Good OM Reading: How the US Lost iPhone Production

Yesterday’s Sunday New York Times’ (Jan.22,2012) lead article tells the story of Steve Jobs speaking at a Silicon Valley dinner in front of President Obama. Obama interrupted Jobs to ask :”What would it take to make iPhones in the US”?  In the 1980s, Jobs had boasted that his Mac computer was “a machine made in America”. Today, almost all 70 million iPhones, 30 million ipads, and 59 million other Apple products are made overseas. Jobs’ answer to the Obama question was unambiguous: “Those jobs aren’t coming back”.

If you are teaching OM to a class of MBAs, the lengthy piece will make for great class discussion. It has a bit of every OM topic in our text, from supply chains, to global competition, to ethical issues regarding employee treatment,  to manufacturing technology.

Apple has benefited  the US economy in many ways, says one company exec. But he adds that curing unemployment is not Apple’s job. “Our only obligation is making the best products available”. Despite the 43,000 Apple employees in the US and 20,000 overseas, almost all 700,000 of the workers making Apple products work for Apple contractors in Asia and Europe.

Apple execs say going overseas is the only option. They tell the story of how the firm relied on a Chinese factory to revamp iPhone manufacturing just weeks before the product was due on shelves. The last-minute redesign (a Jobs idea) forced an assembly line overhaul. New screens began arriving at midnight. A foreman immediately roused 8,000 workers from their company dorm beds. Each employee was give a biscuit and a cup of tea and started 12-hour shifts to fit the new screens into frames. Within 96 hours, the plant was producing over 10,000 iPhones/day. “The speed and flexibility is breathtaking” says an Apple exec.

For Tim Cook, the new CEO, and architect of outsourcing production,  the focus is “Asia supply chains have surpassed what’s in the US. The result is we can’t compete at this point”.