Chain of Thought

Apple's Supply Chain is in Need of Better Management

High-tech giant Apple has long had a love/hate relationship with its customers and suppliers. The company loves to publicize how popular its products are with its customers, who are nothing if not rabidly passionate about everything-Apple. However, the company also hates to publicize exactly who makes it products, since that information tends to raise uncomfortable questions, such as: Why does the classic American success story offshore its manufacturing to Chinese factories where suicides, slave labor and environmental abuses have been documented?

Yes, Apple frequently shows up on lists of the most popular, most trusted or most valuable companies, largely because its best-known products have a perceived cachet to them that competitive products simply do not have. Most recently, Interbrands positioned Apple as number 8 in its list of the Best Global Brands of 2011, a jump of 9 spots from its position a year ago, one of the biggest upward moves among the top 100 brands; Amazon climbed 10 spots, but that put it no higher than number 26. (For the record, by the way, the top 7 spots remain unchanged from 2010, with Coke still on top. For Apple to move into the top 10, obviously somebody had to drop out, and that company is Nokia, which has its own problems, as noted here.)

Despite the numerous accolades, Apple has seen its image tarnished through nobody's fault but its own, namely, the way it manages (or mismanages) its overseas suppliers. Apple released its 2012 Supplier Responsibility progress report just before the long holiday weekend (a time when companies typically announce unflattering news, hoping it'll get buried), which among other things paints a not-so-rosy picture of labor conditions throughout the Chinese plants that manufacture iPhones, iPads and other high-tech devices for Apple. The company also released a list of its major offshore suppliers.

There's some thought that Apple, as well as other California-based electronics companies, has been more-or-less dragged kicking and screaming into revealing the practices of its suppliers. For instance, on New Year's Day, the California Transparency in Supply Chains Act went into effect, which requires all companies with sales of $100 million or more and that do business in the state to publicly disclose what they're doing to ensure their global supply chains do not in any way support or enable slave labor or human trafficking. Among other things, companies must now comply with various audits of their vendors and suppliers, and publicize their efforts on their websites. Which is what Apple has done, warts and all.

According to Apple's progress report, almost two-thirds (62%) of the suppliers that it uses do not comply with Apple's limit of 60 hours per week in the factory, with at least one day of rest per seven days. “Working hours is a complex issue,” Apple CEO Tim Cook told the Wall Street Journal, adding that he is confident that by monitoring its suppliers' plants at a “very, very micro level,” Apple will be able to improve the situation.

More than a third (35%) of the suppliers do not meet Apple's standards for workplace safety, the report notes, and nearly a third (32%) are not in compliance with Apple's hazmat management practices.

The WSJ also notes that “the supplier report could pique Chinese authorities, who have long sought to stem criticism and limit disclosures about business practices there.” And indeed, Foxconn, one of the most notorious Chinese suppliers, is cited several times in Apple's reports for various infractions, such as a combustible dust explosion that killed four people and injured 18.

To diminish any suggestion that Apple's global standards are somewhat, well, sub-standard, the company has joined the Fair Labor Association as an associate member, the first high-tech company to do so. In a press release, it was announced that “the FLA will independently assess facilities in Apple's supply chain and report detailed findings on the FLA website.” However, the FLA has been criticized in the past for receiving funding from companies it monitors, which of course would be a conflict of interest. So Apple would do well to increase its transparency to its stakeholders beyond the disclosures it has no choice but to release.

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