Apple Inc. is one of the Fortune 500 companies that have multiple suppliers in various parts of the globe, including the United States, China and Japan. Apple has a large number of manufacturing facilities in China where they assemble their products and ship them in bulk around the world. Apple’s production is conducted in low cost countries overseas. The assembly of the product takes place in Asia Pacific, and the largest consumer base in the United States. In the United States this network includes intermediate warehouses, which work in partnership with UPS, FedEx and other companies, as well as warehouses located in California, where finished bulk products are stored that have been brought from China manufacturing sites. Apple spends a lot of money on logistics, import/export and warehouse costs because most of their final assembly takes place in Asia Pacific. Apple distributes products to their final customers through three primary channels: online, Apple retail store, and through partnerships. These include retailers like Amazon.com, Best Buy.com, Target.com, AT&T.com, etc. Apple’s size has increased significantly since Steve Jobs founded the company. This is in keeping with Apple’s mission to offer innovative products at a low cost. Apple’s purchase organization has a distinct brand advantage which gives it a greater bargaining power when negotiating with its suppliers. Apple is able to purchase resources at lower prices and with the latest technologies, allowing it to produce its products in large quantities.
Apple has localized its supply chain in Asia Pacific because the majority of Apple’s manufacturing occurs in China. Apple’s inability to maintain consistent quality standards of labor upstream creates major problems. Catcher Technology Co. was one of Apple’s iPhone Casting suppliers that recently caught the attention of the media because its workers complained of being forced to stand 10 hours each day while handling hazardous chemicals, without any protective gear. Apple was scrutinized for not auditing their suppliers properly to ensure that they are not producing products under unfair working conditions. Apple’s supplier quality report includes a variety of issues such as bonded labour, debt-labor, low wages paid, and unsafe conditions at suppliers’ overseas work sites. Apple’s supplier-quality standards should be improved by refusing partnerships with suppliers that fail to meet Good Manufacturing Practices (GMPs) certification requirements. Apple could also raise the standards of quality checks for their global supply network and technology related quality. To ensure that product quality standards are met, Apple encourages suppliers to hire additional quality engineers at their facilities to check large batches of goods as they leave the production line before being sent for assembly. Apple could also hold suppliers responsible for ensuring they meet its quality standards. Apple could also audit suppliers to determine if they follow fair labor practices, using standards set by the Fair Labor Association. They could also enforce strict labor wage controls and discourage the use of underage labor and debt bondsage at suppliers.
Apple’s suppliers are a “one-sided” relationship due to its enormous bargaining power. This is especially true for smaller suppliers, whose revenues depend almost entirely on Apple’s sales. Apple’s dominant position in consumer electronics allows it to set prices and negotiate favorable materials and price for its many product lines. Apple controls suppliers’ businesses and they suffer less profit. Apple’s strict nondisclosure agreements are also in place for products still in the development phase. This can cause a situation whereby suppliers do not know about production requirements until just before launch. It may be too late to launch the product once the Cupertino suppliers in California receive the information about the design, tooling and capacity requirements. Apple’s international suppliers are forced to deal with chaos when they have to work within their capacity to meet the short deadlines of product launches. Suppliers may be forced to increase their workforce and work hours to meet Apple’s deadlines, leading to poor working conditions. Suppliers are forced to choose whether to risk bankruptcy if they don’t meet Apple’s demands, or to force their workers to produce the products according to the mandated timelines. Unfortunately, they choose to overwork workers in order for them to be able meet Apple’s demand.
Samsung, Apple’s screen provider for OLEDs, was a major burden in achieving on-time demands. iPhone X was to be available in stores soon after its launch at Steve Jobs Theater with iPhone 8 Plus on September 22nd 2017. Apple’s OLED facility at Samsung was unable to produce enough iPhone X screens for the mass market. This delay occurred on November 3rd 2017. Apple’s failure to communicate their capacity needs on time was cited as the reason for the delay. Samsung was also the only supplier who could produce OLED screens in the exact dimensions required to meet iPhone X specifications. Apple’s ability to launch on time was hampered by the fact that they did not communicate their needs to their OLED provider in a timely fashion. Samsung then felt unanticipated strain to increase its capacity quickly. Apple is one-sided in its relationship with suppliers, who are under pressure to deliver their products on time and uphold quality standards.
Apple should encourage early involvement of suppliers in all product development stages to prevent them from being burdened by capacity ramp-ups at launch. Apple’s largest supplier Foxconn could be involved in its design phase, keeping Foxconn informed of technical requirements, capacity requirements and other launch-related obstacles. Foxconn would be able to meet the production requirements well in advance using existing resources. This would encourage timely deliveries and fair labor practices. Apple can also be advised to produce parts in-house for which they ask suppliers to sign NDAs. Apple may incur high initial costs but will ultimately benefit from this because it can ensure that suppliers aren’t compromising the technical specifications for the product design. Apple’s products will be less defective as a result of lower PPMs. Apple will be able to launch its products on time because it can plan ahead and not depend on suppliers for capacity increases at the last minute.
Apple’s value chain is complex, and this leads to longer communication lead-times. Apple’s future success will be enhanced by implementing effective communication strategies between its suppliers, service vendors and customers. This will help to minimize material flow issues. We also recommend a more robust monitoring and control plan to improve working conditions in Apple’s manufacturing facilities.
