Tuesday, 25 September 2012

Procurement risk management when the pips squeak

  • Achieve sales of 5m of launching iPhone 5. Share price reduced by 1/50th. 5,000 police officers  called in for 10 hours, to supplement the existing 1,500 security guards, in order to quash a riot of 2,000 workers at your sole assembler's manufacturing plant. That’s quite a weekend. To make matters worse the riot was caused as a result of a dispute between one of the security guards and a worker – was it a contract security firm?  Sounds like an unbelievable case study exam question but that was last weekend!

    Of  course the warning bells must have been ringing earlier when the supplier installed nets around its factory in an attempt to reduce employee suicides.
  • The volume of those ringing bells must have been deafening when it was learnt that the supplier’s new employees were being asked to sign a statement that they would not commit suicide. 

    Foxconn, with a workforce of 78,000, is the world’s largest contract supplier of electronic goods – yes, they are the iPhone5 sole assembler, therefore Apple are strategically dependent on it for the manufacture of iPhones. The estimated cost of the components in the iPhone5 are estimated to cost $199 (for the 16GB model) while it sells for $650. Microsoft and Dell are also big customers. What happens in Taiwan does not stay in Taiwan.
This latest saga is not unique by far.  Fresh in the minds of readers will be the G4S Olympics debacle and hopefully my blog on not casting the first stone.  

Will Apple be scarred by this experience and punished by the market?  I doubt it.  However, what is clear is that supply risk management is not a well practiced theory.  Unfortunately, we can also expect supplier risk to increase in the current financial climate. 

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