Sorry IndustryWeek - Apple is not a "Manufacturer" and not "Best"

By Kevin Meyer

Before I begin, let me be clear.  I love Apple products, and I own a plethora of them.  The design is incredible, they work like I want to work, and they improve my life.  The computer-related frustration level since I switched from PC to Mac a few years ago has gone to zero, literally.

With that said, I do have several issues with Apple - and I've detailed them as recently as last week.  Bottom line is that I take offense when people claim that the company does a great job with its supply chain.  They execute a traditional supply chain pretty well - and just since it happens to be a huge volume of a desirable high tech product doesn't make it great.    Like many people, I hold my nose when I buy Apple products - the worker treatment issues really bother me.

So imagine my shock when I found that IndustryWeek named Apple to its "2012 IW 50 Best Manufacturers" list.  Not only to the list - they are in the top position.  And an accompanying article lauds their product design expertise while barely touching on "manufacturing."  Where do I begin?

How about with whether Apple should be called a "manufacturer" in the first place.  Can someone show me a pay check for a production team member making Apple products that actually has "Apple" on the check... instead of something like "Foxconn?"  With a couple of minor exceptions, no.  Almost all assembly is outsourced.  Call me old fashioned, but to me being a "manufacturer" means you actually assemble something - not find someone to do it for you.

Now, ignoring the issue that they aren't really a manufacturer, consider the term "best."  To be fair, IndustryWeek's criteria is:

IW compiles the list by ranking the IW 500 companies based on their financial performance in six key areas over a three-year period. This includes inventory turns, profit margin, asset turns, return on assets, return on equity, and revenue growth.

"Best" in the world of IndustryWeek means predominantly financial performance.  So, yes, Apple makes big bucks and continues to grow rapidly.  But it is exactly that type of financial myopia that has created the outsourcing madness over the past few decades.  Chase "cheap" labor around the world and then create elaborate ways to support far-flung operations, supply them with raw materials, and bring container loads back to customers across thousands of miles of ocean.  The financials look great - at least for a while - but is it the best long-term way to run a business?

Apple executes a traditional supply chain, and a very high volume one, very well.  But it is still just traditional.  Not "best" in my world.  Not by a long shot.

"Best" to me means a manufacturer that recognizes that the value of people's brains is worth far more than the "cost" of their hands that assemble products.  And as such they respect those people - by leveraging their brains, ensuring a safe environment, and paying them well.  Such respect isn't happening when outsourced production workers are jumping off buildings and just token attention is being paid to worker treatment issues that have surfaced as recently as today.

"Best" to me means a manufacturer that understands the value of shortening the supply chain and manufacturing as close to customers as possible.  Not thousands of miles away.  Similarly "best" is not having to shuttle hundreds of engineers from Cupertino to Shangahi, and having to spend tens of thousands of hours on multi-language conference calls at 2am, to maintain control over the far-flung supply chain.

"Best" to me isn't bragging about how Apple's Foxconn partner can "wake a thousand Chinese engineers at 1am to fix a problem" as Steve Jobs did.  It is performing solid manufacturability design and root cause analysis to ensure that magnitude of problems never exist in the first place.

"Best" to me isn't the incredibly risky strategy of manufacturing virtually all of the products for a multi-billion dollar company within a small geographical area of an increasingly geopolitically unstable country.  It is a manufacturing strategy that couples and leverages being close to customers with semi-redundant factories in multiple locations.

"Best" to me isn't being content with being traditional.  It is developing innovative methods - manufacturing methods in this case - to become increasingly competitive over the long term instead of just chasing labor costs and pounding on suppliers for lower prices.  Ford and Toyota did it.  Imagine what could happen if Apple invested a miniscule portion of its $100B in cash into real manufacturing excellence - not traditional supply chain management.

Sorry IndustryWeek, Apple is not a manufacturer and they definitely aren't the best - at least when you look at more than just traditional financial criteria.  But perhaps that kind of skewed perspective is what happens when a monthly magazine is called "IndustryWeek."  (Hat tip to Mark Graban for reminding me of that.)

Comments

[Richard]

There are several companies on that list which, to my knowledge, outsource 100% or nearly 100% of their production, including:

Deckers Outdoor Corp.
Coach Inc.
Guess Inc.
Fossil Inc.

[UK Bloke]

Wow - IndustryMonth (!) has a pretty loose definition of "manufacturer." I would expect this from some traditional industry rag, but not from one that tries to promote lean and has the IW Best Plants award. So - if the Foxconn plant making iPhones won a Best Plants award (ok, in an alternate universe), would the winner be Foxconn or Apple? Perhaps that answers the question of whether Apple is a manufacturer.

[Sean S]

The Halo effect in action.

Because the company has been performing well, everything they do is 'great.' By definition they must have a great Supply Chain, teamwork, leadership, HR, Operations, and so on.

