Low cost is no longer the only reason why US companies outsource manufacturing to China.
Despite Apple’s commitment to make a Mac computer in Austin, Texas, the inability of a US supplier to mass produce screws led the tech giant to order the items from China.
This situation exemplifies the challenges facing US manufacturing. Not only is it impossible to beat Chinese labor costs, but it is also difficult to compete in terms of scale, skills, and infrastructure.
Video Spotlight: Why the iPhone can’t be made in the US
This post is based on the New York Times article, A Tiny Screw Shows Why iPhones Won’t Be ‘Assembled in U.S.A.’, by J. Nicas, January 28, 2019; and the YouTube video, Why the iPhone can’t be made in the US, by Bloomberg, June 29, 2017. Image source: (c) Ingram Publishing / SuperStock.
1. In general, why does Apple rely on China for a large portion of its manufacturing?
Guidance: Lower labor costs and ability to produce huge quantities fast enough to meet demand. This ability stems from an abundance of skilled workers, huge infrastructure (building and equipment), and loose labor protections laws.
2. Why was the supplier in Texas unable to deliver required quantities on time?
Guidance: Caldwell once had the capacity to produce in large volumes, but as manufacturing moved offshore, it had to change its strategy and target different markets. As a result, it replaced its old equipment with more flexible machines designed for smaller, custom orders. Small-batch production resulted in many deliveries over a period of time to the assembly plant.
It also appears that Flextronics, the company hired by Apple to build the Mac Pro, had understaffed the team responsible for managing the Apple project, potentially leading to a poor selection and/or oversight of sub-contractors.
3. What does the article teach us about the strategic importance of process choice? Are there trade-offs between volume flexibility and mix flexibility?
Guidance: Volume flexibility is the firm’s ability to respond to changes in demand volume with minimal penalties in terms of cost, time, and quality. Mix flexibility is the firm’s demand to respond to changes in demand variety with minimal penalties.
Processes support a firm’s operations strategy. If low cost, volume flexibility, and fast delivery are required, a process designed for high volume and low variety with specialized, dedicated capacity is more appropriate. Conversely, if mix flexibility is emphasized, a process designed for smaller volume, high variety with flexible resources is recommended. In either case, the amount of production capacity depends on demand.