in such a price-sensitive market, where margins are often in the single digits, is “exactly what people said when Apple got into cell phones,” says Munster.