24 ms·

The Beer Game -or- Why Apple Can’t Build iPads in the US

562 points by mkswp 15y ago

ap22213 15y ago
The reason why iPads are built in China is because of a thing called Comparative Advantage [1]. Even though the US could reasonably produce iPads _more_ efficiently than China, it doesn't. The reason is that the US is even more efficient at supplying higher-cost services (software, finance, etc.) than China that it would be at producing iPads. Therefore, the US is better off training more of its workforce for higher-cost services than to train them to be laborers. [1] http://en.wikipedia.org/wiki/Comparative_advantage http://en.wikipedia.org/wiki/Comparative_advantage
- maak 15y ago
  Nicely put.
- e40 15y ago
  This is part of it, but there are other important factors at play here. In China, the contractors of Apple don't have to adhere to US labor and environmental laws. These are huge factors in decision to outsource production to China.
  - josefresco 15y ago
    ...not to mention currency and wage issues.
- mseebach 15y ago
  The fallacy in that is that countries don't get to decide and plan what their comparative advantages are. If the US can systematically train it's workforce for higher-cost services, so can China. Except, they can do it faster, cheaper and at a larger scale (like everything else they do). This is what happened with white collar IT jobs going to India.
- mhartl 15y ago
  Unfortunately, the "comparative advantage" in this case results mostly of self-inflicted woulds on the part of USG. For a company with highly productive employees such as Google, the large fixed cost associated with labor-law compliance isn't that big a deal, but for low-wage jobs it can be comparable to the cash compensation. There's no shortage of low-cost laborers in the US; it's just that onerous regulations price them out of the market.
  - Karunamon 15y ago
    Onerous how? I'm not a business owner (well, I am, but with a staff size of one, which is mostly irrelevant to this conversation) - the regulations i've seen don't seem that bad. Could you be more specific?
    - mhartl 15y ago
      See http://www.dol.gov/compliance/topics/posters.htm http://www.dol.gov/compliance/topics/posters.htm (among many other examples).
      - Karunamon 15y ago
        Just posting a number of laws does not explain how they are onerous or hard to follow. Let's see... Minimum wage stuff, no hostile work environment, no unsafe work environment, FMLA doesn't even apply unless you have more than 50 workers, etc. I know most of this stuff by heart just from being in the workforce, let alone an employer (who I'd assume worked for someone else at some point in their career).
        mhartl 15y ago
        "Onerous" essentially means "expensive to comply with", not necessarily "hard to follow". For more detail on these sorts of issues, see, e.g., http://esr.ibiblio.org/?p=1752 http://esr.ibiblio.org/?p=1752.
snitzr 15y ago
There is a difference between the bullwhip effect and JIT (just in time) manufacturing. Building your assembly plant near your suppliers is JIT and it helps reduce in-process inventory. Less in-process work and faster delivery to the assembly plant means you can ship product faster. This is important for a fast-moving tech manufacturer. The bullwhip effect is caused by delay and uncertainty in demand. JIT helps minimize its effects, but doesn't ensure its elimination. Coordinating your demand with retailers is one way to prevent the bullwhip effect. I'm guessing Apple has effective inventory and order coordination with their retailers.
dgabriel 15y ago
I think they teach this game at most business schools, and it seems to be a popular and eye-opening experience. If you hit wikipedia, there are a number of links to online versions you can play (some for free, some not). http://en.wikipedia.org/wiki/Beer_distribution_game http://en.wikipedia.org/wiki/Beer_distribution_game
- A_A 15y ago
  That's right. the Beer game is one of the first things taught in Operations Management in most b-schools, as an example of Supply Chain Management. [I was fortunate to have been introduced to the subject by John Sterman] In general, delays (i.e. lead times) and variations in orders will do that Beer game effect to any supply chain, no matter where it's located. Apple products are "made in china" because of various reasons -- comparative advantage, business cluster etc. I'd highly recommend a good reading of systems dynamics (and business dynamics) for those looking for more info. For those interested, two recommended books: * "Clock Speed" by Charles Fine (MIT) * "Business Dynamics" by John Sterman (also of MIT, and a great professor): http://goo.gl/K4OG http://goo.gl/K4OG (Amazon.com link)
- kreilly 15y ago
  Yes, I did this in business school. We called it the "Bull Whip Effect" because a small movement on one end of the supply chain caused a dramatic impact on the other end.
- Splines 15y ago
  This would make an interesting RTS. 2 teams, 4 players on each side. Each economy can survive on their own, but there is a natural chain that can be built to allow one player on each side to have an overwhelming advantage over the other team (think "tip of the spear"). Only by carefully coordinating resources can you get this to work - the same costs in the beer game apply here (making too much of the upstream resource (inventory) has an opportunity cost in you not being able to produce your own units, and not making enough of the upstream resource (backlog) results in poor teamwork and and having the other team eventually out-pace you. Co-op RTS games sometimes have resource sharing, but I don't think I've ever seen one with a legitimate supply chain (maybe because it ends up being so difficult to coordinate).
chrisrhoden 15y ago
In case anyone's curious why beer was used as the product in the game, it's likely because US law requires that alcohol be distributed in (almost) this way: http://en.wikipedia.org/wiki/Three-tier_(alcohol_distribution) http://en.wikipedia.org/wiki/Three-tier_(alcohol_distributio...
- pagekalisedown 15y ago
  For a good documentary that illustrates the system we have in place, check out: http://en.wikipedia.org/wiki/Beer_Wars http://en.wikipedia.org/wiki/Beer_Wars
  - eogas 15y ago
    It's also free to watch on hulu for anyone who's interested: http://www.hulu.com/watch/235712/beer-wars http://www.hulu.com/watch/235712/beer-wars
    - pbhjpbhj 15y ago
      free to watch on hulu for anyone _from_USA_ who's interested FTFY. Hulu restricts access pseudo-geographically using IP-based geolocation it seems.
diogenescynic 15y ago
Apple could afford to reopen the plants they had in Fremont, they just might not be able to produce 100% of their products there. From the NY Times article he refers to: paying American wages would add up to $65 to each iPhone’s expense. Fender does this--they offer you the choice of a Chinese, Mexican, Japanese, or American made guitar and just price accordingly. I would pay more for an iPhone that I knew was made in America. I'm sure I'm not the only one. Other examples: Whole Foods, Trader Joe's, Annie's Homegrown (BNNY).
- simonh 15y ago
  Disclosure: I'm a Brit, and my wife is Chinese. Frankly I have no time for flag-waving 'Buy American' and for that matter 'Buy British' favouritism. I've seen the poverty in rural China first hand, industrialisation over there has it's rough edges that need to be addressed, but if we care about world poverty then that means cutting all the jingoistic claptrap and 'allowing' them to earn a better living. There are legitimate cases where buying locally makes sense, especially in the case of regional foods or traditionally crafted goods. I'm all for preserving traditional ways of life if it makes sense, but I don't think iPhone assembly line production falls in that category. The US, Britain and the western world in general has grown rich exporting goods and services to the rest of the world and importing cheap commodities and goods. Fair trade benefits both sides of the bargain. It's time to set aside protectionism and recognise it for the pernicious imperialism and borderline racism it really is.
  - rbarooah 15y ago
    Don't you think that decades of isolationist Maoism had more influence on the rural poverty in China than US and British protectionism?
    - mseebach 15y ago
      The Mao isolation was just a continuation of centuries of Ming isolation, and, emphatically, yes. I think the GP meant modern protectionism in the sense of "Buy American/British/etc" movements.
draggnar 15y ago
Will 3d printing and manufacturing advances (Foxconn can hire 3,000 employees overnight, but robotics lower labor needs) make the supply chain effect less important, lowering the costs of moving manufacturing back to the US? Will they come back to be closer to retailers?
- DanBC 15y ago
