A Cautionary Lesson from Electronics Supply Chains

October 1st, 2012 4:02 pm Category: Optimization, Supply Chain Improvement, by: John Hughes

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It wasn’t very long ago that the United States was still a major location for the manufacture of electronics. Apple Inc. used to boast that its products were all made in America. There were a number of large plants (and many were in fact foreign owned) making everything from televisions to mass-market audio devices.

But in the past few years that has changed dramatically. Today, almost all of the millions upon millions of Apple Inc. devices are manufactured oversees. Or look at the Amazon Kindle. Despite the fact that the key innovation that underlies the success of the Kindle – the electronic ink which is produced in Massachusetts – all the remaining components in this product are manufactured in Asia. Over dinner in February 2011, President Obama is rumored to have asked Steve Jobs of Apple Inc. why couldn’t the company’s products be “made in the U.S.A.”. Jobs replied “those jobs aren’t coming back” according to another dinner guest.

No company’s supply chain exists in a vacuum; they are like living organisms that exist and depend on their environment and surroundings. So what Jobs was saying was that the supporting economies, societies and infrastructure in which Apple’s supply chain exists have moved to Asia and it is an extremely difficult task to uproot it and relocate it to the U.S.

Executives at various mass-market electronics manufacturers tell glowing stories of the flexibility and responsiveness of their Asian suppliers. There’s a story where Apple made a late-stage design change to the frames around the iPhone screen. The Chinese manufacturer roused 8000 workers in the company’s dormitories at midnight, and within half an hour they began a 12-hour shift. Four days later, the factory was turning out 10,000 iPhones per day.

And the reason why these supply chains have taken root in Asia is not just a result of relatively cheap labor. In an article in the New York Times, Timothy D. Cook of Apple explained that factories in Asia “can scale up and down” at breathtaking speeds. They have the mid-level engineering talent and other skilled and un-skilled personnel resources to be able to rapidly adjust to their customer’s requirements. And in addition, the supporting 2nd-tier businesses that supply the electronics manufacturers are located nearby and are themselves extremely flexible and responsive. Thus a full and complete ecosystem has grown and flourished in East Asia for manufacturing mass-market electronics which is not easily or quickly replicated elsewhere in the world.

The experience of the electronics industry should be a cautionary tale for the U.S. and other advanced economies. Supply Chains are networks of interdependent actors. And in the case of manufacturing enterprises, their physical location has an impact on their ability to perform efficiently. This nation should have a debate as to what are the critical industries that we want to keep rooted in this country and then develop policies and infrastructure that will foster the growth and long-run health of the businesses that are involved in these areas of the economy.

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