Supply Chain Matters penned previous commentary and a research report noting that increased inbound commodity price increases would one of two of the most significant challenges for global supply chain in 2011.  The need to offset exploding material costs, while insuring the ability to be agile and responsive to demand coming from certain geographic regions were both noted as considerable.

The consumer products sector has been dealing with the more complex aspects of these challenges and has started to turn to price increases as a means of insuring margins and profitability.  But, some of the larger providers are beginning to sense the complexity of the challenge.

In late March, Supply Chain Matters noted a news report out of China indicating that consumer goods manufacturers Procter and Gamble and Unilever had indicated intent to dramatically increase prices of laundry detergent within China because of rapidly rising costs.  However, the government of China, under pressure to control exploding inflation, pushed back on these price increases.  China consumers upon hearing of potential laundry detergent price increases in the magnitude of 15 percent immediately descended on retail stores to stock-up on detergent and soaps before price increases took effect.  Retailer shelves were picked clean in a matter of hours.

China is not the only Asian nation dealing with the effects of high inflation on food and staples.  Inflation rates have also soared in Hong Kong, India, Singapore and Vietnam, and some economists now view inflation driven by higher prices of staple consumer goods as the single biggest threat to the economic growth within the region.

Last week, news came that China’s policy makers have now imposed a fine of two million yuan on Unilever for talking publically about planned price increases and disrupting market dynamics.  According to an article appearing in the Wall Street Journal, a P&G spokesperson declined to comment on whether that company had been asked by the government to refrain from any price increases on laundry detergent.

What’s interesting is that if some U.S. multinationals had encountered these fines within the U.S, they would surely gripe about big government’s anti-business policies. But alas, China and other emerging economies represent a far larger market.

China’s unprecedented actions send a clear message to foreign manufacturers and will most likely lead to push back from other emerging economy countries dealing with high consumer anxiety for rising prices.  They also place consumer companies in a rather tight bind, having to now turn to other areas of the supply chain to reduce costs.

These events continue to also have implications for many other industry players hoping to pass along price increases in 2011.  As noted, tough decisions continue to be in store for the remainder of 2011.

Bob Ferrari

Being the world’s largest and most visible producer of hot consumer products comes with its own collection of notoriety as well as looking glass, and Apple certainly fits that bill.

One aspect of Apple’s supply chain that seems to continually gain attention is its social responsibility strategies and specifically, oversight of labor conditions within its contract manufacturing network, including its prime contract manufacturer Foxconn. The direct labor workforce for Foxconn has grown to over one million workers, much of which is currently concentrated in fairly large manufacturing campuses.  Foxconn workers are young, typically come from China’s poorer inland regions, and migrate to the coast in order to accumulate wages for family or career needs.

Supply Chain Matters commented last September on the publication of a Bloomberg BusinessWeek cover story featuring Foxconn, and specifically the 2010 incidents of multiple worker suicides at Foxconn’s Longhua facility in China. The BusinessWeek reporters indicated that they “were provided unprecedented access to Foxconn’s factory floors, worker dorms, suicide-help-line operators, and to (Chairmen and CEO) Gau, himself.”   In addition to current production worker focused programs, Foxconn’s strategic plan to address social responsibility is to de-emphasize very large scale manufacturing campuses, complete with dormitories and employee services, in favor of smaller manufacturing facilities located in the more interior regions of China, where labor rates are considerably cheaper, and where migrant workers do not have to travel far distances away from families and social support networks in order to gain work.

Last week, Students and Scholars Against Corporate Misbehaviour or SACOM, a nonprofit based in Hong Kong devoted to improving labor conditions, released a report (can be downloaded directly from web site) that surveyed worker conditions at both existing Foxconn facilities, as well as two newer facilities located in Chengdu and Chongqing in western China, which produce Apple iPad2 as well as Hewlett Packard laptops.  The report notes that one year later, there are gaps between promises and reality, related to wages, work hours, health and safety and worker grievance procedures.

The surveyed population was 120, a relatively small percentage of the total workforce of the four facilities. There may be legitimate reasons for a smaller sample, namely worker unease to participate. Never the less, the report notes continued labor abuses including excessive work hours without a break, miscalculation of wages, workers not allowed to speak with each other on production lines, worker humiliation when mistakes are made, along with other abuses.

An Epicenter posting on wired dot com makes reference to a Foxconn spokesperson indicating that conditions can be difficult, given the diverse and large population, and it is not something endorsed or encouraged by Foxconn.  Finally, Foxconn has come forward with some cander.

For its part, SACOM demands that Foxconn specifically address the abuses outlined, and more specifically calls for OEM buyers to comply with their respective codes of conduct, and goes as far as to imply that Apple’s designated representatives who monitor quality and productivity may well be aware of these conditions.

In previous commentary we noted that as a community, we have all admired how successful Apple’s supply chain team became in concentrating its negotiation power with just a few contract manufacturers and/or suppliers, trading off large volumes for huge amounts of influence and flexibility.  It is no secret that Apple also enjoys fat profit margins. That model is reaching a crossroads, as Apple’s success in products continues to takes a toll on these manufacturers, and their workers.

We may all enjoy our elegant Apple gadgets and devices but some factory workers do not ever get the economic opportunity to own an iPhone or iPod, let alone an iPad2 which they produce.

It also raises the prime question- is it time or Apple to once again step-up its role in supplier social responsibility?

Playing hardball in supplier negotiations is one thing, playing hardball in the midst of overwhelming profits in quite another.

Being rated as the number one supply chain comes with immense social and business responsibility. We have praised Apple in the past for making public pronouncement and transparency in social responsibility but that effort needs to step up.

What’s your view?

Bob Ferrari