Apple's controversy highlights nature of contemporary supply chainsby John Manners-Bell on 2012-02-28 21:45:26
Apple has had a mixed year so far. On the good side, its recent results have made it the largest company in the world in terms of capitalisation, overtaking Exxon. On the not so good side, it has been at the centre of a scandal about working conditions at the company to whom it outsources the assembly of its iPhones and iPads.
In a report of a conversation between the late Steve Jobs and Barack Obama, the founder of Apple replied to the question, "What would it take to make iPhones in the United States?" by stating that it could never happen because the US lacked the engineers and the motivation to manufacture the products.
iPhones and other Apple products are largely made by a Taiwanese contract manufacturing company which operates under the brand of 'Foxconn' and which bases its huge factory complexes mainly in China. A New York Times story last week reported that the working conditions in these outsourced plants broke the supplier code of conduct between it and Apple, with assembly-line staff often working over 60 hours on assembly lines.
In his conversation with Barack Obama, Steve Jobs' explanation for the attraction of these Chinese plants was their flexibility. He cited their willingness to adapt production schedules at a moment's notice and their ability to source components within China. Jobs asserted that this could never happen in the US.
However, from a logistics perspective this does sound a little unconvincing. Major components for Apple products – such as screens, flash memory, or microprocessors- are sourced in South Korea, Japan and Taiwan rather than China. The issue of schedule changes appears to be achieved by the tried and tested method of 'throwing bodies' at the production line. And that's where Foxconn's working practices are relevant. Their flexibility may owe much to the fact that they compel their staff to work very long hours with little or no notice (although this they deny).
Logistics is fundamental to companies such as Foxconn. They need to get components in and finished products out of their assembly plants quickly and easily. That is why their assembly facilities are located in places such as Shenzhen and Zhengzhou which are next to container ports or other types of transport hubs. Of course the other ingredient for such operations is a ready supply of low-cost labour.
What much of modern supply chain management is focussed on, and contemporary logistics facilitates, is the integration of western engineering design and marketing capabilities with emerging markets' wages, labour and even (poor) environmental practices. The problem for many of these emerging markets is that logistics capabilities are replicable on a global scale and jobs can be easily and quickly moved not just out of the US, but out of China as well. Consequently Barack Obama's question should not just be of concern to those in America but to all economies which rely on commoditised labour for comparative advantage.
John Manners Bell