In supply chain circles, anytime you write or speak about Apple, it is bound to draw lots of attention.  Dell, once the premiere example of world class global supply strategy and capability, has long-since fallen on hard times, and Apple has assumed nearly every industry analyst’s recognition, including mine, as a world class benchmark in supply chain capability and performance.

 

I find it, therefore a bit perplexing when some in the blogosphere and media tend to admonish Apple for its supplier and its social responsibility practices.  I suppose it makes for a good headlines and Google search-engine pickup and ranking.  But let us get a bit pragmatic on reality and practices.

 

A recent incident in mid-February where a media reporter was reportedly roughed-up by private security hired by contract manufacturer Foxconn drew some of this type of negative attention.  As this reporter stood on a public road taking pictures of a Foxconn facility in Longhua, China, private security guards reportedly tried to drag the reporter back into the facility before the local police intervened and calmed the situation.  A commentary of this incident was noted by Philip Elmer-DeWitt on the Apple 2.0 blog.  DeWitt notes that the incident shows “the lengths to which Apple and its suppliers will go to guard Steve Jobs’ secrets… “ and identifies a litany of excessive security measures that have been taken. Jason Busch penned on his Spend Matters blog that “the secrecy with which Foxconn operates is a direct result of a culture of fear with which Apple manages its supply chain”. Jason concludes that “we should hold Apple accountable for its supplier’s behavior in this case, just as we hold accountable companies that chose to ignore-or not discover—other labor infractions within their supply chains.” There has since been a second posting that condemns the standards by which Apple suppliers treat their employees, making reference to a London Daily Mail headline artice: Apple admits child labour was used to build iPods and iPhones in Chinese factories.

 

Here’s my view, let us be a bit more realistic and more down to earth regarding such commentary. I,to, decry child labor and discriminatory practices, but let us give Apple the credit for finding, reporting and driving remediation of such practices. Apple has been taking-on and tackling some rather difficult and sensitive business cultural issues and is not getting proper credit for doing so. In one instance, the company reports that it has terminated a supplier, and for other instances Apple has established what could be termed as progressive discipline to address abuse elimination.

 

Apple has always had a culture of secrecy, more specifically, protecting its intellectual and product capital.    It is a company driven by leading-edge product innovation, which has worked very well for Apple in terms of explosive business growth in sales and profitability.  Apple goes to extraordinary lengths to protect its IP.  Just this week, it launched a lawsuit against HTC Corp., a manufacturer of smart mobile phones utilizing Google’s Android operating system, for alleged infringement over 20 Apple patents. A previous lawsuit was filed against  Nokia. With a totally outsourced design and production supply chain, and with production located in countries such as China, the Philippines, Malaysia, and Thailand among others, there are many potential areas for information leakage. In fact, analysts try often to breech information security anywhere in Apple’s supply chain so that they can have the inside story to Apple’s next great product.

 

Regarding the notion of shoddy labor practices or social responsibility, these same geographic areas have had a history of shady labor practices but positive progress is being made and should be acknowledged.  The realities of China alone are well known to any firm who has elected to outsource production to this region.  It is no secret that the business culture of China places an ultimate emphasis on profits and that such a culture can tend to exploit abundant labor resources for such ends.  But not all Chinese or Asian firms fall under that mantra, especially those that understand the importance of building a solid supplier working relationship with a global brand.

 

Apple also has oversight for tremendous volumes of unit production in its network of contract manufacturers and suppliers. In its latest quarter which included the holiday surge, Apple pulled off a 60% increase in unit volumes, shipping in excess of 33 million units to consumers.  That is in excess of 100 million units that are flowing through Apple’s value-chain on an annual basis, and that provides the company lots of leverage in overseeing key performance measures for Apple’s suppliers.

 

The company recently released its Supplier Responsibility 2010 Progress Report. The report outlines the various categories as well as the frequency of audits performed on the supplier base.  The Apple Supplier Code of Conduct includes audits in employee protections, health and safety, environmental impact, business ethics and management commitment.  In my view, it is a fairly wide ranging framework of supplier evaluation and if you have any concerns about Apple’s commitment to social responsibility across its supplier base, take the time to read the report. In 2009, the company conducted audits at 102 facilities including annual audits of all final assembly production facilities, including Foxconn.  That is an average of 5 audits per month. The direct involvement of Apple’s procurement managers is required in reviewing the results of such audits, which adds procurement accountability and follow-up as teeth for setting supplier performance expectations.

 

How many other companies can cite that level of audit within an outsourced supply chain located in the Asia region? Probably, just a handful. Apple notes in its report that for most of its audits, suppliers stated that Apple was the only company that had ever audited their facility for actions related to supplier responsibility.

 

In the report, Apple goes further to define what it terms as core violations, the most serious class of violation which requires an immediate corrective action for those cited.  Core violations include underage labor, falsification of audit materials, threats to worker safety or retaliation against workers.  The report specifically outlines what violations were found, which appears to be the fodder that certain media stories are exploiting.  How many global companies are you aware of that would make this type of information visible? Again, just a handful.

 

The point I’m making is that instead of putting a negative spin on Apple’s policies, we should be commenting and dwelling on the positives.  Yes, the secretive culture is frustrating and perhaps overdone.  And yes, it may be seen as arrogance. But Apple’s success and track record in product innovation, commodity sourcing and value-chain execution speaks for itself. Its Supplier Responsibility Framework has come a long way and is far reaching, to include social responsibility.  What we need are more companies to join Apple in embracing similar comprehensive audit standards, including an active cycle of audits and penalties. The issues of labor infractions and/or lack of social responsibility within supply chains is not in the best interests of suppliers and contract manufacturers, and each know that influential customers like Apple are watching and measuring.

 

Instead of bashing, perhaps we should praise Apple for its leadership in taking on rather difficult and messy issues related to supply chain risk and social responsibility.

 

Bob Ferrari