An Apple supply chain pivot?

Tim Cook, the Apple CEO has just come out and announced that Apple will restart manufacturing in the US, starting with an unnamed Mac computer model, some time in the near future.

The driver of “offshoring” to sources of cheap labour to escape the high manufacturing labour costs in developed countries, has been a convenient excuse for a lack of ideas by the management of many companies.  Virtually all the manufacturing businesses I interact with have an operational labour cost of substantially less that 20% of total BOM and operational logistics costs,  so why not work on the other 80%? Often I suspect because it is easier to join the herd charging towards China than do the hard yards on their own business model.

 “Outsource the manufacturing, and let the capacity utilisation be someone else’s problem”. Clearly this happened in Apple’s case, as the business tanked in the late eighties, cost cutting led to the closure of  factories, and outsourcing of manufacturing and key parts of the technical design, remained the model through the revival led by the ipod, iphone, ipad, and siblings.

However, the competition has now caught up, and volumes are not growing the way they were.  Apple may be hugely profitable, but as they no longer ship the volumes, capacity utilisation in their supply chain must now have swung away from over utilised to underutilised in a very short space of time.   Android is rapidly becoming the  OS of choice in both phones and tablets as Apples share drops, so the Apple profit bubble must be getting a bit fragile.

It is significant (I think) that Samsung is a major supplier to Apple, what a competitive advantage they have been handed by foreknowledge of component specifications, and delivery dates, and now the supplier has become the major competitor, competing on the ground they are in a position to choose. 

This boom/bust cycle of manufacturing volumes imposes huge costs on the supply chain. Having too much capacity and carrying the unrecovered overheads is as bad  having too little, and chasing output targets that end up in carrying high logistics and operational costs while compromising quality. Weather this is owned capacity, or outsourced, it remains a part of the supply chain, and somebody is paying for it, generally the consumer who has little motivation to pay for stuff that does not add value.    

Perhaps I am a cynic, certainly I have no insight into the workings of Apple, but the move to announce the re-opening of manufacturing in the US without any detail at all sounds a bit “iffy” to me, perhaps a PR gesture to deflect some of the odium from the ongoing saga of Foxconn. Just put the word Foxconn into the search engine of a media outlet, this one Huffington Post,  and you get over 6000 articles in response, and not one is doing the Apple brand any good at all.

Too little too late, or the beginning of another swing in the cycle?


About strategyaudit

StrategyAudit is a boutique strategy and marketing consultancy concentrating on the challenges of the medium sized manufacturing businesses that make up the backbone of our economy. The particular focus is on their strategic and marketing development. as well as the business and operational efficiency improvements necessary for day to day commercial survival. We not only give advice, we go down "into the weeds" to ensure and enable implementation.
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