right_division Green SCM Distribution
Bookmark us
SCDigest Logo

Focus: Global Supply Chain and Logistics

Our Weekly Feature Article on Topics Related to Global SupplyChain Logistics

From SCDigest's On-Target e-Magazine

Feb. 2, 2012


Under a Microscope, Apple's Supply Chain Shows both Progress and Problems with Regard to Working Conditions in Asia - and the Challenges for Western Manufacturing

230,000 Workers at Foxconn City; 8700 Industrial Engineers in 15 Days


SCDigest Editorial Staff


Well, you can't prove it, but it certainly seems at least possible that the reason for the timing of the recent release of Apple's groundbreaking Supplier Progress Report for 2012 (see Apple's Groundbreaking Moves to Audit its Extended Supply Chain for Compliance to its Supplier Code of Conduct) was a two-part series in the New York Times that in part says that working conditions at many of Apple's sub-contractors is often abysmal and often dangerous, even if Apple is making progress. It also described the incredible advantage China now in terms of attracting Western manufacturers - and it really has little to do with pure wage rates.

The Times articles were published just a few days after Apple released its report. The Times says it let Apple know the articles were coming some time ago, when it had asked Apple to comment on its findings; Apple declined to address the allegations.

SCDigest Says:


The scale and flexibility at Foxconn City comes with a price, the Times says - a price paid by the workers there to either pump up Apple's profits or reduce the prices consumers pay for its products

What Do You Say?
Click Here to Send Us Your Comments
Click Here to See Reader Feedback

Among the highlights of the investigation's conclusions:

• The US is simply losing its ability to compete for large scale manufacturing work, not so much due to relative wages as much as it is China's supply base infrastructure and incredible speed and agility versus domestic US production.

• Though Apple may have good intentions vis-a-vis working conditions at its suppliers, the need for high levels of responsiveness, and the reality of how hard it is to change key suppliers, means the reality is likely to fall short of the rhetoric for some time.

The Challenge of Manufacturing Domestically

The first article in the Times series paints in bold relief how difficult it is to manufacture products in the US today regardless of wage differentials - especially for high tech products - and how despite predictions from some pundits saying a return to domestic manufacturing is likely due to rising costs in China, other factors make such a transition unlikely.

Famously, not long before his death, Steven Jobs of Apple had dinner with Barack Obama, and was asked by the president if given Apple's success, couldn't Apple bring some of its production, and the jobs that go along with it, back to the US?

"Those jobs aren’t coming back,” Jobs bluntly told the president, according to another guest.

An example shows why: Just six weeks before the launch of the first iPhone in 2007, Jobs decided that the product needed a glass screen instead of the plastic one that was in the presumed final design for the product. Jobs was worried the product would scratch too easily.

Apple had a supplier for the glass itself - Corning. But what company could due the precision cutting and finishing work for taking the sheets of glass and turning them into iPhone parts in just a few weeks?

One in China, of course. According to the Times, "When an Apple team visited [the bidding Chinese company], the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day."

The Chinese manufacturing of course won the business. And Apple was not only able to get its screens on time, it did so incurring far lower start-up costs that it originally imagined or which could possibly be realized in the US.

Such flexibility and responsiveness, in fact, is almost unimaginable in Western supply chains.

“The entire supply chain is in China now,” a once high ranking Apple executive no longer with the company said. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

Foxconn's Scale is "Unimaginable"

Speed and responsiveness is one barrier to a return to US manufacturing. Large scale production capabilities, and the level of control of the workforce, are others.

The world's largest contract manufacturing is Foxconn, a Taiwan company said to manufacture as much as 40% of the world's consumer electronics. Its factory in what is now known as Foxconn City in China - one of many it operates across the globe - makes the wildly successful Apple iPad tablet computer.

There are some 230,000 employees working in the complex. Over a quarter of Foxconn’s work force there live in company barracks. It employs nearly 300 guards to direct foot traffic so workers are not crushed in doorway bottlenecks. The facility’s central kitchen cooks an average of three tons of pork and 13 tons of rice a day.

“The scale is unimaginable,” an Apple executive said.

Added Jennifer Rigoni, who was Apple’s worldwide supply demand manager until 2010, “They [Foxconn] could hire 3,000 people overnight. What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”

The Times reported that after Apple and its supplier had perfected the method for cutting the glass for the iPhones, it was now a race against time to build the product inventory pipeline for the launch date.

The first truckloads of cut glass arrived at Foxconn City in the dead of night, according to the former Apple executive. That’s when managers woke thousands of workers, who crawled into their uniforms — white and black shirts for men, red for women — and quickly lined up to assemble, by hand, the phones," the Times reported. Within three months, Apple had sold one million iPhones. Since then, Foxconn has assembled over 200 million more.

What's more, Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. It had also forecast that it would take as long as nine months to find that many qualified engineers in the United States.

(Global Supply Chain Article Continued Below)




At Foxconn in China, it took just 15 days.

