The lesson of Apple's god-awful fiasco with its supplier Foxconn teaches that supplier management is part of brand management. Revelations of abject working conditions at Foxconn's plants in China, reports of employee suicides, followed by Apple's rejection of Foxconn shipments for poor quality took their toll on Apple's image among consumers and investors alike.
How to prevent a recurrence? One way is to take a look at what another electronics manufacturer is doing to manage its suppliers and what Apple itself has done in the wake of the Foxconn debacle.
Not everything may boil down to the nitty-gritty of supply chain management. According to the Wall Street Journal, Apple's woes may have stemmed from too close of a relationship between Apple's late CEO Steve Jobs and Foxconn's CEO Terry Gou. Both viewed themselves and each other as masters of the universe and Jobs, according to the Journal, easily forgave “his favorite manufacturing partner.” Jobs' successor is taking a different approach.
An executive at Huawei Technologies Co., a China-based employee owned company and the world's second largest manufacturer of telecommunications networking equipment, proclaimed, referring to Apple, that “We will never let supplier issues tarnish our brand.”
Huawei detailed its supplier management program in a report it released late last month, based on risk management, efficiency management, and business innovation. Among other things, Huawei Risk monitors its suppliers' legal compliance, conducts inspections based on three priority levels, and provides guidance on reducing costs and waste, increasing labor productivity, and promoting sustainable products and operations.
Huawei conducts a robust auditing program of its suppliers. All of its new suppliers in the last three years have been audited, some 55 companies in 2012. One unnamed electronics manufacturer initially flunked an on-site inspection after the auditors discovered multiple safety issues and found out that the company required excessive overtime, according to the report. After the company adopted the ISO14001 management system, the company was qualified as a Huawei supplier six months later.
In addition, all existing suppliers classified as high priority and medium priority were audited in the last three years, some 101 suppliers out of a total of 686 in 2012. Suppliers that fail to meet requirements are asked to take corrective measures within a specific time frame.
Apple also recently released a 2013 supplier management progress report. Apple reported conducting 393 supplier audits in 2012, 72 percent more than in 2011. Of those, 55 focused on environmental issues and 40 on safety practices. Apple also became the first technology company to join the Fair Labor Association (FLA) in 2012.
The FLA conducted an audit of Foxconn and issued a report in March 2012 which specified nearly 300 action items required to bring Foxconn's plants up to snuff. In August 2012, the FLA reported that Foxconn was making good progress but that 76 items had yet to be fulfilled. The FLA's remediation program for Foxconn runs through July 2013.
Apple, a traditionally secretive company, also released a complete list of its suppliers last year, leading to speculation about the company's motives. Some believe the move opens Apple to being perceived as a company that tries to duck responsibility by deflecting blame onto suppliers. Others say the “list provides stakeholders with a new platform for engagement on sustainability and new opportunities to advocate for change.”
What that means to me is that Apple is opening its suppliers to public inspection. Like developers of open-source software who publish their code in an effort to unearth flaws, something Apple is loathe to do, in this instance Apple may view supplier transparency as a way to get out from under the damage caused by Foxconn.