  The robot tech might be developed in the US (or where ever) but is still built in China. That makes sense, because it's used in China. And as expertise in building stuff concentrates in China all they need to do is keep quality high, keep costs low, and maybe keep an eye on human rights, and they'll keep the jobs. The barriers to US companies become higher. You've got to get the machines. You then need people to run those machines. Those people will consider themselves to be skilled or semi-skilled, and require high wages. You need to run the machines 24hours, thus you need 3 shifts per day; two of those shifts will require higher wages than the day shift. I doubt that huge volume manufacturing is going back to the US anytime soon.
  - stonemetal 15y ago
    The robot tech might be developed in the US (or where ever) but is still built in China. That makes sense, because it's used in China. And as expertise in building stuff concentrates in China all they need to do is keep quality high, keep costs low, and maybe keep an eye on human rights, and they'll keep the jobs. If we assume raw materials are bought on the global market (so same price in the US and China), then the only cost variables are labor and shipping to market. Once Robotics drives the difference in labor costs below the difference in shipping costs robots in the US makes more sense than laborers in China. There is an inflection point even if you assume the use of robotics in China.
    - 18pfsmt 15y ago
      I believe you are missing regulatory compliance costs, which are significant in the US. I'm not quite sure how robotics alters that variable though.
roc 15y ago
See also: https://en.wikipedia.org/wiki/Business_cluster https://en.wikipedia.org/wiki/Business_cluster It's worth noting that one needn't offset all the advantages of a cluster for production outside of it to make sense: There is no shortage of US auto manufacturing plants that are not in Detroit nor in places with anything remotely like its cluster advantage. But for rapidly-changing products, the advantages of a cluster are compounded. If you're not changing screens and screws and implementing brand new technologies on an annual basis, being able to get a custom part ASAP is less of an advantage. But if you are changing things every single year ... I wouldn't be surprised to see US manufacturing return. Particularly as energy (shipping) prices continue to increase, China's wage advantage dissipates and automation matures. But it's going to start with fairly mature, static and/or commodified products.
- mhurron 15y ago
  What do you think is going to provide more short term profit, move manufacturing back the the US and build X with US workers, or move manufacturing out of China to another cheap country when Chinese labor gets too expensive? What's gone isn't coming back until it's cheaper to build it in the US. That's what moved it to China in the first place, and that's what will move it from China.
  - roc 15y ago
    > "What's gone isn't coming back until it's cheaper to build it in the US." Yes and no. Yes, at a high level that's true. But you seem to be making an assumption that human labor costs will remain an important component and that the "it" being manufactured will remain constant. Consider that automation may not even be cheaper on a 'net screws turned per hour' basis than cheap humans. But quality and consistency matters. Speed of line changes matters. Speed of retraining matters. And, further, current designs are limited to what can be assembled cheaply (that is: reasonably quickly/safely/accurately) by two human hands and ten human fingers, with a human attached (who hopefully doesn't require slow or expensive tools/safety equipment/etc). Automation removes those concerns entirely. Caustic compounds could be mixed on the spot, fixation technologies that are infeasible for human dexterity are possible, multiple steps could be completed in parallel, etc. So keep in mind that while it may be sufficiently cheaper to have, say, Brazilians turning screws than Chinese, such that iPads could some day be cheaper to build in Brazil - it's entirely likely that before that happens, robots will be building newer iPad designs, more cheaply than could ever be feasibly constructed by humans even at a zero wage.
raganwald 15y ago
People often draw analogies between software development and manufacturing. If you’re going to do that, it’s vital to take the “supply chain” of information into account. The inefficiencies inherent in creating a supply chain consisting of a developer, a tech lead, a product manager, an operations manager, and finally a user resemble the supply chain in the drinking game. Orders go one way, features go the other way.
- ImprovedSilence 15y ago
  Did you finish the article? I think it's more focused on the hardware aspect of apples supply chain, and not so much on software development.
  - ww520 15y ago
    I think GP is drawing an inferred analogy in the software development process, using the supply chain to explain the relationship among all the parties involved.
- Splines 15y ago
  Is this a good analogy to make? I was thinking that feature bloat is a consequence of this sort of thing happening (applications start out missing features, eventually features start getting added, and they keep getting added to the point where users don't want them anymore), but I'm not certain the mechanics leading up to feature bloat are the identical to what happens in the beer game.
- WiseWeasel 15y ago
  Unfortunately, half your customers are giving valid feedback, and half want you to be making vodka instead of beer. A developer's time (and fleeting sanity) is much too precious to have him sort through them...
- cube13 15y ago
  I don't think this is really an analogy. This chain occurs with both in both physical manufacturing and software. In both, developers/design engineers design the product, leads make sure that everything stays within budget and time, and product managers get requirements through sales or marketing staff. There really isn't a difference with either process at all, and for software that's sold on physical copies, it's is the exact same process. The major difference between releasing software on the internet and making a physical product is the end of the entire process, where the product is built and sent to the customer. With a physical product, it has to be built, stored until sold, then shipped out. Also, unless your developers are so misanthropic that putting them in front of a client might just cause wars to break out, most of this chain can be circumvented by involving all parts of the chain in requirements gathering. The key part of the beer game is that none of the parties can talk to any party that's more than one link away from them. Finally, and this is myself being a nitpicky bastard, but the operations manager will almost never have direct contact with a client. They will be the ones that work with the developers, the leads, product managers, and suppliers to make sure that the product can actually be made with the given budget, and that every step of the production chain is working correctly. They will also work with marketing and sales to make sure that the projected demand will be met, and that the product actually gets out to the clients. A better position would be sales people, because they are generally the only point of contact users have with the manufacturer.
wtvanhest 15y ago
That is an interesting theory but I would guess that the real reason is their devalued currency which allows apple to save a huge percentage on production. Sure cheap labor helps, but is cheap partially due to the currency difference. Despite anecdotal stories, The US still makes up 20% of world manufacturing and retains its spot as the global leader. http://en.wikipedia.org/wiki/Economy_of_the_United_States http://en.wikipedia.org/wiki/Economy_of_the_United_States The colocation theory (the theory which the author is talking about) is a good thoery to explain silicon valley though. If you want to run a tech company, you want it to be colacated near your supply chain (engineers), and other service providers. This is probably a big reason why Silicon Valley has remained dominant despite so many other cities trying.
- rbarooah 15y ago
  How is it that you accept that 'colocation theory' explains Silicon Valley, but you dismiss it as explaining Shenzhen without explaining why one is different from the other?
  - wtvanhest 15y ago
    That is a good question, sorry I wasn't more clear. The basic reason is that there is plenty of manufacturing all over the Midwest that could easily produce the entire Apple supply chain. Shenzhen can also produce that supply chain, but they are no more capable than a lot of American cities. What Shenzhen has that America doesn't are cheap labor, and a devalued currency. Silicon Valley is different primarily because there is no other city with the concentration of brilliant engineers vs others. NYC for example probably has more computer engineers by numbers, but there are more opportunities for those engineers to make huge pay in other industries outside of startups. The fact that Silicon Valley is full of amazing engineers who are excited to work in the tech industry means that it is the best location for your startup to locate (relatively, and if you need a lot of engineers, not all startups do, some need more sales focused or science focus etc and there are better cities for those companies).
