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Do You Think You Had a Bad Week?- Consider That of Apple

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It seems that not a week goes by without some interesting news involving global supply chains. This past one has been extraordinary in terms of significant developments involving what we and most others term the world’s most dominant and envied supply chain. Business and social media was rightfully affixed with Apple, with a notion that a record of longstanding spectacular success in products and profits fosters a much higher benchmark of expected performance.  Like it or not, it additionally fosters a much higher benchmark on supply chain transparency.

Last week, in the wake of the unveiling of the iPhone 5, business media was consumed with the byline that satisfying pent-up demand for 5 million smartphones and the consequent sell-out of initial product launch supply was a disappointment. Wall Street analysts questioned why Apple could not satisfy demand for upwards of 8 million phones. The company had to admit that it was entirely sold out and apologize to its customers for delays in getting their new phone. Stockholders responded by temporarily punishing Apple’s stock valuation, which as we all know, is in the stratosphere. How many companies would envy a product launch that resulted in the sale of over 5 million units in two weeks?

This week, the looking glass turned directly on Apple’s supply chain and the byline focused on the perceived cracks and potential capacity constrained limits in Apple’s supply chain. Last weekend, a significant watershed event, the riot at the Foxconn Taiyuan China factory changed the narrative. In our featured Supply Chain Matters weekly guest commentary for the Supply Chain Expert Community, Time to Factor the New Realities for Low Cost Manufacturing and Supplier Social Responsibility, we amplified on the Wall Street Journal’s quote: “Another theory is that Apple may have reached a theoretical limit to how many products can be produced in a specific window of time.”

Throughout the week, business media has further reported on the militaristic tendencies of Foxconn’s security teams and how today’s younger Chinese workers respond negatively to being treated as workers without dignity and rights. On Thursday, the opening paragraph of a published Wall Street Journal article, New Labor Attitudes Fed Into China Riot, began as follows:

The pressures threatening China’s status as the world’s factory floor have been laid bare by a riot this week at a plant that makes parts for Apple Inc. and other electronics companies, a clash that workers said was sparked by onerous security and repressive living conditions.

This WSJ article goes on to provide another profound and thought provoking quote:

The riot raises questions about the sustainability of China’s vaunted manufacturing machine. And it poses a challenge to the government that is struggling to satisfy the soaring expectation of a new generation of Chinese workers who came of age in an era of double-digit economic growth and are less willing than their parents to make personal sacrifices for their country.

The week has highlighted more visibility into strains and cracks among Apple’s supply chain cultural, component and production process capabilities. Silicon Valley.com published an article indicating that a shortage of the new and larger LCD displays, and the lack of contribution from specific supplier Sharp, may have cost Apple a million or more in initial sales. It pointed to ongoing difficulties in ramping-up the production process of the complex and unique double-layer touch display in meeting current required volumes.  This week, Sharp announced a new turnaround plan that involves the shedding of 10,000 workers, the sale of certain overseas plants and raised continued uncertainty in any future cash infusion from Hon Hai Precision Industry (parent of Foxconn) or Japanese banks.

A subsequent Silicon Valley.com article penned by John Boudreau notes Apple’s dependency on obscure Asian and Taiwanese based suppliers to assist in solving complex engineering and high-volume production process needs.  However, the article points to the bully culture of Apple’s supply chain teams, with uncompromising product engineers and a history of cutting suppliers in a heartbeat fostering a “love-hate relationship” among the Apple supplier community. It quotes an executive who formerly worked for a company that supplied camera modules to Apple as indicating that Apple does not co-invest with a supplier, and impatient tendencies lead to dropping suppliers in favor of other suppliers.

This week spawned another article published in the Financial Times which concluded that while being a supplier to Apple can be lucrative in terms of output, concentration and revenue potential, it is both a blessing and a curse. Suppliers can make lots of money but the fear of being designed out of an Apple product and losing considerable volume output haunts supplier executives.

Indeed, Apple has experienced a challenging week in the eyes of business and global supply chain watchers. Extraordinary past success is now testing the limits of a supply chain built on a culture of uncompromising standards and assumptions for unconstrained production capacity. Where we once believed that a botched supply chain disruption can lead to a stockholder impact, Apple presents a new paradigm that reaching uncharted supply chain fulfillment volumes can set unrealistic expectations.

Apple’s draft and global supply chain pull is one that is extremely important, and as a global supply chain community, we pay very close attention.  If Apple has indeed begun to broach certain limits of supply chain capability, the implications will be felt by many for months to come. The realities of the limits of process engineering, physical output and social supplier responsibilities seem to be all at-play in a week that Apple may well want to conveniently forget.

Then again, Apple may again surprise us all.

Stay tuned.

Bob Ferrari

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