NARCOS vs. Apple: Two Addictive Products and Supply Chain Similarities (Legal or Not)


It has been said that smartphone devices are designed to provide a level of gratification on par with drug use or gambling, which piqued my interest.  After doing some basic research I quickly realized there are some interesting parallels between a Fortune 100 supply chain and a drug cartel.

The success of the iPhone would not have been possible without Apple’s top ranked supply chain, and many could say the same for the creative ways cartels have been able distribute (cocaine) over the last 40+ years.

In this post, I am going to highlight areas of the supply chain for Apple and NARCOS that give each group a stranglehold on their markets of choice.  While I do not condone illegal drug trafficking, I thought it would be an interesting exercise to compare the two groups in order to highlight some of the creative techniques and practices they use to distribute their products.

Basic Economics and Market Positions:

Users

  • It is estimated that there are 700 million iPhone users worldwide.
  • Over 255 million people used illicit drugs last year.  More specifically, that’s 1 out of every 20 people ages 15-64.

Vendors/Suppliers

  • Apple utilizes 156 suppliers and vendors to make and distribute the iPhone.  78 million units were shipped out in 2016.  Nearly all of Apple’s finished products are manufactured in China and then shipped out of China’s 7 major ports along with 95% of the world’s consumer products.  Raw materials for iPhone come from all over the world.  Amazon has roughly 300,000 vendors/suppliers.
  • NARCOS utilizes 265,000 hectares (654,829 acres) of coca bush farms spread throughout three main countries (Colombia, Peru and Bolivia).  There are six Mexican cartels that NARCOS uses to transport and distribute product to the US and Europe.

Costs of doing business

  • It cost around $224.80 for parts and manufacturing to make the iPhone 7.  Apple sells the basic model for $649 which is a 189% profit before shipping and handling.
  • It costs approximately $780 to make a kilogram of cocaine in Columbia.  You can buy the cocaine in Columbia for approx. $2,200 per kilogram, which results in a 149% base profit.  As the cocaine moves north, the price of the cocaine increases to $27,000 per kilogram once it reaches New York City and doubles when it gets to Europe.

cocaine_route_value

Market share and value

  • Apple controls 42.9% of the US smartphone market.
  • 98% of the cocaine produced in the world comes from South America (Colombia, Peru and Bolivia).
  • Total estimated value of cocaine produced (1,237 tons) in 2016 is $239 billion.  It is estimated that out of the 1,237 tons, 250 (18%) will be seized by authorities worldwide bringing the actual value realized to $196 billion.
  • Value of Apple’s global market share at 18.3% as of Q4 2016 is roughly $86 billion.

Supply Chain Comparison:

Apple’s Basic Supply Chain

2017-10-03 (2)

NARCOS Supply Chain

Cartel Supply Chain Process

Sourcing/Manufacturing: 

Colombia, Peru, Bolivia and Central America/Cocaine is typically assembled in the country where raw materials (coca bush) are sourced – South America.

Warehousing: 

Intermediate warehouses via FedEx, UPS in small quantities; Stored in private warehouses owned by shell corporations; hidden in storehouses, buried in sealed lockers.

Distribution Tactics:

Wholesalers/Network Carriers – Cocaine is often hidden in legitimate goods until they can be extracted – See Los Pollos Hermanos, potato chips or salsa containers for good examples.

Human mules have been known to put drugs in their orifices or swallowing sealed containers to transport cocaine over the border.  In one extreme case, a woman was caught with cocaine filled breast implants.

Analyzing data from 2011 to 2016 from the Department of Homeland Security (DHS), the Government Accountability Office (GAO) identified a total of 67 cross-border tunnels, 534 ultralight aircraft incursions and 309 incidents involving panga or recreational boats during that period.

Below is a picture of several homemade submersibles that were used to traffic drugs into the US.  Power boats and recreational vehicles with hidden compartments have also been used on a regular basis to get product across borders.  18gngukdrz5jhjpg

Direct Sales Force – This group involves your local, low-level drug dealer offering direct to consumer sales.  Here’s a good interview with one such dealer.

Most of the “Direct Sales Force” could be considered outside contractors as they typically do not have a gang affiliation or relation to a specific cartel.  You will not see any of these folks become the next Pablo Escobar.

Returns:

The purity of the product is a huge driver for return customers. So while typical return logistics do not play a part in NARCOS’ supply chain, quality and reliability are critical to the longevity of a drug cartel.

Regulation:

I had the opportunity to speak with a representative of a US drug enforcement organization and was asked to keep their identity and organization confidential. Here’s what they had to say.

“These guys will use whatever method they can to get the drugs over the border, and they use systematic methods to identify flaws in the system.  Once they find something that works, they flood as much product as they can through that particular channel until it closes up.  I expect we’re capturing less than 50% of what’s coming in to the US.  They bring it over in cars, semis, mail, mules, boats, drones and planes, and it comes down to a numbers game.  For every load that gets seized, I’ll bet 6 or 7 make it through.  

That numbers game works from our end as well.  If we can get a good lead or a wire tap, we’ll knock down loads (seize drugs) left and right from the same organization.  

Word travels quickly though, and the cartels are always watching us, too.  So when we start knocking down loads, couriers will get word to use I-80 instead of I-70 or jump to the I-90 corridor, and it becomes another game of “cat and mouse.” 

Drug cartels even have seasonality:  “They operate like any other business, following trends of what works and capitalizing until there is a shift in the market or enforcement.  They even take a break for Christmas, pushing as much product as they can the first of December, cutting prices like a car lot pushing out last year’s inventory.  By the time the second week of December rolls around nearly all trafficking stops completely until the second week of January.”

I appreciate you humoring me in this post as I really enjoyed stepping outside my box on this one.  That said, taking legality and other moral differences out of the equation leaves quite a few similarities between a fortune 100 company and a drug cartel.  At the very least, you’ll know more when then next season of NARCOS comes up on Netflix.

 


References:

  1. http://www.wsj.com/ad/cocainenomics-the-logistics.html
  2. http://www.businessinsider.com/carlos-lehder-pablo-escobar-and-the-history-of-the-medellin-cartel-2016-8
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  6. http://www.sliptalk.com/drug-smuggling/
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  8. http://www.craveonline.com/mandatory/1059752-the-12-most-ridiculous-drug-smuggling-tactics-ever
  9. https://news.vice.com/article/drug-trafficking-meth-cocaine-heroin-global-drug-smuggling
  10. http://www.drugabuse.net/drug-policy/drug-trafficking-statistics/
  11. http://www.unodc.org/doc/wdr2016/WDR_2016_ExSum_english.pdf
  12. https://www.unodc.org/wdr2017/field/WDR_2017_presentation_lauch_version.pdf
  13. https://logisticsmgepsupv.wordpress.com/2015/03/12/logistics-in-drug-trafficking-organizations/
  14. http://www.akha.org/content/drugwar/mccoy/04.htm
  15. https://expandedramblings.com/index.php/iphone-statistics/#.WdPlJ2hSw2w
  16. http://fortune.com/2017/03/06/apple-iphone-use-worldwide/
  17. https://www.recode.net/2017/6/26/15821652/iphone-apple-10-year-anniversary-launch-mobile-stats-smart-phone-steve-jobs
  18. http://www.supplychain247.com/photos/is_apples_supply_chain_really_the_no._1_a_case_study/1
  19. https://www.theguardian.com/world/2017/jul/14/colombia-cocaine-united-nations-figures
  20. https://drugabuse.com/library/cocaine-history-and-statistics/
  21. http://www.live5news.com/story/16937198/testimony-claims-drug-ring-used-fedex