The Dark Side of the Supply Chain

It's time to reevaluate exactly what makes a supply chain leader.

Apple Inc., the legendary consumer electronics manufacturer, won a lot of accolades recently (even on this very page) when it was named the top supply chain of 2010 by analyst firm AMR Research. When it comes to designing and developing products that consumers didn't even know they wanted but now can't live without, nobody does it better than Apple. When it comes to inventory turns, Apple clearly excels. When it comes to actually managing its global suppliers, though, maybe not so much.

Apple's iPad and iPhones are often described as products “to die for;” unfortunately, in a very creepy kind of way, that's exactly what's been happening in the Chinese factories that make these popular gadgets. According to news reports, the management practices at Foxconn, where nearly 70% of all the iPads and iPhones are assembled, are so abhorrent that 14 employees have committed or attempted suicide this year, all of them by jumping out of windows.

“Apple is deeply committed to ensuring that conditions throughout our supply chain are safe and workers are treated with respect and dignity,” the company said in a statement earlier this spring. “We are in direct contact with Foxconn senior management and we believe they are taking this matter very seriously.”

The Wall Street Journal followed up recently on exactly what steps Foxconn has taken to address this situation:

Foxconn has raised the monthly pay for assembly workers from $133 to $295, which amounts to a 121% raise. However, $295 per month adds up to $3,540 per year, or roughly $1.67 per hour (which is roughly $5.50 less than minimum wage in the U.S.). To put it another way, for one of these assembly workers to purchase an iPad themselves, it would cost roughly two months' wages for a Foxconn assembly worker to purchase an iPad.

Lest you think this hefty increase in pay (percentage-wise, at least) is all that Foxconn has done for its employees, think again. The company, sparing no expense, has installed “anti-jumping” safety nets outside of the windows and roofs of its factories and employee dormitories. Now, if somebody decides to end it all and plunge to their doom, they'll have to do it somewhere off Foxconn property.

Of course, Apple is hardly the only U.S. company to outsource its manufacturing to China; Dell Inc., for instance, another company celebrated as a “top supply chain,” also uses Foxconn for assembly work, and it's not exactly news that so many American-designed products have a “made in China” label on them.

That situation could be changing, though not in the way you might think. According to the WSJ, rising labor costs in China are leading some major U.S. apparel companies (Ann Taylor Stores and Coach, to name two) to rethink their offshore strategies. No, they're not thinking of bringing any of that work back to the United States; instead, they're looking into relocating production to countries with even lower cost labor than China. The average wage in China is now $1.84 an hour, so even with their wages effectively doubled, Foxconn employees are still earning less than other Chinese workers.

So where can you find labor that's even cheaper than China? Vietnam is emerging as an offshoring option, where laborers are available to do the same apparel assembly job as their Chinese counterparts for a mere 49 cents an hour. Other popular (i.e., low-cost) choices for apparel work include Cambodia, Indonesia and Bangladesh.

AMR Research is reportedly looking more closely at Chinese companies to gauge if some of them might be worthy of inclusion in future “top supply chain” rankings. One analyst note went so far as to cite Foxconn as the type of company that's “saying the right things” when it comes to supply chain management. It seems to me it's time to start including management and labor practices in the discussion when determining what really makes a supply chain leader.

Source: http://mhmonline.com/