3 Lessons From the Apple-Foxconn Debacle

Every day, there seems to be another {complink 379|Apple Inc.}/{complink 2125|Foxconn Electronics Inc.} headline. The biggest “ouch” story I've read referred to the situation as “Apple’s ‘Nike moment’.”

But with every supplier public relations disaster, there's a positive side for the supply chain folks because the renewed spotlight ensures that suppliers reflect the OEMs' business standards.

Here are the three lessons I see in the experience of Apple for the electronics supply chain:

  1. When in doubt, ask.
  2. Procurement pros are under more pressure to deliver savings — with scare resources, so it's easy for supplier performance management to fall through the cracks. Start by having honest conversations with your suppliers at least once a year about factory and worker conditions, environmental concerns, and other corporate initiatives. Of course, you may not receive honest answers — and the fact that many suppliers are a few time zones away makes it even more difficult. But suppliers are becoming increasingly representative of the brands they serve, making the due diligence critical for your company.

    More mature programs go even further to create a complete picture of tier-2 and tier-3 suppliers. Supply chains need to be up to standard from the bottom up, and that includes your supplier's suppliers.

  3. Create a process for mitigating risk.
  4. Don't wait for your ethics or risk officer to bring problems to the forefront. Instead, be proactive and create a system for tracking supplier standards and identifying areas of risk.

    Secondly, create a timeline and action plan for addressing any problems that slip through the cracks. The questions to consider include the following:

    • How important is my business to the supplier?
    • How important is the supplier to my business?
    • Can I immediately influence their corporate social responsibility (CSR) requirements?
    • Which stakeholders do I need to notify?
    • Do I have alternative sources of supply (if needed)?

  5. Define total cost.
  6. “Cheap” labor isn't so cheap anymore, and it's not as desirable as it once was. While selecting cheaper suppliers is always desirable, selecting based on price only could increase risk. To truly reflect the market conditions, make sure that commodity planning incorporates increased total cost as worker conditions and quality of life improves and wages increase. If your suppliers aren't passing along those costs, it could be a good indication that their working conditions aren't up to standards.

The bottom line is this: Supply chain departments must be enablers of success. And if your supplier fails — or negatively affects your brand — the amount of money your team saved or the terrific contractual terms your team secured will fall on deaf ears.

What strategies do you use for ensuring supplier performance management?

8 comments on “3 Lessons From the Apple-Foxconn Debacle

  1. Barbara Jorgensen
    April 18, 2012

    good points all. The situation would be worse, in retrospect, if the industry wasn't able to learn from its mistakes.

  2. elctrnx_lyf
    April 19, 2012

    I believe most of the top companies actually follow all these guidelines to actually rate the suppliers. But in the future I hope many more OEM's will start assessing their suppliers to actually understand the working conditions and make sure the dignity of labour is maintained everwhere. Let us not exploit some one to reduce the price of our product.

  3. ProcurementEtc
    April 19, 2012

    While the 3 lessons should be part of our routine due diligence I'm not convinced they are useful in ensuring a supplier reflects an OEM's business standards.  

    Since the 1970's China's human rights violations, IP and technology theft, unauthorized and often dangerous material substitution have been well documented.  Anyone who's visited China knows they tell you what you want to hear, no action behind it.  China also continues to be unwilling to change by enforcing contracts and enacting legislation.  They have no incentive as long as OEMs and consumers condone immoral or criminal activity to save a buck.

    OEMs need to be the catalyst for change not China, Mexico, etc.  In order for suppliers to reflect the OEMs business standard the business needs to valuate and analyze culture (business, political, legal and human) against traditional cost benefits and award business accordingly.   SC professional can lead the change by educating stakeholders, updating ethics statements to include socially responsible language, developing means to collect data and create rakings on key cultural criteria.

  4. Houngbo_Hospice
    April 19, 2012

    At least the mistakes have not sunk the two companies. Maybe the workers problems have to be found elsewhere than in their actual working conditions. 

  5. Houngbo_Hospice
    April 19, 2012

    Ironically, the workers seem to like their workload and would even want more if they could. But the reality may just be that they need more pay for what they are already doing. That is what Foxconn has failed to understand.

  6. prabhakar_deosthali
    April 20, 2012

    IT is the rich and poor divide that creates this difference of opinions. In the developing countries where there are millions of people living under poverty line , people are ready to accept below par working conditions and earn some livelihood  for themselves and their family rather than be dependent on some doled out money given out by some charity organizations.  Whether this is being exploited by the local powerful people to negotiate cheap labor contracts with the western world is another issue.

    But in my opinion this is a very complex socio economic issue which can only get solved by slowly reducing that rich-poor gap.

  7. jbond
    April 20, 2012

    @ProcurementEtc, You are exactly right. These OEMs need to be the driving force behind changes, and until they step up to the plate things will not change.

  8. Barbara Jorgensen
    April 20, 2012

    @prabhakar: good point. It is easy for those of us in the US to impose our value system on a company that is half a world away. It is much more complex than “just do it this way” because we say so. It is entirely possible, as several readers point out, that some workers are not all that unhappy with their lot. What seems outrageous to us may seem commonplace in another region. It is complex and will take a lot of time.

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