Hmm, given that the reader probably knew that we already knew these numbers it looks to us like their premise was that the ends (in this case Apple’s financial results) justify the means. An interesting perspective and perhaps one that’s broadly embraced in today’s secular, unrestrained business climate.

But to set the record straight and remove any ambiguity about our position we point out that the New England slave trade was also a wildly successful commercial enterprise. As historian Douglas Harper explains, “Slaves costing the equivalent of £4 or £5 in rum or bar iron in West Africa were sold in the West Indies in 1746 for £30 to £80. New England thrift made the rum cheaply — production cost was as low as 5½ pence a gallon — and the same spirit of Yankee thrift discovered that the slave ships were most economical with only 3 feet 3 inches of vertical space to a deck and 13 inches of surface area per slave, the human cargo laid in carefully like spoons in a silverware case.”

And while we have Supplier Codes of Conduct, to ensure that suppliers to electronics industry OEMs adhere to minimal standards to avoid human rights violations and that the one from Apple goes beyond enforcing local labor laws and requires its suppliers “must uphold the human rights of [workers] and treat them with dignity and respect as understood by the international community” — still, we are appalled by the news stories contained in the links included in this article and therefore re-ask our questions directly… “Does Apple really understand how important these issues are to its customer base, and its image as a hip, socially responsible leading edge company?”

We commend Apple and other Foxconn customers for conducting supplier audits. But what happens when suppliers like Foxconn, surely one of the most secretive, least transparent organizations on the planet, are caught violating the code of conduct multiple times, and efforts by OEM customers do not seem to be successful in changing long term behavior?

Should the OEM be held accountable in the Court of Public Opinion? We think this is already happening, as evidenced by articles on social media users groups, and accounts on Techie fan sites, as well as articles in the Washington Post and other national media.

Our bottom line, if Apple and other OEMs don’t have the courage to disengage with companies like Foxconn that won’t adhere to human rights standards, and move their production to companies that do (even if prices have to go up) then they deserve  to see their most valuable asset, their brand disgraced! As Warren Buffet once put it, “It takes 20 years to build a reputation and five minutes to ruin it.”

We don’t believe there are any ifs, ands, or buts about it. An OEM is either serious about Corporate Social Responsibility or they are not.

That’s our take, what do you think? Please post a comment below.

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Interesting article by one of CBA’s sponsor EMS companies. Check it out!

“I read your article this morning.  I found it very interesting.  One question I have: is your research biased toward larger OEMs with >$50 million in spend, or was it a fairly even blend of the full scale?  My first guess is it is probably biased toward the higher spend OEMs.  I am seeing an uptick in outsourcing activity in the lower tier opportunities, actually the very low opportunities say less $10 million in spend.  I have also noticed a lot of bottom fishing from the big guys; which leads me to believe that your opinion is accurate at the top tier.  Anyway I always enjoy your articles.”

I was planning an article on the difference between large and small tier EMS, but this feedback gave me the impetus to address the issue sooner.

When I previously commented that the years of high growth for the EMS industry were over and that many OEMs are starting to rethink their outsourcing solutions, I was reflecting on the industry as a whole.  This judgment certainly reflects a bias towards larger companies because they constitute the vast majority of the industry.  According to Manufacturing Market Insider, in 2008 the top 50 EMS represented well over 80% of total EMS industry revenues, and these revenues were largely derived from larger OEMs.

But the EMS industry is very diverse consisting of companies varying in size from a few hundred thousand dollars to $40B+ per year.  The business models within the various tiers of the industry can be quite different too, and they usually pursue different sized business opportunities.

The primary value proposition offered by Tier 1 EMS is typically related to their global footprint (i.e. scalability) and purchasing power, while the value of a Tier 4’s offering is more in-line with flexibility, responsiveness, and specialized services.  In between you have many mid-sized companies who position themselves as having the combined benefits of both Tier 1 and 4.  In all candor, there is good and bad quality work being done at all levels of the industry.  Just because you’re big doesn’t mean you’re good, just as being small doesn’t mean you’re bad, and vice versa.

