Apple-Foxconn: Strategic partnership or a hard-to-get-out-of relationship?
It all starts with a desire to forge a long term partnership. The supplier impresses you (the customer) with his ability to do what it takes to exceed your expectations - ramping up volumes at a push of a button; reducing time-to-market; pushing cost down or not flinching to make capital investments just so that you get the desired quality....and then comes a day when you realize that the long term partnership has morphed into a dependency that you cannot get out of; at-least not without a painful divorce proceeding. Was Apple in this frame of mind when Foxconn attracted a spate of negative publicity recently?
Though I had fleetingly raised this point in my other post on Foxconn (Is Foxconn to the electronics industry what China is to the world), I re-visit this thought here. Foxconn has regained some of its lost reputation lately; but certainly the strategists at Apple would have, at the peak of harsh criticism of Foxconn, wondered whether they are turning into the Nike of the electronics world (Nike faced a string of angry public demonstrations due to the labor practices employed by its contractors).
"Does this episode remind one not to rely too much on a supplier"? Well, if a buyer/customer can, why not. That is surely the least-risky way. But seldom does a business get to enjoy such a status. Instead, today's collaborative world demands that you increasingly partner with your suppliers to satisfy the market. So, how do you ensure that the partnership avoids turning into a liability?
If there is one take-away from the Apple-Foxconn episode, it is that long term outsourcing partnerships require the customer to make strategic & tactical investments (to avoid any such embarrassment). And the investments need to go much deeper than initial scrutiny of suppliers or mere monitoring of the supplier's output. Continuous monitoring of supplier's internal operations & policies (in this specific case, Foxconn's employee policies including wages and working conditions) is equally essential.
Easier said than done - why would any supplier entertain such intervention into its internal operations? No one in the initial stage of your relationship would. But when your relationship has reached a level where your fate is tied to your supplier(s), you better convince your supplier to do so. And if you are in the B2C space where market reputation & public opinion decides your fortunes, you do not have a choice.
To argue in favor of Apple, it could very well have relied on Foxconn's reputation in the industry; hoping that the reputation risk alone would have acted as the necessary deterrent. After-all, a company that is China's biggest exporter, boasts of a client list comprising the industry bellwethers & expects to hit $85 billion revenue this year, would better have the necessary safe-guards in place. Unfortunately, as was to be in this case, the safeguards were not enough. But thankfully for Apple, the damage was contained. For the rest, the episode serves as a grim reminder of effectively managing your supply risk.