Great Products Aren't Enough: Apple's Employee Guidance to Chinese Business Partners

Supply chain management is not just about logistics and driving costs out of the system. Apple quickly determined that last year's employee suicides at contract manufacturing business partner Foxconn had both operational and reputational implications - both for the corporation and for its iconic products. Chief Operating Officer Tim Cook and a team of Apple execs flew to China and worked with Foxconn to help them develop solutions to the problems highlighted by the widely-publicized deaths.

As Ian Sherr explains in the Wall Street Journal, while not legally culpable, Apple understood that once it became publicly linked to Foxconn, Apple would bear responsbility in the public mind and had to act to protect its brand and reputation. Interestingly, this story grew out of a report in Apple's annual report, an increasingly important source of outbound communications about the positive steps the company is taking to operate in ways consistent with perceptions of its iconic brand image:


"Apple Inc. dispatched its chief operating officer to a Chinese manufacturing partner last year to assess and advise the company after a rash of highly publicized suicides raised concerns about worker conditions at companies affiliated with the consumer-electronics giant.

In its annual survey of suppliers, Apple said Tim Cook visited a Foxconn International Holdings Ltd. factory in Shenzhen, China, last June after nearly a dozen workers killed themselves, some by jumping from buildings. The suicides came as Apple launched its iPad tablet computer and raced to meet demand for the device.

The Cupertino, Calif., company said Mr. Cook and his team made recommendations, including better training of counselors, which were adopted by Foxconn, according to the report made public Monday. Mr. Cook and his team interviewed more than 1,000 workers and evaluated Foxconn's reaction to the events, which included establishing a 24-hour care center.

Apple's annual report has grown in importance following increasing scrutiny from labor and environmental groups which challenge Apple's business practices. Like many modern electronics hardware makers, Apple depends heavily on manufacturing partners in Asia to build its products.

Apple has now audited 288 supplier facilities since 2007 and it is expanding its initiatives to make sure its partners don't employ underage workers, that they appropriately train employees and that they pay fair wages, according to the report.

The company said the results of these audits led the company to terminate its relationship with three facilities because management didn't enact changes it expected.

Apple said it discovered 91 underage workers in the facilities it visited and is working with suppliers to better detect falsified identification papers and improve management oversight. In one case, Apple said it terminated business with a facility because management had chosen to overlook the issue.

The company is taking actions to ensure that minerals such as tantalum, tin, tungsten and gold are not purchased from smelters that get their products from regions where armed conflict or human-rights abuses are known to be occurring, according to the report.

Apple has taken steps to strengthen the rights of manufacturing facility workers, who sometimes are recruited from their home countries and brought to work in factories in other countries. Many of these immigrants are charged exorbitant fees being brought to these factories, Apple said, driving them into debt. Apple has forced companies to reimburse $3.4 million in fees to these foreign workers in 18 facilities over the past two years it has focused on this issue.

In the case of Foxconn, Apple said Mr. Cook and his team's suggestions have been incorporated into the manufacturer's long-term plans as it expands operations to other Chinese provinces to allow workers to be closer to their families.