    - runako 15y ago
krupan 15y ago
I don't know, do all the unemployed people in a America right now want to work on assembly lines in factories? I know, just because I don't want to doesn't mean everyone else thinks that way, but it just doesn't seem like the correct long-term fix for unemployment. Factory work just doesn't seem like a viable long-term career. I suppose it's the non-hourly-wage assembly-line jobs that come with manufacturing that are desirable, but how many of those jobs would be created by making the huge investment to build factories and supply chains here in the U.S.? A non-zero number, but is there a more efficient way of creating career-for-life support-a-family type jobs in the U.S.?
- showerst 15y ago
  It's not that they necessarily want factories, it's that they're looking for stable career for life jobs for people with _low skills_, which is the difficult part. There are tons of openings in the US for plumbers, and (i believe, not sure post housing boom) also electricians, welders, pipe-fitters, etc. The problem is that these are all jobs that require a few years of training, which the US system isn't very well set up for. The factory thing is an easy-out because we have this huge base of people who have basically no skills and we want (need) to absorb them into the economy as fast as possible, and without investing tons of money to train them. Even if we had this money, and the capacity to train them, dropping an extra 100k nurses (or whatever) into the system at once probably wouldn't be a good thing either. This is a long term problem that we probably won't solve until we hit the point that we're educating enough people in the right things that competition for unskilled jobs hits more or less equilibrium.
  - _delirium 15y ago
    The problem is that these are all jobs that require a few years of training, which the US system isn't very well set up for. Automation is also making the skill/demand curve look more step-like I believe, where your value stays near zero up until you cross the "better than a machine could do" threshold, instead of scaling in some more smooth way. That makes it harder to get training on the job by just taking low-end jobs and moving up. From what I've read about welding (e.g. http://www.nytimes.com/2009/06/24/business/24jobs.html?pagewanted=all http://www.nytimes.com/2009/06/24/business/24jobs.html?pagew...), highly skilled, experienced welders are very much in demand. But, since low-end welds can be done by machines nowadays, there's much less demand for a welder with <10 yrs experience than there used to be. Consequently, there's no obvious path to get that first 10 years of experience.
kenrikm 15y ago
If you're interesting in learning more about this read the book "The Goal" it's presented as a novel and the main character is rather daft, however it has a lot of insight in it if you can look past that fact they everything is explained as if the main character is really slow.
- snitzr 15y ago
  +1 because The Goal teaches The Theory of Constraints, which is useful for anyone managing team resources.
  - jgervin 15y ago
    +1 Had to read "The Goal' at SMU to graduate. I suggest all developers, managers or entrepreneurs to read it today! If you are a startup, when you read it think developers/designers as your industrial machines.
- drucken 15y ago
  I was just going to post a comment about Goldratt's book. If you think the Beer Game is too simplistic, you really must read that book, it is eye opening - though it will feel a little slow to the HN crowd at first :)
deleted 15y ago
[deleted]
tlb 15y ago
Having gone through the painful exercise of building robots in the US, I appreciate the problem. Our end-end supply chain latency was 16 weeks, far too long to scale effectively to match demand. Many component changes we wanted to make would have created a 6-week delay, so we had to compromise. A place with a factory across the street that could make screws in 3 hours sounds like heaven.
- e40 15y ago
  But what is the cause and what is the effect? The supply chain latency in the US is so high because over the last 3-4 decades we've moved from a producer to a consumer. It's because we don't manufacture stuff anymore that this latency is an issue.
  - bdunbar 15y ago
    It's because we don't manufacture stuff anymore that this latency is an issue. I love it when people say that. I love it because I work for a company that very much does still make stuff in the US. We just make more stuff, with fewer people. We also make stuff in Asia, EU, Mexico. It's hard to stereotype who makes what - but generally sites in NA make the complicated, expensive widgets, Asia make the high volume not-so complicated gear, EU is a mix.
    - ChuckMcM 15y ago
      Harder to find. Where is the alibaba.com of the US? Lets say I want to manufacture a device with a printed circuit board, a case, and some artwork. Where can I fill out a form and have it go to at least a dozen the US manufacturers and have them come back with bids? This is a huge gap that filling would reap both financial and political rewards.
      - showerst 15y ago
        You can't, because that work can't be done here economically, we've moved further up the value chain. On the flip side, let's say you want to manufacture a new custom processor for your ipad competitor, or turbine for your new 787 competitor. You won't get those things in China, at least not without significant involvement from US companies.
brudgers 15y ago
I first read about the beer game in The Fifth Discipline. That was the first book on business I ever bought. http://www.amazon.com/The-Fifth-Discipline-Practice-Organization/dp/0385260954 http://www.amazon.com/The-Fifth-Discipline-Practice-Organiza...
damoncali 15y ago
Or they could just do like Dell does - require suppliers to carry inventory (on the suppliers' books) within minutes of their factories. You can do that in America just as easily as you can in China.
- mef 15y ago
  That mitigates demand fluctuations, but does not mitigate a short feedback loop for changes or problems.
- brendn 15y ago
  That may insulate factories from fluctuating inventory supply, but it doesn't solve the problem of fast turnaround when changes are needed. If a part needs to be redesigned, the supplier may still have a weeks-long lead time to get the new part shipped, and has the additional problem of obsolete inventory that is now wasting space near the factory.
  - damoncali 15y ago
    You're missing my (sloppily made) point. China vs US has nothing to do with that. Either you consolidate your suppliers and squeeze the snot out of them, or you suffer the bullwhip effect. It can be done in the US, China, or the North Pole. The reason it's in China is cost.
- mindslight 15y ago
  "Solve" it on paper by making it someone else's problem? This philosophy is a large part of why manufacturing jobs left in the first place.
  - damoncali 15y ago
    You think they don't do this in China? Look around. Making your problems someone else's problems is a time honored business practice.
    - mindslight 15y ago
jonknee 15y ago
> Because of the bullwhip effect illustrated by the game, Apple needs to have factories in China because the supply chain is there. We learned in the Beer Game that minute changes have massive ripple effects along the supply chain. > The U.S. has lost that industrial base and it’s extremely difficult to get it back. It’s not about unions, jobs Americans don’t want - it’s about delay. Considering that Foxconn is starting to make iPads in Brazil, this article is way oversimplifying things. It's mostly about labor costs and environmental aspects. The iPad is assembled in China, but most of its components are from elsewhere. The CPU is from Texas, a lot of the other chips are from Korea, etc. It could be assembled in the US without supply troubles. http://www.macrumors.com/2012/04/05/apple-gains-certification-to-sell-brazilian-assembled-ipad-2-new-ipad-certification-pending/ http://www.macrumors.com/2012/04/05/apple-gains-certificatio...
- nknight 15y ago
  Red herring. Brazil has some massive import duties, and cut a special deal with Foxconn for local manufacturing. The economic analysis is severely thrown off.
  - jonknee 15y ago
    According to the article they need to be assembled in China because of the supply chain. I don't see how import duties suddenly make the supply chain work on the other side of the globe.
    - nknight 15y ago
      You can make anything work given enough money. It will cost them substantially more to manufacture the devices in Brazil, but this may be more than offset by lack of import duties and the tax deal.
- crazygringo 15y ago
