Apple Will Fail if Manufacturing is Moved to U.S.?
Last week, I caught a blog Why Apple Has to Manufacture in China. I read hoping to find some practical reasoning as to why it was critical that Apple manufacture in China. I read the post twice and I couldn’t find any reason it was critical for Apple to manufacture in China.
The post does say labor cost is not a reason to manufacture in China.
It is not an issue of labor costs. In fact, labor costs play a very small role in the equation — both for Apple and for Timbuk2.
The post compares Apple to Timbuk2, a company that makes custom bags. Two different business models, Timbuk2’s custom production versus Apple’s mass production. Here is what the post has to say about this.
Timbuk2 manufactures in the US because it produces custom-made bags, orderable through its handy web site, and customers ordering custom bags cannot wait for weeks for a bag to come from China by boat, while shipping by air is expensive and there would still be some uncertainty due to customs clearance. A very similar logic lies behind fashion retailer Zara’s choice to manufacture in Europe, also an expensive location in terms of labor costs. Of course, Timbuk2 does also produce many bags in China but these are mass-produced, non-customized bags, sold wholesale at a fraction of a price of a custom bag, and they are not time-sensitive.
Apple does not produce custom products and so it does not need to deliver quickly — all of its products are standard and mass-produced; just like the standardized bags for Timbuk2, so there is no reason to stay close to end-customers. Moreover, Apple does not change its assortment often — the new iPhone will probably be for sale for another year or two.
There is no need for mass producers to be close to the end-customer?! Really? So it is OK to spend a couple of months to get new phones to the U.S. or pay for air freight (which is quite expensive), if there is a defect in a batch of phones? Not in any business model I know of. That delay risks the loss of customers and costs the company more money than is needed because of the big batches that may have to be reworked or thrown out. Also, when the life-cycle of a product is coming to an end it may cause more phones to be thrown our or discounted because of the large batches.
The post is contradicting itself because it says cheap labor is only a small part of the total cost, but then does not take total cost into consideration when looking at all the freight and inventory and possible obsolescence costs.
So why else is it important for Apple to manufacture in China?
Apple is a huge company and as a New York Times article published in January this year details, its production volumes and often unpredictable engineering changes require manufacturing flexibilities and engineering capabilities on a scale that is simply unavailable in the USA.
Exactly my point about inventory above. The post goes on…
In China, by contrast, manufacturers can deploy thousands of collocated engineers to introduce needed changes overnight, and large supply of labor allows to ramp up and ramp down capacity quickly. There is simply no factory capable of employing 250,000 workers day and night in the USA, surrounded by flexible and capable suppliers. So the location decision isn’t really about labor costs — it’s about manufacturing risk and where that risk is best managed.
Because Apple has bad processes upstream, it is OK to disrupt the lives of thousands with no regards downstream to fix the problem. Reminds me of the saying, “A mistake by you, does not necessitate an emergency by me.” Again, raising the cost to produce.
- Mass producers don’t need to be near the end-customer
- Disrespect for people is OK when fixing a problem you created
Apple may be on top of the hill today, but 2-5 years from now they won’t be. As competitors, like Samsung, close the gap managing cost is going to grow more important. Fixing your processes so engineering changes are not needed overnight and locating close to your end-customer so when you do have an engineering change you don’t have tons of inventory to dispose of is a great way to manage your cost.
Posted on October 8, 2012, in Customer Focus, Manufacturing, People, Supply Chain, Waste and tagged Apple, Customer, Harvard Business Review, Inventory, Manufacturing, Respect for People, Rework, Supply Chain, Waste. Bookmark the permalink. 1 Comment.