By Kevin Meyer
Before I begin, let me be clear. I love Apple products, and I own a plethora of them. The design is incredible, they work like I want to work, and they improve my life. The computer-related frustration level since I switched from PC to Mac a few years ago has gone to zero, literally.
With that said, I do have several issues with Apple – and I've detailed them as recently as last week. Bottom line is that I take offense when people claim that the company does a great job with its supply chain. They execute a traditional supply chain pretty well – and just since it happens to be a huge volume of a desirable high tech product doesn't make it great. Like many people, I hold my nose when I buy Apple products – the worker treatment issues really bother me.
So imagine my shock when I found that IndustryWeek named Apple to its "2012 IW 50 Best Manufacturers" list. Not only to the list – they are in the top position. And an accompanying article lauds their product design expertise while barely touching on "manufacturing." Where do I begin?
How about with whether Apple should be called a "manufacturer" in the first place. Can someone show me a pay check for a production team member making Apple products that actually has "Apple" on the check… instead of something like "Foxconn?" With a couple of minor exceptions, no. Almost all assembly is outsourced. Call me old fashioned, but to me being a "manufacturer" means you actually assemble something – not find someone to do it for you.
Now, ignoring the issue that they aren't really a manufacturer, consider the term "best." To be fair, IndustryWeek's criteria is:
IW compiles the list by ranking the IW 500 companies based on their financial performance in six key areas over a three-year period. This includes inventory turns, profit margin, asset turns, return on assets, return on equity, and revenue growth.
"Best" in the world of IndustryWeek means predominantly financial performance. So, yes, Apple makes big bucks and continues to grow rapidly. But it is exactly that type of financial myopia that has created the outsourcing madness over the past few decades. Chase "cheap" labor around the world and then create elaborate ways to support far-flung operations, supply them with raw materials, and bring container loads back to customers across thousands of miles of ocean. The financials look great – at least for a while – but is it the best long-term way to run a business?
Apple executes a traditional supply chain, and a very high volume one, very well. But it is still just traditional. Not "best" in my world. Not by a long shot.
"Best" to me means a manufacturer that recognizes that the value of people's brains is worth far more than the "cost" of their hands that assemble products. And as such they respect those people – by leveraging their brains, ensuring a safe environment, and paying them well. Such respect isn't happening when outsourced production workers are jumping off buildings and just token attention is being paid to worker treatment issues that have surfaced as recently as today.
"Best" to me means a manufacturer that understands the value of shortening the supply chain and manufacturing as close to customers as possible. Not thousands of miles away. Similarly "best" is not having to shuttle hundreds of engineers from Cupertino to Shangahi, and having to spend tens of thousands of hours on multi-language conference calls at 2am, to maintain control over the far-flung supply chain.
"Best" to me isn't bragging about how Apple's Foxconn partner can "wake a thousand Chinese engineers at 1am to fix a problem" as Steve Jobs did. It is performing solid manufacturability design and root cause analysis to ensure that magnitude of problems never exist in the first place.
"Best" to me isn't the incredibly risky strategy of manufacturing virtually all of the products for a multi-billion dollar company within a small geographical area of an increasingly geopolitically unstable country. It is a manufacturing strategy that couples and leverages being close to customers with semi-redundant factories in multiple locations.
"Best" to me isn't being content with being traditional. It is developing innovative methods – manufacturing methods in this case – to become increasingly competitive over the long term instead of just chasing labor costs and pounding on suppliers for lower prices. Ford and Toyota did it. Imagine what could happen if Apple invested a miniscule portion of its $100B in cash into real manufacturing excellence – not traditional supply chain management.
Sorry IndustryWeek, Apple is not a manufacturer and they definitely aren't the best – at least when you look at more than just traditional financial criteria. But perhaps that kind of skewed perspective is what happens when a monthly magazine is called "IndustryWeek." (Hat tip to Mark Graban for reminding me of that.)