Tag: Apple

Teaching Tip: Apple’s Ethical Dilemma

We end each chapter in the book with an Ethical Dilemma, intended to enhance class discussion on topics of interest. Here is a timely issue regarding Apple, based on a front-page New York Times (Jan.26,2012) report that details the shocking working conditions in Chinese factories that build the company’s  products. The article tells the story of one worker who was killed in an aluminum dust explosion at a  factory last year and paints a picture of the “harsh” and “bleak” environment in which iPads and other devices are built.
 
One former Apple executive says: “Most people would still be really disturbed if they saw where their iPhone comes from.” An ex-employee of Foxconn, the biggest of Apple’s suppliers in China, which has made headlines because of suicides among workers, said: “Apple never cared about anything other than increasing product quality and decreasing production cost. Workers’ welfare has nothing to do with their interests.”
 
And while excited buyers eagerly anticipate new products,  Apple’s audits have found evidence of employees being forced to work  more than 6 days a week and put in extended overtime. There have been allegations of involuntary labor, under-age workers, record falsification and the improper disposal of hazardous waste.

 
The  Times also details the pressure manufacturers are under. “Executives want to know every financial detail. Afterward, Apple calculates how much it will pay for a part. Most suppliers are allowed only the slimmest of profits. So suppliers often try to cut corners, replace expensive chemicals with less costly alternatives, or push their employees to work faster and longer.”
 
The lengthy article notes that companies like Nike and Gap have been forced to change their ways in the face of public outrage, but ends with the words of a current Apple exec: “Right now, customers care more about a new iPhone than working conditions in China.”  Do your students agree?

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”.

OM in the News: Apple Releases Names of Suppliers and Their Compliance

Apple Inc. just released an audit of its major suppliers, saying it found a number of violations including breaches in pay, benefits, and environmental conditions, especially in China. It conducted 229 audits last year, an increase of 80% over 2010. The company, notorious for keeping its supply chain under wraps, also for the 1st time named its major suppliers. Under pressure from activists in the US and abroad, Apple’s 27 page Social Responsibility Report  is the most comprehensive in the firm’s history. It also reflects new CEO Tim Cook’s  departure from the culture of secrecy maintained under Steve Jobs.

Asking your students to read this report and evaluate the firm’s strength and weaknesses may make for a good discussion when you cover Chapters 7 and 11.

The Wall Street Journal (Jan.14, 2012) reports that nearly a third of Apple’s suppliers do not abide by the company’s standards. Five  facilities employed underage workers;  112 were not properly dealing with hazardous chemicals (137 workers were seriously injured cleaning iPad screens with n-hexane); 108 firms did not pay properly for overtime; and 93 had workers exceeding the 60 hour per week corporate cap. Apple did add that all suppliers have stopped discriminatory screenings for medical conditions or pregnancy. Several references are made to one of Apple’s biggest manufacturing partners, Foxconn, and the spate of employee suicides (jumping off the roof) at its Shenzen, China facility.

While Apple has occasionally divulged the names of selected suppliers, the rest have been a secret, long-studied and sought out by industry analysts. The new list of 156 companies represents 97% of the first tier of Apple’s supply chain. It includes such well-known firms as Sony and Intel, along with less-known names like Tianjin Lishen Battery, Zenya Aluminum, and Unisteel Technologies.

Discussion questions:

1. Why did Apple release this report and name its suppliers?

2. What more can Apple do to increase its social responsibility?

OM in the News: Apple’s Supply-Chain Secret?

 Businessweek (Nov.4-10, 2011) describes the “world of manufacturing, procurement, and logistics ” in which Apple excels.  “Apple has built a closed ecosystem where it exerts control over nearly every piece of the supply chain, from design to retail store”, writes the magazine. “The iPhone maker spends lavishly on all stages of the manufacturing process, giving it a huge operations advantage”.

This is a great article to ask students to read, as it describes the critical role of OM in one of their favorite companies. “Operations expertise is as big an asset for Apple as product innovation or marketing”, says the former head of SCM at HP. With its volume –and ruthlessness–Apple gets big discounts on parts, manufacturing, capacity, and air freight. This enables the company to handle massive product launches without maintaining huge inventories, all the while earning 25% profit margins.

As one example of details in the supply chain, Apple bought up all the available holiday air freight space  to ensure its new translucent blue iMacs would be widely available before Christmas–paying $50 million to do so. The move handicapped Compaq when it later wanted to book air transport.  Apple also decided to fly iPods directly from Chinese factories to consumers homes, allowing the buyer to track the phone’s progress around the world on its web site.

The company recently announced it plans to double capital expenditures on its supply chain to $7.1 billion next year, while committing $2.4 billion in prepayments to key suppliers. The tactic ensures availability and low prices. Because it  locked up all available screens to use in its iPhone4 debut last  year, competitors like HTC couldn’t buy the screens it needed. 

 While life as an Apple supplier may be lucrative because of volumes, Apple  does squeeze prices to the bone, and may require suppliers to keep 2 weeks of inventory within a mile of Asian assembly plants.

Discussion questions:

1. In what ways do Apple’s retail stores provide an OM advantage?

2. How does Apple use SCM as a strategic weapon?

Teaching Tip: The World’s Most Admired Companies–2011

In reading Fortune’s new 2011 list of the “50 most admired companies” in the world, I saw some good teaching opportunities. Of the nine attributes rated by the 4,100 execs who did the rankings, I would view six of them as being under the OM purview. (The rest are financial measures). And what makes the rankings more interesting is that Fortune points out the major changes since their pre-recession survey 4 years ago.

Here are the  6 categories, along with the old and new champs for each:

1. Ability to attract/ keep talented people:  then, GE: now Goldman Sachs.

2. Global business effectiveness: then Nestle: now McDonald’s

3. Quality of management: then P&G: now McDonald’s

4. Quality of products/ services: then Anheuser-Busch: now Amazon.com

5. Sustainability: then UPS: now Statoil

6. Innovativeness: then Apple: now Apple

Two things we can discuss with our students: (1) McDonald’s is considered the world’s best-managed company on 3 attributes (the last being wise use of corporate assets). Can the class explain why? (2) Only Apple preserved its status (for innovativeness) over the 4 traumatic years. And Apple ranks no.1 in the Fortune overall most admired list.

A wonderful editorial recently in The Wall Street Journal (April 12,2011), by Vinton Cerf (an Internet pioneer now at Google), explains Apple’s success. He writes: “Americans get very excited about innovation…In Silicon Valley, and elsewhere in the US, the engine requires sources of trained professionals, sources of capital, and new and exciting companies that form a mutually enforcing ecosystem”.

Contributing factors, Cerf adds, include the freedom to pursue ideas, the freedom to fail, and freedom of access to information. “Business failure in the US is a mark of experience”. I am reminded of a recent interview of Stephen Jobs who remarked that being fired from Apple by John Scully (in 1984) was the best thing that ever happened in his career. (He came back as CEO in 1997). In other cultures, such a downfall would be a permanent scar.