Fortune‘s (June 11, 2012) lead article features Apple’s new CEO, Tim Cook, whom the magazine calls “the master of operational efficiency”. The article is a good one for your students to read at the start of a semester or when you treat the topic of supply chains (Ch.11).
Cook joined Apple in 1998 to revamp its badly broken system of factories, warehouses, and suppliers. He quickly strengthened Apple’s cooperation with its contract manufacturers in China. But it was a personal blow to Cook when the New York Times ran a prominent article in January critical of the working condition at Foxconn, the company that assembles most of Apple’s products. Though the criticism wasn’t new, the exposé painted a bleak portrait of the lives of workers in the factories. Cook’s response marked a distinct change in tone from Steve Jobs, who had been dismissive of the severity of the problem. The new CEO not only visited Foxconn personally, but Apple joined the Fair Labor Association, a third-party monitoring group.
The news this week, though, is that Apple is doubling down on its manufacturing in China. Apple disclosed for the 1st time the dollar value of its assets there: $2.6 billion, meaning a massive value of material and equipment Apple has bought on behalf of its suppliers. The firm is risking its own capital, another $7 billion, as a way of financing massive upgrades in its manufacturing capabilities in Asia, even though its partners will operate the equipment.
Apple generally is mum on what the investments are for, but “that’s got to be for volume,” says a portfolio manager at T. Rowe Price. He notes that Apple suppliers like Pegatron and Jabil have been buying sophisticated machine tools and that Japanese drill-bit manufacturers say they are moving into consumer electronics on Apple’s behalf. “The Apple supply chain is doing things no one else can,” given its abundance of cash and manufacturing know-how. Such operational efficiencies have been an underappreciated factor in Apple’s success for the past decade; all the attention has been on its beautiful designs and snazzy marketing overseen by Jobs.