This week in class we learned about supply chain management. The most important thing I learned about supply chain management is the strategic importance of it. The strategy companies employ is the integration of activities to procure resources and transforming them into goods. One company that clearly has a superior supply chain strategy is Apple. However, in an article from Bloomberg, “Apple’s Greatestness and Its Shame” raises important issues regarding Apple’s supply chain strategy.
Last Tuesday, Apple reported 4th quarter revenues of $46 Billion and profit of $13 Billion. A week prior to the earnings release, Apple released their report disclosing their audit of suppliers. The results from that report identify issues in their supply chain. One important question the Bloomberg article raised is whether management should increase shareholder value at all costs. Should Apple reduce profits to improve working conditions in their supplier’s factories? Remember, suppliers are separate companies.
I think that this is an ethical dilemma that some companies can only dream about having to make. I know this sounds odd, but think about it. Apple has doubled in value in about three years. Most companies can’t have that kind of growth in a decade. It is a dream for companies to have to question if they are paying their suppliers too little. A company is in business to provide goods and services to consumers. Management’s role is to increase shareholder value.
Just to play devil’s advocate, I ask, if a company makes any profit should it reduce profits and voluntarily pay suppliers more? If a business reduces profits by allowing suppliers to increase their costs, (i.e. higher wages, more workers, additional safety equipment, added employee benefits), would a company continue to do business with them?
When would an altruistic approach to selecting supplier contracts go too far? Should a company ensure that all employees of a supplier are paid minimum wage commensurate with the foreign nation? Should a company pay for the supplier’s employee vacation and retirement plans?
I think these questions should be considered when a company weighs the risk of their supply chain. These questions are likely to fall under political and currency risks. In my opinion, a company should consider the working conditions and employee wages when choosing a supplier. I think this should be applied universally regardless of the profitability of the company. Lastly, I think companies should select suppliers that operate efficiently. The more efficient a supplier is they will be able to reduce manufacturing costs and the more cash they will have to ensure the employees are taken care of.