  Brazil is an exceptional case because of their import tariffs which are far, far higher than any other country in the world. From the linked article: "with domestic production of the iPhone and iPad providing a means by which Apple could avoid hefty import taxes in one of the world's most populous countries. " I don't know any of the details, but I would assume Foxconn is performing the absolute minimum level of assembly necessary to meet "domestic manufacturing" requirements. So it is in no way an effective counterexample. Plus, Brazilians are used to long supply-chain delays (like major supermarkets in major cities running out of Diet Coke or Ruffles) in a way that Americans will not put up with. Something tells me Foxconn's Brazilian factory may not be too different.
gnaffle 15y ago
If they can build iPhones in Brazil, why can't they build iPads in the US? That it's not cost effective to do so now doesn't mean that this will always be the case. The US has high import taxes on lots of stuff, if they raised them on electronics we would have US made iPads in a flash (not that I'm saying this is the right approach). I think Apple's "tell us all the details about your cost structure and we'll talk business" approach to their suppliers combined with their enormous cash reserve and history of pre-paying for parts (and even factories) should enable them to make their devices pretty much anywhere.
tlogan 15y ago
I'm not sure this a correct explanation: if this is correct then Foxconn would never starting making iPads in Brazil (http://www.webpronews.com/foxconns-brazilian-ipad-factory-to-begin-production-2012-01 http://www.webpronews.com/foxconns-brazilian-ipad-factory-to...).
clarkmoody 15y ago
I love the article up until the lame political statement at the end. GM / Chrysler bankruptcy != Business disappears and all suppliers go bankrupt. This is the straw-man argument of the left. The American auto bailout was a purely political play to save the unions who supported the Democrats. With billions in hard assets and a huge intellectual property base, the auto companies would have made great investments to potential buyers. Does anyone actually believe that no one would even attempt to pick up the pieces of the auto industry, sans-unions, and try to come out ahead? If you agree with the media/government spin, then you believe that the auto companies would have fired all employees, sold all of the manufacturing equipment and plants, and closed shop forever. The reality is that the company could have used existing bankruptcy law to get rid of some of the union/pension overhead and return to profitability. This is exactly what American Airlines is doing right now. Only in the extreme case would they even need to sell the company.
- mikescar 15y ago
  > The American auto bailout was a purely political play to save the unions who supported the Democrats. Are you kidding? http://www.politico.com/news/stories/1208/16740.html http://www.politico.com/news/stories/1208/16740.html
  - krupan 15y ago
    To be fair, the article this whole discussion is referencing says, "Obama was right in bailing out the auto industry when GM and Chrysler were going bankrupt." As usual, both sides want to take credit for the positives and blame each other for the negatives. :-)
  - philwelch 15y ago
    Bush made the initial federal loans to keep them from going broke. Obama made a second bailout, but this time in exchange for equity, which gave the US government a commanding share in GM and Chrysler. It wasn't couched in so many words, but GM and Chrysler were actually nationalized.
- functionoid 15y ago
nextparadigms 15y ago
Maybe politicians will finally understand that "manufacturing jobs" are not coming back to US and stop wasting money by trying to get them back. "Manufacturing" itself could be back - if they start encouraging 99.9% robot manufacturing facilities, and manufacture stuff more efficiently than any Chinese company. Yes, it won't bring "manufacturing jobs", but it will bring a lot of capital into the country, and will also spur new type of jobs and businesses in relation to that, or it would make it a lot easier for US entrepreneurs to mass-produce their products just from a prototype. That's the sort of thing politicians should be encouraging - not try to bring back blue-collar jobs.
jgervin 15y ago
Cost is the main driver here. I am lefty, but I agree the unions are a little out of control. I am sorry, but a guy who stands in a production line building cars should not be making $125k per year (source was a series on TV, think 60 minutes where they talked to some of those workers). I am glad unions are there to help make sure people are not overworked and have benefits, but come on guys. You shot yourself in the foot there.
- richieb 15y ago
  Why not? That kind of job is boring and repetitive. You would not do it, would you?
- Caballera 15y ago
  Not only salaries, but also benefits. I think Health Care Insurance (that the company provides)is often overlooked. American Health Care cost for businesses has increased a ton over the last few decades.
  - functionoid 15y ago
    This comment got down voted, it is not mine but it is legitimate point in the discussion. Looks like there are leftist out there doing this?
- smacktoward 15y ago
  > I am sorry, but a guy who stands in a production line building cars should not be making $125k per year You should be pleased to learn then that they don't: * http://www.nytimes.com/2008/12/10/business/economy/10leonhardt.html?_r=3&hp http://www.nytimes.com/2008/12/10/business/economy/10leonhar... * http://www.factcheck.org/2008/12/auto-worker-salaries/ http://www.factcheck.org/2008/12/auto-worker-salaries/
  - webXL 15y ago
    Fact-checking FactCheck.org: Let's assume that a union worker won't get an extra $15 per hour worked that current retirees are receiving. So take $15 off of their labor costs of $70 per hour (complexity through obfuscation). So that's $55 = VALUE of actual wages and benefits EARNED by WORKING 1 hour hours_worked_per_year = 52*40 = 2080 earnings_per_year = hours_worked_per_year * $55 = $114,400 So you're correct, according to FactCheck.org, it's not $125k per year. But the point is still valid when you account for benefits. If my employer gives me a new Ferrari each year as a benefit, no one would consider me underpaid if I made $10/hour doing secretarial work.
_sentient 15y ago
I think there's another aspect to this, which is the fact that Apple is not primarily concerned with the US market. 80% of Apple's most profitable product, the iPhone, are sold outside the USA. Even if you could get cost parity in production, there's no real reason why Apple should move manufacturing back to the US, just because they started off as an American company.
kevinalexbrown 15y ago
From a practical perspective, it seems to me that the Beer Game rests in three parts: in imperfect information, time delays, and most importantly, independence of agents. If each member of the supply chain knew consumer demand perfectly far enough in the future, they could compensate. Likewise, if each member of the supply chain could instantly scale their process, they could compensate. The key, though, is that even if you perfectly forecast, or can instantaneously process and ship your stock, everyone down the line from you must do so as well. From what I gather, having the supply chain in China or Brazil addresses the second two problems. The advantage of China isn't just cheap labor, it's cheap, readily available labor. A change in demand (like switching the screens on the iPhone) can be met relatively easily, which partially solves the time delay problem. And the more of the supply chain you hold in one geographic location makes shipping time faster. The independence of agents issue gets addressed when Apple can coordinate the actions of each member of the supply chain better. I imagine this is, for the moment, easier in China than the US. Where I part ways with the article is the bail-out. The US labor pool doesn't seem elastic enough to address the time-delay part of the bullwhip effect. If Foxconn suddenly had a temporary drop in demand and had to lay off thousands of laborers, it would not be a huge issue. If they need to hire them again, zip, pretty quick. Likewise if they need to request huge overtime commitments because they can't train new workers fast enough, no problem. US workers are particularly averse to uncertain job prospects, perhaps with good reason, but with the effect that scaling work (and wages) up and down is less tenable. And perhaps this is where the unions come in - the overtime payments from forcing workers to work more hours to meet demand is much more costly in a union than a non-union environment, for better or worse. Edit: I've just now recalled that one summer, I worked for a large bread factory. They loved hiring college students in the summer because they knew that they didn't really care about staying in the union. Summer demand for baked goods skyrockets. A plant manager showed me how they were lagging behind demand by something like 2 million dollars / week (I've forgotten the exact number, but it was staggering to me). In his words "you can imagine what that does for business." But they couldn't just start hiring more workers, or scaling up the plant, because then they'd have more workers than the knew what to do with once the winter hit, when people were working 20-30 hrs/week. And this is one case where almost the entire supply process was in the US, minus wheat they might have gotten elsewhere.
