Interesting article written by Abe Eshkenazi on the importance of operations & Supply Chain Management
July 13th, 2010
Supply Chain for Everyone
Monday’s New York Times featured the story “Supply Chain for iPhone Highlights Costs in China.” With the release of the Apple iPhone 4, researchers took the product, opened up the case, and analyzed the contents for “teardown reports”. What they found included microchips from Germany and Korea, another chip for Wi-Fi and phone reception from the United States, a touch screen from Taiwan, and more than 100 other components.
For the $600 Apple gets from consumers, the company pays $187.51 for the iPhone’s components, according to research conducted by iSuppli.
The article highlights rising costs in Chinese manufacturing. “China is about to get far more expensive. Soaring labor costs caused by worker shortages and unrest, a strengthening Chinese currency that makes exports more expensive, and inflation and rising housing costs are all threatening to sharply increase the cost of making devices like notebook computers, digital cameras, and smartphones.”
Author David Barboza writes that, while Chinese labor makes up a small part of the iPhone’s final assembly, price increases will affect Apple’s supply chain partners more acutely. The manufacturers that produce chips, circuit boards, and plastic moldings count on inexpensive components from Chinese factories. Those factories have increasing costs, and they likely will pass them along to the other electronic component manufacturers.
“Apple can cope better than most companies because it has fat profit margins of as much as 60 percent and pricing power to absorb some of those costs,” Barboza writes. “But makers of personal computers, cell phones, and other electronics … deal with much slimmer profits margins according to several analysts.”
To illustrate the price challenges in southern China, Barboza discusses the supply chain of the iPhone 4, which was designed by Apple engineers in the United States, made with high-tech components from around the world, and assembled in China.
Competitive advantage
Right there, printed across the page in one of the most recognizable newspapers in the world are the words “supply chain.” Further down in the article, the author writes about bills of materials, sourcing, and contract manufacturers. This isn’t in a trade publication, it’s the business section of the New York Times. Here, one article symbolizes how supply chain and operations management has been catapulted to the forefront of business strategy.
What the New York Times dubs “teardown reports” is a similar concept to product benchmarking, which is defined by the APICS Dictionary, 12th edition: “This benchmarking is used for new product design or for a product upgrade. This often includes reverse engineering (dismantling) competing products to determine their strengths and weaknesses.”
Experts are taking the iPhone apart piece by piece to capture the secrets of the $600 price tag. It’s clear the product has a diverse supply chain, but at about $188, it’s efficient. If someone opened up one of your products to create a teardown report, what would they see? Your skills as a supply chain or operations management professional may be on display for the world to observe. Now is the time to look into how APICS education and certifications can help you and your company succeed in today’s fast-changing marketplace.
In other news
Related APICS education
How APICS Operations Management Now relates to you
Operations management is everywhere. Today, operations management professionals have unprecedented impacts on the global economy. Consider these questions and how today’s edition of APICS Operations Management Now relates to you and your career.
- Do you think the increased media coverage of supply chain news will affect how you do business?
- How can your company’s supply chain avoid increased costs from different suppliers?
- If each component of one of your products or services was analyzed, and you were given a teardown report, what information regarding cost and suppliers would be revealed?Abe Eshenazi
CSCP, CPA, CAE
CEO APICS
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