The Apple iPhone transformed the technology industry by popularizing the smartphone and blazing a path to a mobile future. But to do it, the company needed an important ally: a penny-pinching Taiwan-based factory operator named Foxconn.
Employing hundreds of thousands of workers at vast facilities in mainland China, Foxconn figured out a way to assemble the iPhone at a cost low enough that middle-class Americans could afford it. The business offered low profit margins, but the work buffed Foxconn’s financial results and cemented its status as the world’s largest maker of hardware for companies like Apple and Sony.
Those relationships are now shifting — and Foxconn is betting heavily to keep up.
On Wednesday, Foxconn said it had struck a deal to acquire control of the Japanese screen maker Sharp for $3.5 billion, after weeks of negotiations and high-profile setbacks.
The deal, for a 66 percent stake in Sharp, is intended to make Foxconn a more attractive partner for Apple. The American technology company uses Sharp screens, which could give Foxconn added leverage in dealings between the two.
The screen is an especially lucrative piece of the smartphone, costing as much as $54 each, according to estimates by the research firm IHS. Sharp provides roughly 25 percent of the iPhone displays, IHS said.
Still, the Sharp purchase will saddle Foxconn with an ailing business that will take considerable money and effort to turn around, some analysts say. Reflecting those problems, the purchase price is $2 billion lower than a deal the two sides struck just last month, after Sharp disclosed the potential for costly problems — nearly $3 billion in potential liabilities — down the road.
But Apple has been diversifying its supply chain, giving some production contracts to other assemblers and component makers. And Foxconn is grappling with China’s rising labor costs and a slowdown in the global smartphone market.
Read more at To Woo Apple, Foxconn Bets $3.5 Billion on Sharp
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Bloomberg has a lengthy piece illustrating just how great a challenge it is for Apple and other multinational companies to ensure the fair treatment of workers in complex supply chains.
When one of Apple’s suppliers like Flextronics wins a new contract, it needs to take on additional workers – lots of them, and fast. Those workers are recruited through employment brokers, which are required to adhere to Apple’s rules. But many of them are brought in from other countries, like Malaysia and Nepal.
Alok Taparia, the managing director of Transworld Manpower, another of the four Nepalese brokers retained for that drive, says he was given clear instructions: Workers shouldn’t be charged; Flextronics would pay the brokers. But Taparia and the other Nepalese brokers say Flextronics demanded so many men so quickly that there was no way to do it without tapping the country’s network of subagents, stretching into Himalayan villages reachable only by foot. As Apple itself has described in reports on its supply chain, the subagents always charge…
Workers recruited from neighbouring countries can end up needing to pay several layers of agents and sub-agents for their jobs. Without the cash to do so, they take on loans – and are required to surrender their passports as security. The piece says that Apple’s attempts to deal with this are proving less successful over time.
Labor demand surge remains a challenge to our supply chain today. Feel free to contact us, if you need help with your supply chain.
Reference: Apple’s challenges in ensuring fair treatment of workers in complex supply chains
This article talks about a major challenge to supply chain planning. To have ample supply of iPhone 5s and 5c, how many does Apple need to plan and what is the production mix between the 2 models?
Steve Jobs‘ idea was to take the simple route by planning for one iPhone model only and focused on getting the best product to consumers. Tim Cook takes a different but traditional approach by introducing two models instead of one. He hope a cheaper model of 5c would attract more buyers, at least from the Asia. At least, this what the production plan tells us at the moment. The production plans for more 5c than 5s.
Contrary to what Tim expected, consumers would rather spend money buying the expense model 5s with new technology than buying the cheaper model 5c with previous generation of technology. This is why Apple needs to dramatically decrease 5c production and increase 5s production. This shows a supply chain planning mistake. It totally mis-calculates consumer demand by having a wrong product mix.
Check out this article for the challenges that Apple is facing and how we can help you to manage your supply chain.