Changes to Apple’s Supply Chain: Reading The Tea Leaves

Published February 11th, 2013 by John Westerveld 0 Comments

Apple's Supply Chain

I saw an interesting article on Fox Business that talked about how Apple has come to the realization that it needs to regain control of its supply chain. “What?” you say. “Apple is known for its fantastic supply chain”. And you’d be right… if the focus is on delivery metrics or even costs.  Instead, in this instance, the focus is on ensuring that the company’s ethical and environmental policies, as described in Apple’s supplier code of ethics, is being followed.

Apple has recently come under fire due to allegations that its suppliers engage in discriminatory working practices, such as underage labor, poor working conditions, long hours etc. While Apple is often singled out in these cases, this isn’t just a problem that is unique to Apple’s supply chain. These contractors’ supply products to many other companies, but Apple fairly or unfairly, gets targeted in news reports because it is one of the largest and most recognized brands.

Despite the fact that the companies perpetrating these infractions are completely independent from Apple, it is Apple’s products they are manufacturing and consumers ultimately see Apple as responsible. The point is that your suppliers are an extension of your company, and as such, can have a major impact on your image.

Just before Christmas, Apple made an interesting move; it announced that it will be bringing a portion of its manufacturing back to the US.  Rumour has it that it will be the Mac Mini production that will be on-shored and that Foxconn will be handling production in the US for Apple. While many have interpreted this as a “marketing” move, I have to wonder if it isn’t intended to address some of the ethical issues that Apple has been struggling with in its supply base.  Even though they will still be outsourcing the production of this product line, making this product in the US will undoubtedly make it easier to monitor production processes.

While the Mac Mini sold 1.4 million units in 2012, its sales are dwarfed by sales of iPhones, iPads and iPods.  Even the MacBook Air sold 4 times what the Mac Mini sold.  So why is Apple reportedly planning on moving the Mac Mini?  Why not something with more sales?  It actually makes sense if you think about it from a supply chain perspective.  Apple makes the point that one of the key reasons they still manufacture in China is because North America has lost the engineering and manufacturing skills required to manufacture complex electronics. If you take this at face value, what product would you choose to manufacture in that environment?  The Mac Mini has no display, no touch technology, simpler assembly (I assume putting a Mac Mini together must be simpler than an iPad or MacBook).  Also the lower volumes will make the complex and risky job of moving production easier.

I’m glad to see that Apple is taking steps to meet their supplier code of ethics. Despite some of Apple’s recent (and probably undeserved) problems in the stock market, they are one of the world’s largest manufacturers, and as such, have a significant influence on what is deemed acceptable. By making this move, it seems that Apple is taking a step to set the example that the unethical treatment of workers is unacceptable.

So, what is next for the Apple supply chain?  I can’t help but think that moving manufacturing of one of the product lines to North America is going to be seen by Apple as a trial. If it is successful, we will likely see the manufacture of more products moving to North America.  If not, we may see production quietly move back overseas.  What will Apple base this decision on?  My guess is that it will be the following factors:

  • How difficult is it to ensure that Apple’s supplier code of ethics is being followed?
  • How much easier is it to manage supply planning given the closer location and shorter lead times?
  • How difficult is it to locate and / or train people to work in these facilities – including manufacturing, engineering, planning and support staff?
  • What additional goodwill does Apple experience by being able to claim “Manufactured in America”…and what impact will this have on sales?
  • And finally, what is the impact on margin?

My hope is that Apple decides to move even more of their product to North America…but I admit, as a (not too) old manufacturing guy, I might be biased.

What do you think?  Is made in America (or Canada…or where ever you live) a factor in your buying decisions?

 

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