- 15y ago
nileshtrivedi 15y ago
There ought to be an app for the beer game.
OzzyB 15y ago
Would it be fair to say that the reason Apple has their entire supply chain in China is because those "supply clusters" were already there because of the Japanese consumer tech companies that built them up in the 80's? (I have no idea when or how exactly, but the "80's" seems to be around the time of the "Japanese Electronic Invasion") In other words, for a "new" company like Apple, starting out with all their new iDevices, it simply made sense for them to go where the supply was? It's kind of like Apple "piggybacked" and exploited all the gains made by the Sonys, Sharps & Casios of the world, and beat them at their own game. I think if we move beyond the analogies of cars and other consumerables, and focus on what Apple is really doing, which is essentially Consumer Tech, then it simply makes sense for them to be where the guy that makes those fancy LCD screens is at?
zipdog 15y ago
The beer game is also mentioned in Peter Senge's The Fifth Disciple, where he suggests it originated from MIT in the 1960s. I think he had one less link in the chain (3 players not 4) but still the effect was the same. btw, His book is a good intro to the way small changes effect integrated systems, particularly in business.
ktizo 15y ago
In the UK, you pay much higher taxes for importing components than you do for importing final product, so manufacturing anything in the UK that requires parts from overseas is economically pointless, even if you wanted to (such as in the case of the raspberry pi). I have always been suspicious of the concept of post-industrial economies as I have always thought that they relied on a colonial logic of intellectual superiority which doesn't really exist. The plan seemed to be that the western world is good at organising and designing stuff, and those people over there are much cheaper for doing the actual work of building this stuff for us, especially since our local labour market started getting ideas about rights and profit share and stuff. However, the organising and designing of stuff turned out not to be quite as difficult as we had so arrogantly assumed, so all we do is get rid of out ability to make stuff by having an entire generation used to someone else doing it for them, while eventually all the white collar jobs go overseas as well. Personally, I think that if you try being a post-industrial economy for long enough, you will end up being something much more like a pre-industrial one, but with a few rich people left, all flying around on those nifty new Chinese jetpacks.
RedwoodCity 15y ago
There are plenty of counter examples to this. Boeing has suppliers for key components for its airplanes as far away as Italy and Japan. Toyota and BMW assemble vehicles in the US from imported parts. A CPU from intel is often fabricated in a US based factory, tested in Costa Rica, and packaged in Asia. The issue has too many variables related to margins, tax breaks for factories, and import tariffs; to say the whole electronics supply chain is moving one direction. As wages and living standards rise in China it is likely that some production will move to other countries and regions, which in the longterm is a good thing because it spreads the wealth.
- mkswp 15y ago
  Some good points here. There are a lot of variables however, Boeing has run into the problem of the bullwhip effect too with the Dreamliner: http://articles.latimes.com/2011/feb/15/business/la-fi-hiltzik-20110215 http://articles.latimes.com/2011/feb/15/business/la-fi-hiltz...
RedwoodCity 15y ago
There are plenty of counter examples to this. Boeing has suppliers for key components for its airplanes as far away as Italy and Japan. Toyota and BMW assemble vehicles in the US from imported parts. A CPU from intel is often fabricated in a US based factory, tested in Costa Rica, and packaged in Asia. The issue has too many variables related to margins, tax breaks for factories, and import tariffs; to say the whole electronics supply chain is moving one direction. As wages and living standards rise in China it is likely that some production will move to other countries and regions, which in the longterm is a good thing because it spreads the wealth.
RedwoodCity 15y ago
There are plenty of counter examples to this. Boeing has suppliers for key components for its airplanes as far away as Italy and Japan. Toyota and BMW assemble vehicles in the US from imported parts. A CPU from intel is often fabricated in a US based factory, tested in Costa Rica, and packaged in Asia. The issue has too many variables related to margins, tax breaks for factories, and import tariffs; to say the whole electronics supply chain is moving one direction. As wages and living standards rise in China it is likely that some production will move to other countries and regions, which in the longterm is a good thing because it spreads the wealth.
jsz0 15y ago
Do we even have the affordable housing & mass transportation required for something like this anymore? The 'FoxConn cities' in China look a lot like the old factory towns in the United States that have mostly disappeared. Even with the huge number of home foreclosures most cities simply do not have affordable housing for an influx of even 100,000 people. Most cities don't have the mass transit capacity to carry them to work. They don't have room in their schools for tens of thousands of new students. They could be built of course but it's not a turn-key solution the way it is in China. If Apple started the process today I bet it would take 5-7 years at minimum.
hkmurakami 15y ago
There's another, perhaps overlooked, place that does exactly what the author proclaims as China's manufacturing advantage (proximity, flexibility, etc). And it shouldn't be surprising: It's Toyota's auto manufacturing empire in Aichi Prefecture, Japan. Aichi is only 2000 square miles in area[1], and Toyota's supply chain is concentrated on its Eastern half. It takes less than 1 hour by car (or more relevantly, by truck) to travel between all of the major players in the supply chain (Aisin, Toyota Industries, Denso, etc). Of course, all of Japan's manufacturing is in Jeopardy with increased manufacturing costs and the strong yen (which are analogous to what HN posters here have discussed as distinct Chinese advantages over US manufacturing). Another place that I suspect has a similar centralized, flexible manufacturing ecosystem: Germany's auto industry (with the granddaddy of all industrial suppliers, Bosch, situated right in the middle of it all). [1] http://en.wikipedia.org/wiki/Aichi_Prefecture http://en.wikipedia.org/wiki/Aichi_Prefecture
- eitally 15y ago
  Coincidentally, this is also why "vertical" integration almost never works when the various horizontals are not colocated. The supply chain complexity often introduces enough extra cost (whether time or money) that it's more efficient to just purchase components locally rather than ship things around within a global corporation.
tzs 15y ago
We used to occasionally get to play games like that for actual money when I was an undergraduate. Every so often, grad students in economics would come around to the undergraduate houses at dinner time to announce that they were looking for volunteers for economic experiments that night. The experiments would typically take place in the social sciences building, with each participant being put in a separate office (that was one of the reasons they were at night--so there would be offices they could borrow). We'd be given instructions on the game to be played, and the phone numbers of other offices if the game involved communication between the players, and the game would start. Each player would start with a certain amount of game money, and when the game is over that would be converted to real money and the player kept it. On average, if I recall correctly, players would make about $20-30 or so each in these games. That doesn't sound like a lot, but for a college student in the '80s that would be enough for several nice meals away from food service, or for 3 or 4 albums at the record store. You'd almost always get at least $10, and sometimes someone would make $75-100.
scott_s 15y ago
This is a great explanation, but this statement is wrong: The U.S. has lost that industrial base and it’s extremely difficult to get it back. It's important to keep in mind that the US still makes a lot of stuff. In fact, we still make more than most: http://www.npr.org/blogs/money/2011/02/07/133561265/3-ways-of-looking-at-manufacturing-in-america http://www.npr.org/blogs/money/2011/02/07/133561265/3-ways-o... However, we're employing less people to do it, and those that we do employ require more education than before: http://www.npr.org/blogs/money/2012/01/13/145039131/the-transformation-of-american-factory-jobs-in-one-company http://www.npr.org/blogs/money/2012/01/13/145039131/the-tran...