An industry phenomenon worth mentioning is that of “bottom fishing” (or quoting on business that is significantly smaller in volume or scale than an EMS would normally pursue in an attempt to fill underutilized capacity) which seems to occur  every time the EMS industry hits a recession or business downturn.  This is a particularly prevalent practice with larger tier EMS who often do win the business as they bid at significantly lower prices than that level of business would normally qualify for. This hurts both the smaller or regional EMS companies who would normally support this level of business and the OEM.  How?  In spite of the assurances to the OEM that they are important and wonderful, what ultimately happens is that after the market rebounds, and the EMS’ larger customers start ramping again, these OEMs discover that they no longer receive the same level of service and attention they did initially.  This also often results in the OEM incurring more costs when it transfers the manufacturing to a more appropriately sized EMS.

When I was the GM of a Tier 4 EMS focused on prototyping and low volume production work, our largest customer was a Fortune 1000 telecom OEM, and the prototypes we developed for them were launched to a Tier 1 EMS facility in Asia. (That was our model, and we had no aspirations to become their production partner.) During a QBR, this customer told us that the transfer between our facility and the Asian based production site was smoother than when they had allowed that EMS to do both prototyping and production.  According to this OEM, the transfer process within the Tier 1 EMS was like dealing with two large organizations and was very inefficient.  This OEM’s corporate strategy subsequently changed such that they now only partner with Tier 1 EMS (a decision undoubtedly centered on a narrow definition and understanding of cost), and when I speak to that customer he still laments the limitations this places on efficiently getting products launched.  The point here is that an outsourcing solution need not be exclusive to one EMS partner, and can include a combination that leverages the best qualities that the EMS industry has to offer from Tier 1 through Tier 4.

The challenge for the OEM is to find the right match for its requirements.  This is what CBA refers to as the importance of FIT (Flexibility, Integration, Timing). This should include consideration of the value offered by EMS of all sizes, and designing an electronics supply solution that creates competitive advantage for their unique organization structure, technology requirements, and market realities.

So in response to my colleagues working at smaller Tiered EMS companies who report that business opportunities are growing, I say keep up the good work.  And to OEMs who are deciding on the right solution for their outsourcing needs, I would advise an open minded approach that allows you to leverage the best the industry has to offer, at all levels. And as always, if you need help understanding your totals costs and finding the best companies in the industry to help you with these requirements, give us a call.

This multi-client study is designed to promulgate in-depth and independent data and intelligence about indigenous mid-tier Western EuropeanEMS companies to OEMs seeking to refine and improve their global electronics manufacturing supply solution.

“CBA has been recommending its OEM clients adopt a regional approach to global electronics manufacturing for years,” commented Eric Miscoll, lead analyst on the study. “This study will help identify some western European EMS players and their capabilities for OEMs in North America looking to design a cost effective supply solution that can give them a competitive edge in Europe.”

Manufacturing in Europe is migrating to lower labor cost regions, as in other parts of the world. However, CBA research shows that chasing low-cost labor without proper due diligence about total cost can result in catastrophic failure.

“The odds of supply chain disruption are very high during the critical first year of an electronic product’s launch and ramp to production,” cautioned Miscoll. “CBA’s mission is to help bring more rationality and due diligence to the electronics manufacturing supply solution design through a Total Cost of Outsourcing analysis. This study will bring objective industry intelligence about suppliers to the OEM during that process.”

Indigenous EMS companies that would like to participate in the study, which includes in-depth, on-site interviews, should contact Eric Miscoll at eric@charliebarnhart.com. The study has been launched; data collection commences in Q2 of CY2010. The report will be available by midyear.

http://seekingalpha.com/article/182275-what-google-s-threat-to-pull-out-of-china-really-means?source=email_most_popular

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