Bloomberg’s Look at Apple’s Supply Chain and Tim Cook’s Influence ⇥ bloomberg.com

I am linking to this with the caveat that it is a Bloomberg Businessweek story about supply chains in China, which is a particular genre that the magazine has completely bombed before without any public reckoning or accountability. One wonders why Bloomberg continues to leave its tattered reputation dangling in the wind, making it hard to trust stories from any of its writers.

With that in mind, here’s Austin Carr and Mark Gurman with a look into Apple’s supply chain and how Tim Cook grew Apple from a mere icon in 2011 to the world’s most valuable publicly-traded company:

Apple’s turnaround in the ensuing years has generally been attributed to Jobs’s product genius, beginning with the candy-colored iMacs that turned once-beige appliances into objets d’office. But equally important in Apple’s transformation into the economic and cultural force it is today was Cook’s ability to manufacture those computers, and the iPods, iPhones, and iPads that followed, in massive quantities. For that he adopted strategies similar to those used by HP, Compaq, and Dell, companies that were derided by Jobs but had helped usher in an era of outsourced manufacturing and made-to-order products.

[…]

Contract manufacturers worked with all the big electronics companies, but Cook set Apple apart by spending big to buy up next-generation parts years in advance and striking exclusivity deals on key components to ensure Apple would get them ahead of rivals. At the same time he was obsessed with controlling Apple’s costs. Daniel Vidaña, then a supply management director, says Cook particularly fussed over fulfillment times. Faster turnarounds made customers happier and also reduced the financial strain of storing unsold inventory. Vidaña remembers him saying that Apple couldn’t afford to have “spoiled milk.” Cook lowered the company’s month’s worth of stockpiles to days’ and touted, according to a former longtime operations leader, that Apple was “out-Dell-ing Dell” in supply chain efficiencies.

Since Apple made the call to remove HKmap.live from the App Store — a decision that was apparently made to appease a Chinese government that is worried about pro-democracy demonstrators — I have been intrigued by how closely Tim Cook’s ascendance dovetailed with that choice. Hong Kong’s sovereignty was returned to China in July 1997; Cook joined Apple less than a year later in March 1998. Cook was a primary force in moving Apple’s production lines to China, mostly to factories that are located just across the Sham Chun River, which separates mainland China and Hong Kong.

Over the last twenty years, Apple’s dependency on China has grown, as has China’s influence over Hong Kong. The two paths collided in 2019 when demonstrators in Hong Kong used an iOS app to alert others about the location of police barricades, and Apple under Cook’s leadership removed that app from the store. Some commentators saw this as protecting Apple’s access to the Chinese market; I bet its reliance on factories in that country was a greater motivator.

A recent Nikkei report indicated that Apple is seeking to reduce that dependency. But it does not seem to be going well, according to Carr and Gurman:

When Apple engineers started setting up manufacturing in Texas, sources familiar with the matter say, they had a difficult time finding local suppliers willing to invest in retooling their factories for a one-off Mac project. According to a former Apple supply chain worker, huge quantities of certain components needed to be imported from Asia, which caused a domino effect of delays and costs. If a shipment arrived with defective parts, for example, the Texas factory had to wait for the next air-cargo delivery; at factories in Shenzhen, supply replacements were a short drive away. It felt like the opposite of Gou’s ultra-efficient all-in-one Foxconn hubs. “We really emphasized with the suppliers to triple-check their product before they put it on a plane to Texas,” this worker says. “It was a pain.”

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Meanwhile, Apple has moved some production of AirPods to Vietnam and iPhones to India, where the company has run into scale and quality issues, too. More significant manufacturing diversification is likely to take years, even as Cook faces pressure to decouple from China over censorship, human-rights violations, and criticism about labor conditions at mainland factories. In an all-hands meeting last year, an employee asked Dan Riccio, then Apple’s hardware chief, why the company continues to build products in China given these ethical problems. The crowd cheered. “Well, that’s above my pay grade,” he responded, before adding that Apple was still working to expand its manufacturing presence beyond China.

I do think that Apple’s executive team really believes in social justice and trying to do the right thing. The factories of its contract manufacturers in China undermine that, and I think they are cognizant of that. But modifying a supply chain as integrated and complex as Apple’s to give the company more leverage in its negotiations with Chinese government officials is an enormous task.

This report contains little new information, but it is an engaging summary of how this supply chain has evolved over time — right up until you get near the end and then there’s this weird paragraph:

In many ways, Cook is now applying the lessons Apple learned building its China manufacturing network to other parts of the business. Its operational prowess has enabled it to churn out more product permutations and accessories. And just as Apple uses its awesome buying power to extract concessions from suppliers, it’s now using its control over an equally impressive digital supply chain, which includes the company’s own subscription services, as well as third-party apps, to generate greater revenue from customers and software developers. In an October report on the tech industry, the House antitrust subcommittee said this influence of its App Store amounted to “monopoly power” and recommended that regulators step in.

Perhaps I am missing something, but the connection between the physical supply chain and the App Store’s distribution policies is tenuous. It is also incorrect: while Carr and Gurman say that Apple is exercising greater control to generate more revenue through its App Store, one of the few notable highlights for iOS developers last year was the announcement of the Small Business Program which lowered Apple’s commission to 15% up to one million dollars. There are many caveats and it is imperfect, but it is the opposite of the squeeze the company puts on its hardware suppliers, not its analog.