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What Did Apple’s Supply Chain Audit Uncover? Part 1

{complink 379|Apple Inc.} does not manufacture its own products, yet the company has been clobbered in the press and by human rights campaigners in recent past for alleged abuses and violations at plants operated by some of its contract manufacturers, including {complink 2125|Foxconn Electronics Inc.} The company's internal response has been unknown until now, but it initiated a comprehensive review of its supply chain ecosystem and just issued a report on its findings. (See: Apple Responds to Workers’ Rights Abuses.)

In this blog, I am going beyond what Barbara Jorgensen discussed in her blog to highlight the key findings from Apple's review of its extended supply chain. Some of the discoveries were unpleasant, but Apple took the unusual step of publishing the unvarnished results, setting an example for the industry and indirectly challenging other electronics equipment makers to examine their operations to ensure compliance with international manufacturing standards.

Guaranteed, many of these companies will not like some of what they will uncover. Apple didn't either, but by turning the searchlight on suppliers, it will take the sting off criticisms that it hides behind contractors and does not care about actions taken on its behalf as long as these help it reduce manufacturing costs and boost margins. Those criticisms, as you'll see from the details of Apple's findings below, might have been spot on.

Too many third-party supply chain partners are cutting corners, short-changing workers, and jeopardizing the entire ecosystem in order to offer the advantages they believe their OEM customers want. Unfortunately, they often hide these actions from the OEMs, including the ones that try to peer behind the veil, as Apple found out. The company said in its report that its suppliers are required to “provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes wherever Apple products are made.”

That was the order from Apple. What it discovered, when it lifted the hood, were extreme and repeated violations by some of its suppliers. Here, in the report's own words, are the key findings from Apple's recent review of its supply chain:

  • Underage workers:
  • A total of 49 underage workers across 9 facilities.

  • Excessive recruitment fees:
  • Apple considers this to be involuntary labor.

  • Worker endangerment:
  • 137 workers at the Suzhou facility of Wintek, one of Apple's suppliers, had suffered adverse health effects following exposure to n-hexane. The factory had reconfigured operations without also changing their ventilation system.; workers performed at heights greater than 3 meters without guardrails or safety harnesses ; 80 facilities were not storing or handling hazardous chemicals properly; 37 facilities failed to monitor and control air emissions; 47 facilities did not have appropriate first-aid supplies for emergency situations; 78 facilities did not have properly maintained fire detection and suppression equipment; 81 facilities did not have adequate exit paths for emergency situations and; 54 facilities had workers who were not wearing appropriate personal protective equipment (PPE), such as earplugs, safety glasses, and dust masks.

  • Record falsification:
  • One facility presented falsified payroll records and provided misleading interview answers to Apple's audit team; One facility concealed a production area from Apple's audit team, preventing assessment of associated environmental health and safety risks.

  • Bribery:
  • A facility manager offered cash to Apple's third-party auditors, asking them to reduce the number of audit findings.

  • Coaching:
  • A facility manager assembled workers and told them to provide false wage payment information to Apple auditors.

  • Discrimination:
  • 41 facilities screened job candidates or current workers for hepatitis B, and 54 other facilities lacked policies and procedures that prohibit discrimination based on results of medical tests; 30 facilities conducted pregnancy tests, and 57 other facilities did not have policies and procedures that prohibit discriminatory practices based on pregnancy.

  • Violation of labor laws:
  • 76 facilities had records that indicated workers had exceeded weekly working hour limits more than 50 percent of the time. At 74 facilities, more than half of the records we reviewed indicated that workers had worked more than six consecutive days at least once per month.

Kudos to Apple; let's see what its competitors will do. By the way, let me sweep aside here any arguments that the industry is already doing enough. Of the 288 facilities it audited in 2010 in China, the Czech Republic, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand, and the US, “more than 40 percent stated that Apple was the first company ever to have audited their facility for social responsibility compliance,” according to the company.

It's not enough, though, to only highlight what Apple discovered. The company has been seeking solutions, and in Part 2 of this series, I will list the actions already taken by the company and other steps it is contemplating, both alone and in conjunction with regulatory authorities and independent examiners.

11 comments on “What Did Apple’s Supply Chain Audit Uncover? Part 1

  1. KHC
    February 18, 2011

    Bloomberg reported on Jan. 20:

    Apple Inc . ranked last out of 29 global technology companies in terms of responsiveness and transparency to health and environmental concerns in China , according to a Beijing-based nonprofit group.

    BT Group Plc and Hewlett-Packard Co . were among the highest ranked companies, Ma Jun , director of the Institute of Environmental and Public Affairs said in a phone interview today…

    IPE today released “The Other Side of Apple” a report that outlines findings from a group of 36 non-governmental organizations into environmental and health practices among technology companies.  