jdietrich 15y ago
I hear a lot of people saying that America needs more manufacturing jobs, but I can't recall ever hearing anyone say that they want to spend the rest of their life doing repetitive assembly operations on a production line. We use Chinese workers because they're cheaper than robots. These are awful, tedious, soul-destroying jobs, but they're just marginally better than backbreaking agricultural labour. Nobody deserves to do those jobs and soon nobody will have to, because we will have automated them out of existence. That's unequivocally a good thing.
- Tichy 15y ago
  I wonder, would agricultural labour be backbreacking if you only had to meet your own demand (and owned enough fields for the purpose)? Serious question, I don't know.
  - barrkel 15y ago
    I've only had to work in vegetable and fruit gardens belonging to my grandmother, but if it scales, then yes, it would be backbreaking. Only worth it if you enjoy it or otherwise derive self-actualization from it etc.
  - psyconn 15y ago
    Yes it is backbreaking or you are trapped by low margins into ever increasing size of fields so you can afford technology not to break your back.
  - redwood 15y ago
    Nature is too erratic to not have episodes of famine if relying only on sustenance farming.
- eitally 15y ago
  1) There honestly are people who enjoy this kind of employment. 2) More usually, manufacturing work is appealing because it can be an easy springboard to a more rewarding role/career. It's still true today that thousands and thousands of Americans who have started (or are starting) their career as an assembler or machine operator have had the drive to improve their skills & knowledge and move far upward in the value chain.
robomartin 15y ago
It's about the need for "low impedance" or "low inertia" systems. "Low inertia" means that the affected area can support a higher rate of change than a "high inertia" system. This affects all facets of business, from the supply chain to labor. I have to disagree with the protection of highly unionized systems. They are bad, bad, bad for the economy and for the survival of the affected industry. Not only do unions burden business with unreasonable rules and wages, they also create a very high inertia labor force. Making any change falls on a range from impossible to very difficult. In sharp contrast to this, a low inertial non-union labor force is far more flexible. Let's face it, workers in the US have grown comfortable with their reality and don't want to change. I'm sure this is what it looked like when buggy whips and horse-drawn carriages started to loose market share. A low inertia system would allow the entire enterprise to pivot quickly, make adjustments and try to evolve into whatever might be the new wining paradigm. Not so when you have a highly regulated, highly taxed and unionized framework to contend with.
JVIDEL 15y ago
Considering less than 1% of the price of an iPhone or iPad "stays" in China as the cost of assembly, moving all production back to the US for that 1% seems ridiculous. In any case you guys should concentrate in the 30% (or so) of the price that goes into parts and components, almost all made by Korean and Taiwanese companies. Besides most of those components are already made using highly-automated processes because humans lack the precision needed to manufacture at such small scales. Not saying it would be easy, just that it isn't impossible, and 30% is a much better deal than 1%.
gogobyte 15y ago
Because Apple and the whole USA IT industry can not build good enough software for industrial automation. I mean, today's software building technology is too primitive.
- eitally 15y ago
  This is an idiotic post and you have absolutely no idea what you're saying. If you'd like to discuss the situation, email me and we can talk. .... Actually, after thinking about it a little more you may be more accurate than I thought, if I read your statement literally. Thankfully, the US manufacturing industry is building good enough automation software.
ekianjo 15y ago
The end of the article is bit of a nonsense: why, we have to save big failed corporations like GMC just because of the supply chain ?Are you kidding me? The supply chain of these manufacturers is going nowhere. If they were dismantled, other companies would buy their assets anyway and keep using them on American soil. Nothing is completely lost.
kristianp 15y ago
Relevant article by Andy Grove on US manufacturing from 2010: http://www.businessweek.com/print/magazine/content/10_28/b4186048358596.htm http://www.businessweek.com/print/magazine/content/10_28/b41...
macco 15y ago
Supply-Chain is certainly a point, but I doubt it's the only factor - relative labour cost play an important role. Questions to ask: 1. Why did the factories move in the first place. 2. Why can companies like Airbus oder German car manufacturers survive - their supply chain is distributed all over the planet, with the best paid workers in Germany.
developer9 15y ago
Great article until "Obama was right in bailing out the auto industry when GM and Chrysler were going bankrupt. Because it wasn’t just GM and Chrysler that were going to fail, it was an entire ripple-effect of suppliers, tool manufacturers, raw material suppliers, trucking companies and dealers that were going to go away." That's not the full reason that they did it though. It's because they were making vehicles for our military. If our country started relying solely on foreign countries for our military, they could disable our ability to replenish or grow our ground fleets. But, even that is not far enough down the rabbit hole. There are enough non-government owned vehicles in the U.S. to more than make up for the lack of vehicles they would have lost, even if every other country simultaneously decided that we were the enemy, our military could use the country's existing resources (assuming we were ok with that). And moreover, we are already reliant on other countries for our military and the running of our country. The only "advantage" of a government that pumps everyone's tax money into a select number of private companies, directly or indirectly, is that "survival of the fittest" is damaged. The "disaster" is delayed- the inevitable damage grows greater. It is the economical equivalent of forestry agencies that protected forests from forest fires, when forests naturally managed themselves via fires started by lightning strikes, such that large fires would inevitably start and be uncontrollable. Large bailouts can cause incredibly bad things to happen. So, the question is, why did they do it? Band-aids and politics. It was not long-term thinking. And that is the story of our government. For the most part, no one is willing to make the political sacrifice for long-term gain. What we need now is for someone to help make government stable and predictable again, and to reduce the amount of red-tape it takes for U.S.-based businesses to succeed. But, it is going to take a disaster for that to happen- a disaster that will be much worse because of bailouts and other shenanigans. But, as for now, we will live in the growing forests our forest rangers protect for us.
Prophasi 15y ago
From near the end: "Obama was right in bailing out the auto industry when GM and Chrysler were going bankrupt." It's myopic to equate GM and Chrysler with the American auto industry. My hope was that those tragically unfit companies and their corrupt unions would go bankrupt, only to have their assets swept up at fire-sale prices by a company or person willing and able to ignite a rebirth of the industry. Sometimes you gotta clear out the brush. The old, rickety, terribly designed, onerously-high overhead, ridiculous pension brush.
brownbat 15y ago
I found the in depth reporting at the Atlantic last month a bit more revelatory: http://www.theatlantic.com/magazine/archive/2012/01/making-it-in-america/8844/ http://www.theatlantic.com/magazine/archive/2012/01/making-i... Though it sort of agrees that supply chain is important, just frames it differently. The reason Standard Motor still employs (expensive) low skilled US workers like Maddie is because it wants to have her seal up a part immediately after the high skilled worker (Luke) finishes his precision machining role. Workers of Luke's caliber (with knowledge of metallurgy, coding, specific machine training) aren't reliably found in the lowest labor cost countries (at the moment, Poland is getting competitive here). If robots for Maddie's job get cheaper, or demand grows such that the factory needs to run multiple shifts, or if the factory can somehow move Luke overseas, then Maddie loses her job. If any of these things happen, but firms like Standard keep their Maddies, they get bought out by gigantic German manufacturers, or just undercut on the store shelves until no one's buying their products anymore.

