Thursday, February 2, 2012
The two sides of Apple’s Supply Chain
The two sides of Apple’s supply chain
Late last year I came across an article with the title “Apple's Supply-Chain Secret? Hoard Lasers”1. The article discussed who Apple gains competitive advantage through its supply chain. It gave a particular example of how when design required light to shine through the metal casing of laptop without making holes in the casing which could be done with the help of modified laser equipment used in microchip manufacturing, Apple signed exclusive agreement with the laser manufacture and bought hundreds of such laser. With over $80 billion in cash reserves Apple can spend exuberantly whenever necessary, investing in long term capacity commitment and then reaping the benefits from greater volumes in the long run. With Apples approach of looking further ahead in time for its resources, capacity and transport needs it has been able deliver its products to millions of customers across the world with little delays.
Close to product launch dates Apple’s manufactures a kept busy producing the millions of units of the product that is expected to be sold across the world. Even in the retail store the demand is monitored by the hours and changes made in the supply chain as necessary. In the latest quarterly report Apple stated that it shipped 37 million iPhones and 15.4 million iPads with an average volume of 402 thousand iPhones and 165 thousand iPads per day2.
Apple’s large product launches can severely impact competitors supply chains, such as in the case of iPhone 4 launch when manufactures such as HTC were facing shortages of LCD screens, and glass for the touch screens of their mobiles since Apply had already made large orders for the suppliers to fill.
With such efficiency in procurement, manufacturing, and delivery it no wonder Apple’s supply chain has been ranked No. 1 in the world for the last three years by Gartner3.
Behind this efficient and streamlined supply chain that is presented to the world is a much darker side of Apple’s supply chain, a side which until recently got little exposure. To gain the competitive advantage it has through its supply chain Apple has been known to be ruthless with its suppliers, striving to get the most out of them at the lowest cost and shortest time. Some suppliers are so dependent on the Apple’s business that they forced into agreements which promise minimal returns. To increase their profits suppliers cut corners and use child labourers, inhumane working conditions, low wages, and poor safety standards. Workers often live at the factory in overcrowded dorms, have 60 hour work weeks, and are punished with physical labour and withholding of wages. Reports of worker strikes, suicides, and deaths from factory accidents keep emerging from Apple suppliers such as Foxconn. Apple has to reply on the Chinese manufactures in order to keep the price of their products low enough to be competitive. Moving production facilities to America will significantly increase the price of the products, and put them out of competition against products from companies like HTC, and Samsung.
Apple does have a code of conduct for its supplier but to which extent it is enforced is uncertain. On Apple’s website it mentions that Apple requires suppliers to commit to the principles and standards of their Code of Conduct, and that it has an auditing program in place across their entire supply chain to ensure that the suppliers are upholding to the Code of Conduct.5
As consumer it’s a moral dilemma for us; are we willing to ignore the inhumane conditions of the factory workers as long as we can get our gadgets at affordable prices, or do we take a stand and boycott such products and pay higher prices for products that are produced in factories with better standards.