The clear message - a lack of skilled workers, in a time of high unemployment, is another huge barrier to manufacturing in the US, versus China. And the ability to dictate what would not be accepted in Western companies - such as summoning workers from dorms in the middle of the night - is another huge advantage.

The article takes a look at various estimates, and says that producing the iPhone in the US would likely cost about $65.00 more than in China, considering labor costs alone. SCDigest suspects that ultimately that delta might be even smaller, if automation was employed.

But, as the Times notes, "building the iPhone in the United States would demand much more than hiring Americans — it would require transforming the national and global economies. Apple executives believe there simply aren’t enough American workers with the skills the company needs or factories with sufficient speed and flexibility."

The Dark Side of Foxconn

The scale and flexibility at Foxconn City comes with a price, the Times says - a price paid by the workers there to either pump up Apple's profits or reduce the prices consumers pay for its products.

The Times says that "Employees work excessive overtime, in some cases seven days a week, and live in crowded dorms. Some say they stand so long that their legs swell until they can hardly walk. Under-age workers have helped build Apple’s products, and the company’s suppliers have improperly disposed of hazardous waste and falsified records."

Workers often work six days a week, frequently spending up to 12 hours a day at the plant. Many workers earn less than $17 a day. Those with a college degree may make $22.00, including overtime. Employees who arrived late were sometimes required to write confession letters and copy quotations. There were “continuous shifts,” when workers were told to work two stretches in a row.

Foxconn disputes these allegations.

Foxconn is little known outside the electronics industry, but its name was splashed across the news repeatedly in 2010, when some 23 workers at its Foxconn City plant committed suicide over a period of months.

Last year, a significant dust explosion at the plant killed at least two workers and injured more than a dozen others.

Two years ago, the Times says that 137 workers at an Apple supplier in eastern China were injured after they were ordered to use a poisonous chemical to clean iPhone screens.

To be clear, such reports of worker abuse in the electronics industry, as well as other sectors such as apparel, have been commonplace in China for years.

The Times also notes that "current and former Apple executives, moreover, say the company has made significant strides in improving factories in recent years." That includes the Supplier Code of Conduct that is the basis for its supplier audits that are detailed in Apple's Supplier Progress Report. The Times says that report is often the first place where worker abuse in Apple's supply chain is documented. The first Progress Report, released in 2007, came about after several investigations by outsiders found significant abuse of workers at Apple suppliers. For the 2012 report, Apple increased the number of supplier audits over the previous year by 80%, tom 229.

Still the article says, there are inherent tensions between the code of conduct and manufacturing efficiency and effectiveness.

"Some former Apple executives say there is an unresolved tension within the company: executives want to improve conditions within factories, but that dedication falters when it conflicts with crucial supplier relationships or the fast delivery of new products," the Times says. It also quotes one former Foxconn employee as saying “Apple never cared about anything other than increasing product quality and decreasing production cost," though it should be noted that this manager was dismissed from Foxconn and is suing the company over that firing.

The high pressure and business necessity to rapidly churn out new products at ever more rapid cycle times found in high tech and consumer electronics companies - and increasingly other sectors as well - means the brand companies have to place a high premium on suppliers that can make things happen quickly - even if that means calling workers out of dorms at midnight to begin working on a new product.

Finding new suppliers is also expensive and difficult, and could lead to delays in releasing new products. With mass scale products like the iPad, only a handful of contract manufacturers would be able to take on the volumes, meaning the idea of Apple ditching Foxconn is unlikely.

Since the audit process began, the Times says something less than 15 suppliers have been terminated over code of conduct transgressions.

"There's a lot of rationalization going on," at Apple and other consumer electronics companies, Heather White, a research fellow at Harvard and a former member of the Monitoring International Labor Standards committee at the National Academy of Sciences, told the Times.

A sign on the wall at the Foxconn factory says, "“Work hard on the job today or work hard to find a job tomorrow.”

Do Apple's Aggressive Procurement Practices Set Stage for Some Abuses?

The Times notes that Apple really puts potential suppliers through the wringer before awarding them business.

Apple typically asks suppliers to specify how much every part costs in an assembly, how many workers are needed and the size of their salaries. Executives want to know every financial detail. Afterward, Apple calculates how much it will pay for a part.

"Most suppliers are allowed only the slimmest of profits," the Times article says.

The result: suppliers "often try to cut corners, replace expensive chemicals with less costly alternatives, or push their employees to work faster and longer, according to people at those companies."

The upshot for us from all this: Apple appears to be as aggressive as anyone in improving working conditions at its suppliers, and its Supplier Progress Report truly may set a real standard for large global companies. That said, there are certainly a lot of issues still to be addressed, and financial realities on both sides likely means it will be many years before Western style working conditions start to look more like those in the West.

What's your take on all this news regarding Apple's supply chain? Do you applaud its efforts, which are clearly out in front versus most, or are there too many "human costs" going into each iPad? Let us know your thoughts at the Feedback section below.

Recent Feedback


No Feedback on this article yet