562 points by mkswp 15y ago

The reason why iPads are built in China is because of a thing called Comparative Advantage [1]. Even though the US could reasonably produce iPads _more_ efficiently than China, it doesn't. The reason is that the US is even more efficient at supplying higher-cost services (software, finance, etc.) than China that it would be at producing iPads. Therefore, the US is better off training more of its workforce for higher-cost services than to train them to be laborers. [1] http://en.wikipedia.org/wiki/Comparative_advantage http://en.wikipedia.org/wiki/Comparative_advantage

maak 15y ago
Nicely put.
e40 15y ago
This is part of it, but there are other important factors at play here. In China, the contractors of Apple don't have to adhere to US labor and environmental laws. These are huge factors in decision to outsource production to China.
- josefresco 15y ago
  ...not to mention currency and wage issues.
mseebach 15y ago
The fallacy in that is that countries don't get to decide and plan what their comparative advantages are. If the US can systematically train it's workforce for higher-cost services, so can China. Except, they can do it faster, cheaper and at a larger scale (like everything else they do). This is what happened with white collar IT jobs going to India.
mhartl 15y ago
Unfortunately, the "comparative advantage" in this case results mostly of self-inflicted woulds on the part of USG. For a company with highly productive employees such as Google, the large fixed cost associated with labor-law compliance isn't that big a deal, but for low-wage jobs it can be comparable to the cash compensation. There's no shortage of low-cost laborers in the US; it's just that onerous regulations price them out of the market.
- Karunamon 15y ago
  Onerous how? I'm not a business owner (well, I am, but with a staff size of one, which is mostly irrelevant to this conversation) - the regulations i've seen don't seem that bad. Could you be more specific?
  - mhartl 15y ago
    See http://www.dol.gov/compliance/topics/posters.htm http://www.dol.gov/compliance/topics/posters.htm (among many other examples).
    - Karunamon 15y ago
      Just posting a number of laws does not explain how they are onerous or hard to follow. Let's see... Minimum wage stuff, no hostile work environment, no unsafe work environment, FMLA doesn't even apply unless you have more than 50 workers, etc. I know most of this stuff by heart just from being in the workforce, let alone an employer (who I'd assume worked for someone else at some point in their career).
      - mhartl 15y ago
        "Onerous" essentially means "expensive to comply with", not necessarily "hard to follow". For more detail on these sorts of issues, see, e.g., http://esr.ibiblio.org/?p=1752 http://esr.ibiblio.org/?p=1752.

snitzr 15y ago

There is a difference between the bullwhip effect and JIT (just in time) manufacturing. Building your assembly plant near your suppliers is JIT and it helps reduce in-process inventory. Less in-process work and faster delivery to the assembly plant means you can ship product faster. This is important for a fast-moving tech manufacturer. The bullwhip effect is caused by delay and uncertainty in demand. JIT helps minimize its effects, but doesn't ensure its elimination. Coordinating your demand with retailers is one way to prevent the bullwhip effect. I'm guessing Apple has effective inventory and order coordination with their retailers.

dgabriel 15y ago

I think they teach this game at most business schools, and it seems to be a popular and eye-opening experience. If you hit wikipedia, there are a number of links to online versions you can play (some for free, some not). http://en.wikipedia.org/wiki/Beer_distribution_game http://en.wikipedia.org/wiki/Beer_distribution_game

A_A 15y ago
That's right. the Beer game is one of the first things taught in Operations Management in most b-schools, as an example of Supply Chain Management. [I was fortunate to have been introduced to the subject by John Sterman] In general, delays (i.e. lead times) and variations in orders will do that Beer game effect to any supply chain, no matter where it's located. Apple products are "made in china" because of various reasons -- comparative advantage, business cluster etc. I'd highly recommend a good reading of systems dynamics (and business dynamics) for those looking for more info. For those interested, two recommended books: * "Clock Speed" by Charles Fine (MIT) * "Business Dynamics" by John Sterman (also of MIT, and a great professor): http://goo.gl/K4OG http://goo.gl/K4OG (Amazon.com link)
kreilly 15y ago
Yes, I did this in business school. We called it the "Bull Whip Effect" because a small movement on one end of the supply chain caused a dramatic impact on the other end.
Splines 15y ago
This would make an interesting RTS. 2 teams, 4 players on each side. Each economy can survive on their own, but there is a natural chain that can be built to allow one player on each side to have an overwhelming advantage over the other team (think "tip of the spear"). Only by carefully coordinating resources can you get this to work - the same costs in the beer game apply here (making too much of the upstream resource (inventory) has an opportunity cost in you not being able to produce your own units, and not making enough of the upstream resource (backlog) results in poor teamwork and and having the other team eventually out-pace you. Co-op RTS games sometimes have resource sharing, but I don't think I've ever seen one with a legitimate supply chain (maybe because it ends up being so difficult to coordinate).

chrisrhoden 15y ago

In case anyone's curious why beer was used as the product in the game, it's likely because US law requires that alcohol be distributed in (almost) this way: http://en.wikipedia.org/wiki/Three-tier_(alcohol_distribution) http://en.wikipedia.org/wiki/Three-tier_(alcohol_distributio...

pagekalisedown 15y ago
For a good documentary that illustrates the system we have in place, check out: http://en.wikipedia.org/wiki/Beer_Wars http://en.wikipedia.org/wiki/Beer_Wars
- eogas 15y ago
  It's also free to watch on hulu for anyone who's interested: http://www.hulu.com/watch/235712/beer-wars http://www.hulu.com/watch/235712/beer-wars
  - pbhjpbhj 15y ago
    free to watch on hulu for anyone _from_USA_ who's interested FTFY. Hulu restricts access pseudo-geographically using IP-based geolocation it seems.

diogenescynic 15y ago

Apple could afford to reopen the plants they had in Fremont, they just might not be able to produce 100% of their products there. From the NY Times article he refers to: paying American wages would add up to $65 to each iPhone’s expense. Fender does this--they offer you the choice of a Chinese, Mexican, Japanese, or American made guitar and just price accordingly. I would pay more for an iPhone that I knew was made in America. I'm sure I'm not the only one. Other examples: Whole Foods, Trader Joe's, Annie's Homegrown (BNNY).

simonh 15y ago
Disclosure: I'm a Brit, and my wife is Chinese. Frankly I have no time for flag-waving 'Buy American' and for that matter 'Buy British' favouritism. I've seen the poverty in rural China first hand, industrialisation over there has it's rough edges that need to be addressed, but if we care about world poverty then that means cutting all the jingoistic claptrap and 'allowing' them to earn a better living. There are legitimate cases where buying locally makes sense, especially in the case of regional foods or traditionally crafted goods. I'm all for preserving traditional ways of life if it makes sense, but I don't think iPhone assembly line production falls in that category. The US, Britain and the western world in general has grown rich exporting goods and services to the rest of the world and importing cheap commodities and goods. Fair trade benefits both sides of the bargain. It's time to set aside protectionism and recognise it for the pernicious imperialism and borderline racism it really is.
- rbarooah 15y ago
  Don't you think that decades of isolationist Maoism had more influence on the rural poverty in China than US and British protectionism?
  - mseebach 15y ago
    The Mao isolation was just a continuation of centuries of Ming isolation, and, emphatically, yes. I think the GP meant modern protectionism in the sense of "Buy American/British/etc" movements.

draggnar 15y ago

Will 3d printing and manufacturing advances (Foxconn can hire 3,000 employees overnight, but robotics lower labor needs) make the supply chain effect less important, lowering the costs of moving manufacturing back to the US? Will they come back to be closer to retailers?

