An article in the New York Times (January 28, 2019) titled “A Tiny Screw shows why iPhones won’t be “Assembled in the USA”” describes the difficulties that Flextronics, Apple’s assembler of the high end Macbook Pro in Austin, Texas, faced in sourcing custom screws. The article describes their search for a supplier who could deliver 28,000 screws, and their option being a single supplier who could make at most 1,000 screws a week and took 22 trips to deliver the required volume. The claim is that such supply chain gaps make assembly of electronic products, which often requires design changes and quick delivery given the lean nature of the supply chains, difficult in the USA. But it also claims that availability of tooling engineers in China, and labor costs in China of $2.10 per hour, as additional reasons. Does the story of the difficulty in sourcing screws reflect poor inventory planning for components i.e., why wouldn’t Apple buy a large quantity of the required low cost components and decouple procurement from usage or is the sourcing difficulty valid given design changes ? Would assembly be easier if designers were constrained to use standard parts for low end items, such as screws, so as to alleviate the assembly bottlenecks ? Does Apple find assembling in the USA difficult because the supply chain is managed by Flextronics, Apple’s supplier, rather than Apple itself ?
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Meta
Global Supply Chain Musings 
The cost of tooling engineer in China is too low to make any sort of supplier in USA more profitable for Apple. No matter the tooling capacity or the availability of additional supplier, a rate of $2.10 an hour for a tooling engineer is never going to be possible in the US. This alone is the inhibitor that keeps the assembly from happening in the US. While more historical data is required to effectively say how many last moment design changes occurred in Apple’s history to be prohibitive of sourcing screws in the US, it does not pass the sniff test of suspicion as just another justification for keeping manufacturing in china lured by the cheap availability of labor. Design would be easier if designers were constrained to use standard parts. This would make stocking screws easier and un-throttled the bottleneck. Apple is just not motivated to assemble in US and as far as supply chain being managed by Flextronics is concerned, since the end customer remains the same, the parts suppliers would have risen to the challenge, had it been profitable to do so.
I think Professor Susan Helper’s comments in the article are exactly correct. She points to the availability of massive amounts of cheap labor and materials in China that make production anywhere in the US foolish when looking at the bottom line. To even come close to conditions like that in the US, Apple would have to invest massive amounts of their own time, capital, and labor force training. This would distract them from delivering on the bottom dollar in the short term and most likely would not even pay off in the long term given that China’s ability to produce at low cost will continue to beat anything in the US. With iPhone sales slowing in their biggest market, China, it makes no sense for them to take an even bigger hit on the revenues and risk further destabilizing the company.
In simple terms, outsourcing of assembly or manufacturing is primarily motivated by the bottom line. Countries like China and to some extent India, benefit from cheap labor and lack of strict laws governing the labor and labor employee rights. This presents a great financial motivation to companies likes of Apple to simply outsource assembly and manufacturing. In the USA, neither there is a large motivation nor incentive for companies like Flextronics since they cannot stand to compete with China with cheap labor. So, in the end, it does not matter if Apple manages the supply chain themselves or relies on other companies with-in USA, they just cannot complete with China because of the demand to meet the bottom line.
Many OEM’s use non-standard parts to build their equipment because aftermarket parts are big money makers for them. The screws that Apple uses to make their Macbooks is not a high usage part. I would guess it’s not even a low usage part. An Apple engineer decided with all their knowledge and experience that a custom designed screw is what makes the product worth purchasing. The assembling issues could have been resolved if the engineers had walked over to Home Depot and used whatever fasteners they had in stock.
I’m not sure how much it would have mattered who was managing the supply chain. If the engineers are using non-typical parts, they can expect delays. It seems ridiculous to bottle neck the supply because of a screw.
Next time you go buy a Macbook think about how much of that cost is for the screws holding the thing together. Maybe it’s all part of their strategy. People are waiting for these new Macbooks but they are in short supply (because of the screws). Now, Apple can charge more because people will pay for them. I take it all back… These guys are geniuses.
