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TECHNOLOGY

Outsourcing Don'ts Learned From Apple
 

The company's latest supplier responsibility report is out. And it's something every entrepreneur wanting to outsource should read.

After a series of suicides at Foxconn, a plant in China that produces the iPhone, Apple has been under fire for poor working conditions in its suppliers' factories.

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Few companies are as secretive about their plans and operations as Apple. The consumer electronics giant has even been known to use shell companies to apply for trademarks. And yet, Apple released details of its supply chain, including names of 97 percent of its vendors.

Apple has been issuing reports on supplier responsibility since 2007—years before the run of suicides at Foxconn, one of its main vendors. Apple management has done far more concrete work in exerting control than other companies in its industry. Still, one of the wealthiest, most effective companies in the world continues to run into problems. This latest report revealed that only 38 percent of its suppliers comply with its code stipulating that factory workers must not work more than 60 hours a week.

The good news is management at Apple has invested significant money into these reports and they show some of the big issues that could trip you up if you're considering outsourcing overseas. Here are some entries at the top of the company's list:

  • labor and human rights
  • worker health and safety
  • environmental impact
  • ethics
  • management systems

Of course worker health and safety are concerns. Not only is treating others right an ethical imperative, but from a pragmatic public relations view, bad treatment of workers leads to terrible press. Just ask Nike. In recent years, Apple has also felt the sting.

Notice the other concerns a company must also have. Environmental impact is a concern that has spread around the world. Last year, Chinese environmental groups criticized Apple for being unresponsive and uncommunicative regarding questions about pollution and occupational health hazards. Other companies, such as HP and Samsung, received praise from the groups for their cooperation. The story wound up in the Financial Times. Talk about high-profile bad press.

Some of the other topics are not just the subject of political correctness; they provide evidence that a company has the operational wherewithal to deliver what it promises. Ethics are a concern because they are keys to good business partnerships. For example, Apple's auditors found some companies falsified records. If they do that regarding worker salaries or environmental practices, can you trust that they would do otherwise on product quality, specifications, or ship dates? Similarly, management systems that are developed enough to ensure compliance are also more likely to deliver the results that a western partner might need.

Apple's experiences and actions also show that outsourcing is a more complicated and potentially expensive issue than many companies think. Seemingly low prices on goods are fine, but if you haven't calculated the costs of ensuring that you get what you need from partners, you haven't seen the true cost of getting the bargain.

IMAGE: Wikimedia Commons
Last updated: Jan 19, 2012

ERIK SHERMAN's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.
@ErikSherman




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