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Manage Your Suppliers, Protect Your Brand

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.

20 comments on “Manage Your Suppliers, Protect Your Brand

  1. elctrnx_lyf
    June 25, 2013

    It is extremely important for any consumer electronics company to make sure their suppliers are also operating acceptable to global standards. If there is any issue there is a major problem for the OEM brand name. No wonder Apple is realising importance of making sure the suppliers are operating as per standards.

  2. SP
    June 25, 2013

    What happens at Foxconn and how they deal with their employee is Foxconn's management problem. Apple atleast had put the third party audits. Its more to do with how Foxconn as a company is dealing with their internal problems. And Huwaei is also known for extremely severe working conditions for the engineers.

    But yes if a supplier you are associated with from long time has been in news for wrong reasons definitely the brand gets affected but there is a limit to what the other party can do to solve some problems.

  3. ITempire
    June 25, 2013

    After all these actions taken by Apple, it has become a symbol that it is important to incorporate the safety practices and maintain an environment friendly manufacturing process if one has to continue as a supply chain partner of big manufacturers and for the manufacturers as well if they want to continue avoiding criticism from associations and media.

  4. ITempire
    June 25, 2013

    @ elctrnx_lyf

    All this has become possible after media's empowerment. Now companies know that if they are caught doing something unethical or illegal, they will first face a media trial and then a court trial and the image is formed and destroyed mostly by media and social networks where an allegation is assumed to be the truth.

  5. Lavender
    June 25, 2013

    But a good supply chain also requires faithful and long-term relation with suppliers. I do not which way (Huawei's auditing or maintained cooperation0 is better? For one new supplier, necessary training is needed; error risk is relatively larger. 

  6. ITempire
    June 25, 2013

    @ SP

    Apple also deserves criticism because if its third party audits were so effective, why wasn't Foxconn identified before by itself rather than by authorities and media ?

  7. ITempire
    June 25, 2013

    @ Lily

    It is better to filter out suppliers whose practices are doubtful rather than putting your brand image and supplier relationships at stake later.

  8. prabhakar_deosthali
    June 26, 2013

    Here we are talking about the ethical practices to be followed by the suppliers to protect the brand image of the company like Apple.

    But isn't it true that the employees of these very companies have also been subject to the inhuman pressures to meet very aggressive deadlines set by their managers. Many of these engineers have early burn outs in their career .  Such stories are a plenty in silicon valley and probably have never caught the attention of media.

  9. FLYINGSCOT
    June 26, 2013

    Huawei should be applauded for leading the field in this effort as a means of raising the working conditions for employees all over the world.

  10. Tom Murphy
    June 26, 2013

    Prabhakar: Yes, there is career pressure in Silicon Valley. But I have a LOT more sympathy for a factory worker who works 16 hours a day, 7 days a week, earning nickels and dimes while making a tiny piece of platic and silicon that will sell for several hundred dollars on the other side of the planet.  I worry more if that worker will be driven to suicide or suffer a breakdown than I worry about a Silicon Valley executive earning $150,000 a year experiencing career burnout before he turns 40.  The former worker has no alternative; the latter can always move to China and get a job on an assembly line (that's a quick cure for job burnout).

  11. Hailey Lynne McKeefry
    June 26, 2013

    In a perfect world there would never be a supplier snafu. However, it happens. The real measure of any organization is how it reacts to the new reality is as important or more important than the fact that something went awry.

  12. Hailey Lynne McKeefry
    June 26, 2013

    @WaqasAltaf   Information moves so quickly now, and especially large organizations are under such scrutiny that they do, indeed become symbolic. It's a quick slide from symoblic to scapegoat.  In a way, that's a good thing. hopefully, the visiblity brought to this story will help others avoid similar mistakes. 

  13. Houngbo_Hospice
    June 26, 2013

    @Tom,

    “I have a LOT more sympathy for a factory worker who works 16 hours a day, 7 days a week”

    I share that feeling as well. However, the factory worker and the Silicon Valley guy are living in two different worlds with different socio-economic realities. It is true that the former is being cheated by his employer, but the latter may well deserve the salary he is paid for his hard work. He may not deserve our sympathy, but he may deserve our respect.

  14. Houngbo_Hospice
    June 26, 2013

    @FLYINGSCOT

    My hope is that every manufacturer will be requiered to open their suppliers to public inspection. This will help reduce workers' right violation in most manufactoring plants.

  15. hash.era
    June 27, 2013

    @Hospice: Good idea but that would be very risky isn't it ?     

  16. Himanshugupta
    June 27, 2013

    @Hailey, you are absolutely correct. With outsourcing, increasing number of suppliers and complex supply chain; it is nealy impossible to micro-manage each and everything. The best any organization can do is to put measures and guidlines to avoid unethical and inhumane suppliers. 

  17. Himanshugupta
    June 27, 2013

    @Tom, i share the same opinion about the guyz working in silicon valley. They work not because of lack of alternatives but more due to quick career progression and money. While the same is not true for most of the factory workers. So, the blue collar jobs are more susceptible to the company policies as the workers might not have any other alternative but to comply with the policies however unfavorable they might be.

  18. Adeniji Kayode
    June 27, 2013

    @Flyingscot,

    That is really amazing and good to know too

  19. ITempire
    June 29, 2013

    @ Hailey

    Yes, that's for sure. We can't imagine the number of people that will benefit as a result of companies cutting down unethical or non-compliant practices due to fear of negative advertisement.

  20. prabhakar_deosthali
    June 30, 2013

    Tom, I  perfectly agree with you that the dimes and Nickels that an assembly line worker earns are more important.

    For those workers who come from very very poor living conditions , even those “nu-ethical” working conditions are also better than the lives they were living before they got those jobs.

    That makes companies like Foxconn to thrive.

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