I think both Brian and Vikash have hit the problem right on the head. The high supply of readily available, very cheap labor coupled with a low demand on Apples part to put in substantial investment in creating that system are quite low. Also the nature of the business of wanting to run extremely lean on inventory, rapid design changes and the need to have very quick throughput make the process difficult. I think Vikash made a really good point about part standardization and the ability to improve that process and time. What is motivating Apple to want or need to manufacture in the U.S with the current system? Very Little
China does have cheap labor, but a company like Apple who is designing highly complex and innovative products, cheap labor is not enough. Apple’s quality is one of their biggest threats against the competition, and China has done a great job over the last decade improving the quality of the products they are manufacturing. Apple would not be able to afford going with suppliers just because they have cheap labor if they could not provide quality – even on something as “simple” as a screw. If those screws start to corrode, break during the tightening process, or loosen over time, it could seriously hurt Apple’s reputation. Although much of their technology and processes are direct copies (or stolen) from US and European manufacturers, the fact remains that their prices are low and their quality is improving.
I also find it hard to believe that Apple would have a hard time finding a supplier in the US for any of their components, they may just not be at the price that Apple wants. I would consider the volumes that Apple is looking for attractive to any US supplier. If I were a screw manufacturer and Apple came to my door asking me to supply 28k screws, I would most likely jump at the opportunity.
In reading the responses from others, it seems that we are all on the same page in regards to the outsourcing aspect. There is no way that the US, with all of their labor laws and regulations, would be able to compete with China and their extremely low cost of labor. If Apple were to try and keep only that aspect of the manufacturing “in Country” the prices of the already ridiculously priced MacBooks would be even more astronomical. I do like Kyle’s point, there is something to be said about the quality of Apple products and the quality of manufacturing coming out of China nowadays. Would Apple be hard pressed to find a manufacturer in the US to make these screws, absolutely not. Standardization of screws also isn’t what Apple wants either, to Chris’ point, these guys are geniuses, delaying the release of a new product only makes the consumer want it more and creates this large demand. Then, to dilute the quality of the product because you switched to a standardize screw is not something that Apple is willing to do. I personally buy Apple products because they are so durable and last years. If Apple took over the supplier aspect, I still find it hard for them to change what they’re currently doing. They measure success by delivering a quality product that will last for years and at their current price point would not be possible if they switch to a US manufacturer.
Sure it is hard to compete with China in terms of outsourcing due to costs, but the ability is in the USA to make the screws, but that is not the reason I feel iphones are produced in China rather than in the USA Apple is very insistent on making many mundane or high usage parts into propriety parts (Example not only with screws, but power cables) which deviate from industry standards. I feel it is not poor planning by Apple as they already know there demand for Iphones to be built. Iphones are there higher margin products, and keeping all costs low in production low is there strategy, especially when it comes to the quantities they produce over mac books. The quantity of sales of the Iphone over computers are higher. I think its just business. They are building some items in the USA for probably tax or government regulation reasons. But with China being able to do so faster, cheaper, especially with many parts not only screws, but other components coming from oversees, it is more economically beneficial to build there.
Political pressure to promise a made-in USA product without confirming the ability to deliver is likely the main issue. Nevertheless, poor inventory planning for components is certainly part of it. Before committing to produce the Mac Pro in the USA and investing in expensive complicated and custom machines as mentioned in the article, Apple should have assessed: 1) if there were manufacturers in the USA that could attend the demand for all parts required for the development and the mass production of the Mac Pro, and 2) if the labor costs would not reduce the lead time and throughput of parts production and supply. As the article mentions, Apple did have to source components from China for mass production. The engineers had to find a screw supplier to test design changes, but Caldwell could not provide the exact screws needed for those designs.
The assembly would have been easier if only standard parts were used, but the Mac Pro design would likely have been very different to fit standard parts. Innovation and elegance in design is Apple’s bread and butter, so changing to standard parts and, consequently the Mac Pro signature design, was most certainly not an option.
Management of the supply chain by a third party is not the reason for the difficulty for assembly in the USA. As mentioned in the article, the difficulty lies in under staffing caused by high labor costs. If Flextronics would increase staff and throughput rate, the COGS and parts sale prices would likely be too high and not cost effective for Apple’s Mac Pro mass production.
