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Time to Factor the New Realities for Low Cost Manufacturing and Supplier Social Responsibility

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The following is this author’s weekly guest posting commentary posted on the Supply Chain Expert Community web site.

As is usually the case, business and financial media has been obsessed with the topic of Apple’s recent iPhone 5 product launch. A product launch total of 5 million phones sold during the initial week of product launch have apparently disappointed some Wall Street analysts and the bylines now point to a constrained global supply chain as the culprit. The latest lament seems to be why couldn’t Apple support a buying surge of 8 million new phones?

According to media reports, Apple has now admitted that it has entirely sold out of the initial supply of the iPhone 5 and has declined to comment on why it has not been able to provide more supply. In today’s Wall Street Journal, an article penned by Ian Sherr and Drew Fitzgerald raises a rather interesting question noted as follows: “Another theory is that Apple may have reached a theoretical limit to how many products can be produced in a specific window of time.” The article goes on to quote industry observers as noting that Apple’s challenges are extraordinary, having to balance the needs to control product information leaks in its global supply chain, with needs to have a massive production ramp-up leading to product launch date.  Even if product management was late in the release of the final design, our global supplier base is always up to task of making up the difference in time.

In this author’s view, the recent Apple product launch represents a watershed reminder that there are now new realities for the high tech and consumer electronics supply chain in terms of the presumed availability of endless flexible capacity.  It seems that before, the assumption was presumed that contract manufacturers and component suppliers residing in low cost manufacturing regions would always have the ability to insert legions of workers and ramp-up working hours to meet ever changing peak periods of supply chain demand dictated by an OEM customer.

Workers are demanding their basic rights to fair wages, safer working environments and appropriate working hours.  As we have noted in commentaries on the Supply Chain Matters blog, Apple’s efforts in actively supporting audits by the Fair Labor Association will have far reaching effects on the broader industry, and on the supplier base. Samsung is also actively supporting its own directed supplier social responsibility audits.

Change and reform is long overdue and the industry can no longer turn a blind eye to what may be occurring among suppliers and contract manufacturers. The notion that an OEM can dictate unplanned changes or insist that virtual capacity exists is now being challenged by the realities of supplier social responsibility. Whether the objective is a new product launch, the peak consumer buying season, or an extraordinary market opportunity, there are new realities occurring in global based supply chains, and as community, we need to be aware of the implications.

When global supply chain dominants such as Apple, with the influence and sheer scale that it can exhibit, experience these new realities, other players will be impacted, especially smaller industry players.  There will be implications in the need for increased automation of assembly tasks, flexible and multiple sourcing strategies and better planning. Product marketing and executive teams may presume that the global supply chain will always respond to the needs for endless agility and flexibility to changing market needs or market opportunities.

The new reality is that, like or not, more realistic, responsive and intelligent planning, supported by an effective Sales and Operations Planning decision-making capability that realistically manages business expectations and supply chain response, are about to again serve as the new realities for global supply chains.

In time, a new paradigm will develop around global sourcing flexible production capacity and the ramp-up or ramp-down of the global supply chain to support product milestone needs. This author often cites a Bob Dylan tune of the 1960’s to depict a period of significant change, namely: “The Times They Are a-Changin”. These new realties are certainly a basis for thought and discussion in planning supply chain resources for 2013 and beyond.

What’s your view?  Is your firm and supply chain team dealing with the new realities of a socially responsible supply chain?  Have the prior assumptions concerning low-cost manufacturing permanently changed?

Bob Ferrari

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