Whenever I've made the argument that their superior recent performance is driven primarily by design, Gartner and other experts don't want to hear it.

[Kathleen]

I don't know if you were being facetious but "manufacturer" is a legal designation that assigns responsibility and culpability for the gestation, creation and performance of a product. Manufacturer means the party who caused the product to be created, marketed and sold. It does not mean that an entity builds a product with individuals on their payroll.

By way of example is Toyota. They make cars comprised of sub assemblies provided by outside contractors. Case in point were the brake problems purportedly related to brake parts provided by an outside vendor. Legally and in the case of public opinion, who was responsible? It is the manufacturer of record -namely Toyota. Otherwise, culpability descends precipitously and it becomes impossible to assign responsibility. A manufacturer is responsible for their supply chain; the government isn't going to go after the brake manufacturer but Toyota.

It is possible you're not aware that the definition of "manufacturer" is a big oozing sore these days. In apparel, there are tons of new entrants who don't know the definition and it causes no end of problems and miscommunication. The CPSC isn't amused either when it comes to liability. The IRS takes a similarly dim and narrow view.

Because I've been dealing with this for quite some time, I admit to being a bit crusty about it because it is how entrepreneurs *distance* themselves from manufacturing [because manufacturing is icky, run by terrible people and they aren't like that.] I provide services so if an entrepreneur like this describes me a "manufacturer" but not themselves, it is nothing less than an indirect but implied insult.

I knew an entrepreneur manufacturer who coded and described himself as a retailer and the state tax authorities came in and levied taxes against his "inventory" (capital goods, sewing machines and inputs) and put him out of business. The state of California doesn't care one whit what you call yourself. If you design clothes and cause them to be created and you don't have a garment manufacturer's license, they will shut you down and confiscate finished goods as well as all your means of production from your shop and any contractors you've hired. If any sub contractors you hired aren't licensed, they will also take all their stuff. If the contractor is licensed, there is a very hefty fine for accepting work from someone without a license. I've written quite a few entries about the problems this creates as well as the implications of denial but your comment form doesn't permit hyperlinks.

Summary: It is a travesty that Apple was picked for this honor but making a case that they are not a manufacturer is a worse alternative.

[Stuart Berman]

I would be an interesting exercise to see which of the companies listed in IW are 'true' or 'pure' manufacturers. As well as what is the criteria for that? Cisco Systems is another company that does not manufacture their own product with their own labor.

[Kevin Meyer]

Kathleen - you are of course correct about the legal definition of "manufacturing." I bump into an analogous situation in the medical device industry, where startups try to avoid many FDA/GMP hurdles by outsourcing all production - but they remain fully responsible for product realization.

The issue with the legal definition is that it makes the intent of this kind of list meaningless. In effect it relegates it to a rough duplicate of the Fortune 500 with just an additional factor of inventory turns. What good does that do for me? As an IndustryWeek reader I'm interested in manufacturing, and I would use such a list to gauge real manufacturing prowess.

When you use a legal definition often created by policy wonks you get craziness like "ketchup" being considered a "fruit." If IndustryWeek had decided to create a list of "top 10 fruits in schools" using purely the legal definition, would we accept ketchup being number two? More importantly, what would such a list do for us.

Interestingly, per the legal definition food service companies are often included under "manufacturing." I would argue that McDonalds does more to create a product, then create a process that creates that product, and then actually create that product, than Apple does.

[Mark Graban]

IndustryMonth does NOT have to abide by IRS or legal definitions. They completely blew it by calling Apple a manufacturer.

[Patricia Panchak,Ed-in-Chief, IndustryWeek]

Better late them never: Appreciate the comments. All who commented are welcome to join me to create a different version of the list.

Send me an email and we'll get started: ppanchak@industryweek.com.

[Jens-Thomas Rueckert]

I absolutely second your view on Apple. What's worse, the Apple products are "designed for non-compliance" in regard to the Lithium batteries installed in them - since IPads, IPhones etc. have a pouch battery soldered in, a "dead" phone could actually not be shipped back to repair in compliance with existing modal transport regulations.
Furthermore, any "jailbreak" meant at circumventing Apples unilateral and dictatorial requirements imposed through the limitations of ITunes will cause modifications to the OS, of which the battery management system is a part, thus resulting in non-compliance of any jailbreaked or otwerwise tweaked phone with the requirements of Part III, subsection 38.3 of the UN Manual of Tests and Criteria applicable to any and all Lithium batteries.
This being said, on top of this Apple steadfast refuses to provide customers with the full UN test report which is in many countries a legal requirement for shipping.
As paradox as it may seem this even affects aviation safety directly, since some EFB's (Electronic Flight Bags) are IPad based, and a "dead" or non-fuctioning EFB may not be shipped for repair or overhaul in compliance with the regulations, unless where approved specifically by a competent authority.