Apple core business is to design and develop innovative computer, smartphones, wearables and apps. For elements important to the process but not part of the core business, like producing screws, outsorcing or producing for the lowest cost possible when it reduces total cost and increase margins. Talking about costs, it is difficult for any manufacturer in USA to beat lower costs in China due to slavery work and exploitation. On the other hand, the frequent changes in design do not favor the stockage of screws as well it do no make sense for the designer to create solutions based on what screw they have – this would limit the creation process.
in summary, the assembly is difficulty because of frequent changes in models, lower cost of prodution outside of US and the need to keep profit margins high.
I do not think that the shortage of screws reflects poor inventory planning. The shortage of screws is a direct result of the design process that relies on quick proof of concept testing and speed to market. While assembly would be easier if designers were constrained to use standard parts, design innovation would be limited by this choice. Anything standing in the way of design and innovation would be a direct conflict with Apple’s mission. Apple finds assembly in the US difficult because the cost of labor, as well as labor laws, which constraint the quality and output of the supply chain. In addition, the supply chain for items like screws dried up years ago when orders for these items moved to China. US companies began to find ways to replace their revenue with more specialized jobs. As Jack Nicas stated in the article, “no country can match China’s combination of scale, skills, infrastructure and cost”. US supply chain could work in the future if done through further technology, innovation, and robotics.
Apple has moved a majority of its manufacturing out of the country not because of procurement challenges but due to low labor costs. Low Chinese labor costs of $2.10 has contributed to higher margins and an increase the stock price. Apple has always been known for designing high end technology which is more custom to the users preferences than the likes of Dell or HP. This philosophy permeates both the software and hardware side of the business all the way down to the custom screws. If apple used “standard” parts for its products that would tarnish its brand and it would not be able to achieve it high retail selling prices. Apples engineers need to continue designing high end tech, while Flextronics needs to engage more responsive suppliers within the US who are used to dealing with the ups/downs of the technology manufacturing cycle. If Flextronics is unable to deliver, Apple should start managing its supply chain in house.
It is highly unlikely that Apple will ever bring the manufacturing of the iPhone to the US for several reasons. The big reason is that lower labor rates in China have, and probably will always, exist when compared the US. I don’t believe that the screw issue in 2012 when they attempted to build Mac computers is a reason why assembling iPhones in the US is unrealistic. That project was mismanaged from the start. Planning was absolutely the reason for the screw issue. They knew the design and the components they needed from the start. There are two ways those issues could have been fixed during planning. The first, change the design so the screws were not need or they needed less screws. Second, buy a large quantity of screws from a supplier, potentially in China, so that the computers could be successfully assembled. If iPhone assembly is to be successful in the US, Apple would have to commit to a long-term manufacturing plan that would allow the appropriate factories and resources to be set up to sustain the demand for the coming years. Without that commitment, there is no reason to build factories with the automation to combat the China’s low labor rates and no reason to set up the supplier flow necessary to handle the demand.
Apple and Flextronics are utilizing a make to stock system in regards to the screw in which they are matching the inventory to the consumer demand. This is the correct inventory control method for this manufacturing process. Due to the relatively low cost of the screw, it makes sense to purchase large quantities of the material from China given its relatively low manufacturing cost and the inability for American manufacturers to produce the quantities at a competitive cost and lead-time. Forcing the designers to utilize “standard” parts could potentially assist Apple in finding an American manufacturer however there could be many design implications that may make this much more difficult than it seems. As mentioned by many in previous posts, Apple’s main concern is profit margin as well as overall quality. Changing designs may hurt both of these two aspects from the engineering and financial perspective.
For a pretty long time, Apple has been offshoring it’s manufacturing to China. Such a move was well thought out at the time of inception. Since the primary manufacturing of apple devices moved away from US soil, it had a direct impact on the small screw industry here in the US. Whether shortage of screws reflects poor inventory planning, probably yes, but it isn’t a problem that Apple cannot deal with quickly. As the article rightly points out, “The screw shortage was one of several problems that postponed sales of the computer for months”. Apple at the end of the day isn’t looking to eat into its profit margin by bringing Manufacturing back to US. The current administration and the US-China trade war certainly isn’t helping their situation, but under the current circumstances, Apple’s approach is clearly to look for the a viable manufacturing alternative outside of the US which is cheap. Hence, the homing in to India and Vietnam to shift manufacturing out of China, Economics is clearly the driving factor for Apple and it is currently just playing the waiting game. They’re very likely to Shift back to China if there is a change in the US political administration.
