Tuesday, February 26, 2013

The Future of Apple and Foxconn Relationship

The supply chain networks around the world are facing the challenge of cost optimization. Both private and public sectors are trying to develop a cost effective and effective supply chain network. The public sector is doing this to save the tax payers money while the private sector is doing it, just to maintain its market share and profits. Recently, the increasing cost of fuel is fueling the rise in production and transportation cost. 

The analysis of Apple's supply chain network, gives us an insight to these issues.In the case of Apple, the burden of high transportation and labor cost can be absorbed by high margins already in place. But the main problem lies with suppliers of Apple. Foxconn is competing with many other companies. This mean it has to keep its cost lower than other companies. It have decided to relocate their manufacturing further inland to reduce the cost of manufacturing. But it won’t help them in the long learn because the fuel is short in this world and the fuel cost is rising every year. This means that it has to pay extra for the cost of transportation in the future. In my country that is Pakistan, the cost of supplying a new car in a different city is different and sometimes the difference is five times between different cities. So according to this thing, the transportation cost is going to be a major factor. We can say here that the cost of transportation varies with volume of the good being transported. But if you move your plant further inland, the supplies to run the plant will become more difficult to provide. So this also needs to be considered.  

There are three major developments in the Foxconn and Apple relationship. In March 2012, apple decided to help Foxconn to meet the demand of its workers and solve their problem. That means the company has to increase the cost of manufacturing. This effect is visible when Foxconn decided to freeze the recruitment of more workers this year after the drop in the sales of iPhone 5. Moreover, Apple has indicated that it is going to transfer some of its computer manufacturing back to its U.S. plant. That means the company is feeling the heat of transportation and increasing labor costs on the supply chain network.

Is it only because of these two reasons or it is because of some other reason?  According to some experts there is a fear among many big manufacturers that your supplier in Asia becomes your competitor after some time. They bring out the examples of HTC, Acer and Huawei to prove their point. This might also be the reason for the apple’s decision to gradually move or diversify its supply chain network. Moreover, Apple might be trying to diversify its supplier network to break even any sudden change in transportation cost owing to the sudden rise in fuel prices or to safeguard itself in case of some major catastrophe in the world very similar to the one happened in Japan in 2012.


5)Supply Chain for iPhone Highlights Costs in China (NY Times, July 5,

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