Thursday, December 6, 2012

Apple to Move Back Manufacturing

imageToday’s big news doing the rounds is that Apple intends to bring the manufacturing operations back to the US! This happens a day after I wrote extensively on this trend, discussing several examples from many large companies evaluating their off-shored manufacturing operations and deciding to bring them back. Some simply don’t find it cost effective any more, others may have a combination of reasons including the IP and branding risks.
I actually mentioned Apple yesterday in the context of their relationship with Foxconn which has been in the news repeatedly over poor working conditions in their factories that assemble and supply many popular Apple products. However, the current Apple plan is to bring back only Mac computers. In response to a question as to why Apple doesn’t leave China entirely and manufacture everything in the U.S., MSNBC reports Tim Cook saying “It’s not so much about price, it’s about the skills”. Now that is interesting!
Elaborating further the same MSNBC report adds, “Echoing a theme stated by many other companies, Cook said he believes the U.S. education system is failing to produce enough people with the skills needed for modern manufacturing processes. He added, however, that he hopes the new Mac project will help spur others to bring manufacturing back to the U.S.”
In The Insourcing Boom (DECEMBER 2012 ATLANTIC MAGAZINE), Charles Fishman writes that when GE decided to bring back the production of one of their water heaters GeoSpring at Appliance Park, they quickly found out that “although the GeoSpring had been conceived, designed, marketed, and managed from Louisville, it was made in China,” and GE really had zero communications into the assembly line there. He further explains how the team found the design “terrible” in terms of manufacturability. Fishman compares the phenomena to “writing a cookbook without ever cooking”. GE eventually redesigned the water heater for easier manufacturability, and in the process, reduced both the material and the labor costs to actually beat the China price by nearly 20 percent. He writes, “The China-made GeoSpring retailed for $1,599. The Louisville-made GeoSpring retails for $1,299.”
I am not sure how precisely can companies account for the value of their lost skills, such as the business processes, manufacturing skills and technologies, operations management, quality control, and other skills required for running an effective manufacturing plant, but this is an aspect we did not touch upon yesterday. While the value of such skills may remain subjective, their importance is underlined by the examples above of GE and Cook’s sentiment on why they just cannot bring back all their products from China (right away)!
Something more to chew upon in addition to the usual costs of fuel and labor when considering where to manufacture.
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Other Resources: Want to know more about supply chain processes and supply chain strategy? Check out my books on Supply Chain Management at Amazon.
© Vivek Sehgal, 2012, All Rights Reserved.

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