I believe that the labor resources in China vs. the US is the key reason why iPhone’s won’t be built in the states. As the article states, the employees in Texas require a much higher wage than those in China. In addition, China is able to demand that workers be productive at all hours where that could never happen in the US due to labor laws. Apple would need to allocate a large amount of money towards robotic processes in the US in order to replace an individual worker in order to even come close to the return that they earn with the manufacturing and assembly in China. It doesn’t seem that threats of tariffs seemed to be a big concern for Apple when this article came out and it will be interesting to see if there are any shifts to the US due to the state of the trade war today.
Lower labor cost is the main reason for outsourcing. It costs more to manufacture in the United States because of the high labor cost. The higher labor cost in the United States is because of the high cost of living, high education costs, etc. Especially higher education is very expensive and is not available for most of them like in other countries.
It is easy to find the highly skilled vocational talent in China because their education system is different from other countries where they focus on the vocational talent system. This will create more skilled talent resources in tooling technology and easy to find more people with the skill. It is very difficult to find the same Human capital in the United States.
Also, Apple’s main focus is innovation. They don’t want to spend time and energy by getting into assembly business which may not add business value when they are seeing better results by outsourcing. So they can focus on developing new designs and products.
I don’t think that the assembly of Apple products in China is only as a result of low labor costs, it also lends to the decades of experience and training that the Chinese have invested in building the workforce and processes for manufacturing such parts as the screws. Would Apple have been able to source the screws from the United Staes, of course, but the cost would have been prohibitive and the planning and execution would have probably delayed the targeted product delivery dates. The. Smartphone market is quite competitive and Apple doesn’t need the distraction nor the additional cost of changing suppliers.
The notion that Apple should use standard parts will not be entertained by Apple as that goes against their strategy of making products that were innovative and aesthetically appealing to their consumers. Using custom parts allows them to control the post-sales services and support business which is a high-margin business, thereby managing the entire lifecycle.
I doubt that Apple is interested in the manufacturing business as that is not their core business, however if they were to take that over, it will be a long journey to return manufacturing of Apple products to the United States.
In today’s competitive world, if a supplier knows that a customizable screw is what is in demand, there will be many companies producing customizable screws to make a profit. Obviously, in the case of Apple (and other companies), this is not the case. The reason for that is the supplier barrier to entry to such commodity (initially customizable, but soon after that a commodity product) product is low. Suppliers know that they have to invest in design/equipment for initially producing the customizable screw, but soon after that, it will become a commodity product and worse, the company may not even demand it. Therefore, with a low supplier margin coupled with a low barrier to entry, the supplier has very little incentive to work with companies like Apple to produce customizable parts. The main reason for the inability to build iPhones in the USA is labor costs. The fact that the labor cost in China is $2.10/hour, there remains no incentive for companies to look for local sourcing or manufacturing. As for Apple, they are highly incentivized to look outside of the US due to low labor costs and high bargaining power over the suppliers. Apple will not (nor should it) constrain its design and innovation for a screw. Therefore, as long as there are incentives in place for companies like Apple to outsource due to low labor costs, they will continue to do so.
There is probably more things behind than an issue with sourcing screws and bad design
a) A company as Apple would not design each IPhone in a different way. Likely, each model reuses /leverages around 80% of the components (that are invisible to the customer) from other IPhone models.
b) Even it if the special screws exist, they would source it in China due to lower costs. Small screws are easy and inexpensive to ship (even by air, if needed, for emergencies).
China is the world’s manufacturing and, for sure, the supply chain is stronger in China versus US. Also, the speed for turning around tools and build things in China is impressive. However, there still room for manufacturing high end products in the USA while letting China to focus in low end goods.