    Apple, it seems, may be a bit late to this Corporate Responsibility party. Damage control is now fully engaged. Looking forward to your follow-up on what they actually intend to do , however belatedly.

  2. Barbara Jorgensen
    February 18, 2011

    I agree a third-party assessment is always better, but HP just got slammed for labor abuses by a third party (see http://www.ebnonline.com/author.asp?section_id=1071&doc_id=203791. What do we make of all this?

  3. SP
    February 18, 2011

    Wow thats great that Apple has come up with such review report. It will only bring up its trust among customers and shareholders. Apple would be the only company that has willingly published such a detailed report. Definitely kudos to them…

  4. Anand
    February 19, 2011

    Barbara,

      I agree with you. Third party certification is always better than self certification, because in self-assessment there is always scope for tweaking your report based on your interests. How about “Labour Friendly” certification if the product complies with labout laws, Something simliar to “ECO FRIENDLY” certification.

  5. itguyphil
    February 19, 2011

    I think at most levels, unfortunatley, alot of the large high-tech companies are guilty of some violations. It's just a matter or when and where they take place. The waterfall affect is taking place now since one big player is busted THEN regulators clean up their act and start checking out the rest of the industry.

  6. t.alex
    February 19, 2011

    Another question is if chinese government can step in and take necessary action?

  7. Hardcore
    February 20, 2011

    I originally did a reply to the Apple 'release', but decided it may be bit to inflammatory to post, even though it did not specifically relate to the case.

    Not specifically related to any particular supplier/OEM

    To generalize, I notice that the text used a number of classic distraction methods, specifically they 'insinuate' that the report relates more to China, but in reality looking at some of the pictures, It seems this is not the case.

    Taiwan is specifically mentioned ,but nothing is actually broken out, I also find the conclusions a bit 'slanted' and this that there are some items just 'thrown' in to balance it out.

    Related to  offers of 'benefit' and based on how things work here, someone is trying to pull a 'blinder'.

    There is absolutely no way that they only have one incident of reported corruption for a company of that size with that supplier base, generally I dealt with at least one a week.

    I even have some photographs of the inspector of one VERY well known 'independent' audit company being 'brown enveloped' out in a company car park, and had another situation where I was 'warned' by a certain inspection Agencies staff for reporting their corruption back to their manager (I'd known the manager for about 10 years)

    I have read many such reports, and even developed various systems for supplier evaluation, I can say it is a highly sophisticated process that cannot easily have statistical methodlogy applied to it.To do so, would be to consider that a factory was consistent in all areas without issues related to 'theifdoms' 'power-plays' and 'political maneuvering'.

    I have also had the pleasure/displeasure to deal with some very big names and have a very firm conclusion that much of this ethical auditing is smoke and mirrors ,related to feel good factors and market security.

    Just for the record, this is not a government problem, it is a people problem and in recent years I can say I have seen a general lack of moral decline in the industry, despite all the  “joy joy feel good” propaganda, but it is said that things generally get worse before they get better. 

     

     

     

  8. Eldredge
    February 20, 2011

    It sounds like Apple was pretty thorough in their audit – interesting results.

  9. Ms. Daisy
    February 20, 2011

    I seem to agree with Hardcore that this audit by Apple is all smoke and mirrors. Why will a giant like Apple wait till now to audit its business partners especially in light of its doing business in China.

    China has been accused of human rights  violations from time immemorial. So why will anyone go into business in China without a memorandum of understanding with contractors that is close if not similar to labor laws in the US.

    Apple and I bet other giants in the supply chain that have outsourced to these developing economies have turned a blind eye to these abuses till now, as long as it is not traced directly to them. Hopefully this audit will be a challenge to all in the supply chain to demand fair treatment for workers in the these countries!  

  10. eemom
    February 22, 2011

    As much as I respect Apple for their technological innovation, I have to agree with Hardcore and Ms. Daisy.  The Apple findings are not very surprising.   Everyone knows cheep labor is why these companies contract overseas.  We all inherently know that working conditions are poor in these overseas subcontractors, to fain surprise now is misleading.  Why did Apple wait until now to do the audit?  Why have other OEMs NOT done any auditing?  The answer is simple, they are looking to reduce costs at all cost.

    I will say, hopefully something good will come out of this and things will finally change.

  11. Ms. Daisy
    February 23, 2011

    It is our collective hope that the supply chain giants will learn from this. But I am not optimistic, especially in light of dwindling profits by these companies because of China's policies. All this is a smoke screen to make us believe the companies are doing something. Unless a third party advocacy group or news reporters keep the searchlight on these human rights violations and worker abuses issues and hold the companies accountable, we will be discussing the topic again when we either have a catastrophe or another company decides to do “an audit”.

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