DanBC 15y ago
The robot tech might be developed in the US (or where ever) but is still built in China. That makes sense, because it's used in China. And as expertise in building stuff concentrates in China all they need to do is keep quality high, keep costs low, and maybe keep an eye on human rights, and they'll keep the jobs. The barriers to US companies become higher. You've got to get the machines. You then need people to run those machines. Those people will consider themselves to be skilled or semi-skilled, and require high wages. You need to run the machines 24hours, thus you need 3 shifts per day; two of those shifts will require higher wages than the day shift. I doubt that huge volume manufacturing is going back to the US anytime soon.
- stonemetal 15y ago
  The robot tech might be developed in the US (or where ever) but is still built in China. That makes sense, because it's used in China. And as expertise in building stuff concentrates in China all they need to do is keep quality high, keep costs low, and maybe keep an eye on human rights, and they'll keep the jobs. If we assume raw materials are bought on the global market (so same price in the US and China), then the only cost variables are labor and shipping to market. Once Robotics drives the difference in labor costs below the difference in shipping costs robots in the US makes more sense than laborers in China. There is an inflection point even if you assume the use of robotics in China.
  - 18pfsmt 15y ago
    I believe you are missing regulatory compliance costs, which are significant in the US. I'm not quite sure how robotics alters that variable though.

roc 15y ago

See also: https://en.wikipedia.org/wiki/Business_cluster https://en.wikipedia.org/wiki/Business_cluster It's worth noting that one needn't offset all the advantages of a cluster for production outside of it to make sense: There is no shortage of US auto manufacturing plants that are not in Detroit nor in places with anything remotely like its cluster advantage. But for rapidly-changing products, the advantages of a cluster are compounded. If you're not changing screens and screws and implementing brand new technologies on an annual basis, being able to get a custom part ASAP is less of an advantage. But if you are changing things every single year ... I wouldn't be surprised to see US manufacturing return. Particularly as energy (shipping) prices continue to increase, China's wage advantage dissipates and automation matures. But it's going to start with fairly mature, static and/or commodified products.

mhurron 15y ago
What do you think is going to provide more short term profit, move manufacturing back the the US and build X with US workers, or move manufacturing out of China to another cheap country when Chinese labor gets too expensive? What's gone isn't coming back until it's cheaper to build it in the US. That's what moved it to China in the first place, and that's what will move it from China.
- roc 15y ago
  > "What's gone isn't coming back until it's cheaper to build it in the US." Yes and no. Yes, at a high level that's true. But you seem to be making an assumption that human labor costs will remain an important component and that the "it" being manufactured will remain constant. Consider that automation may not even be cheaper on a 'net screws turned per hour' basis than cheap humans. But quality and consistency matters. Speed of line changes matters. Speed of retraining matters. And, further, current designs are limited to what can be assembled cheaply (that is: reasonably quickly/safely/accurately) by two human hands and ten human fingers, with a human attached (who hopefully doesn't require slow or expensive tools/safety equipment/etc). Automation removes those concerns entirely. Caustic compounds could be mixed on the spot, fixation technologies that are infeasible for human dexterity are possible, multiple steps could be completed in parallel, etc. So keep in mind that while it may be sufficiently cheaper to have, say, Brazilians turning screws than Chinese, such that iPads could some day be cheaper to build in Brazil - it's entirely likely that before that happens, robots will be building newer iPad designs, more cheaply than could ever be feasibly constructed by humans even at a zero wage.

raganwald 15y ago

People often draw analogies between software development and manufacturing. If you’re going to do that, it’s vital to take the “supply chain” of information into account. The inefficiencies inherent in creating a supply chain consisting of a developer, a tech lead, a product manager, an operations manager, and finally a user resemble the supply chain in the drinking game. Orders go one way, features go the other way.

ImprovedSilence 15y ago
Did you finish the article? I think it's more focused on the hardware aspect of apples supply chain, and not so much on software development.
- ww520 15y ago
  I think GP is drawing an inferred analogy in the software development process, using the supply chain to explain the relationship among all the parties involved.
Splines 15y ago
Is this a good analogy to make? I was thinking that feature bloat is a consequence of this sort of thing happening (applications start out missing features, eventually features start getting added, and they keep getting added to the point where users don't want them anymore), but I'm not certain the mechanics leading up to feature bloat are the identical to what happens in the beer game.
WiseWeasel 15y ago
Unfortunately, half your customers are giving valid feedback, and half want you to be making vodka instead of beer. A developer's time (and fleeting sanity) is much too precious to have him sort through them...
cube13 15y ago
I don't think this is really an analogy. This chain occurs with both in both physical manufacturing and software. In both, developers/design engineers design the product, leads make sure that everything stays within budget and time, and product managers get requirements through sales or marketing staff. There really isn't a difference with either process at all, and for software that's sold on physical copies, it's is the exact same process. The major difference between releasing software on the internet and making a physical product is the end of the entire process, where the product is built and sent to the customer. With a physical product, it has to be built, stored until sold, then shipped out. Also, unless your developers are so misanthropic that putting them in front of a client might just cause wars to break out, most of this chain can be circumvented by involving all parts of the chain in requirements gathering. The key part of the beer game is that none of the parties can talk to any party that's more than one link away from them. Finally, and this is myself being a nitpicky bastard, but the operations manager will almost never have direct contact with a client. They will be the ones that work with the developers, the leads, product managers, and suppliers to make sure that the product can actually be made with the given budget, and that every step of the production chain is working correctly. They will also work with marketing and sales to make sure that the projected demand will be met, and that the product actually gets out to the clients. A better position would be sales people, because they are generally the only point of contact users have with the manufacturer.

wtvanhest 15y ago

That is an interesting theory but I would guess that the real reason is their devalued currency which allows apple to save a huge percentage on production. Sure cheap labor helps, but is cheap partially due to the currency difference. Despite anecdotal stories, The US still makes up 20% of world manufacturing and retains its spot as the global leader. http://en.wikipedia.org/wiki/Economy_of_the_United_States http://en.wikipedia.org/wiki/Economy_of_the_United_States The colocation theory (the theory which the author is talking about) is a good thoery to explain silicon valley though. If you want to run a tech company, you want it to be colacated near your supply chain (engineers), and other service providers. This is probably a big reason why Silicon Valley has remained dominant despite so many other cities trying.

rbarooah 15y ago
How is it that you accept that 'colocation theory' explains Silicon Valley, but you dismiss it as explaining Shenzhen without explaining why one is different from the other?
- wtvanhest 15y ago
  That is a good question, sorry I wasn't more clear. The basic reason is that there is plenty of manufacturing all over the Midwest that could easily produce the entire Apple supply chain. Shenzhen can also produce that supply chain, but they are no more capable than a lot of American cities. What Shenzhen has that America doesn't are cheap labor, and a devalued currency. Silicon Valley is different primarily because there is no other city with the concentration of brilliant engineers vs others. NYC for example probably has more computer engineers by numbers, but there are more opportunities for those engineers to make huge pay in other industries outside of startups. The fact that Silicon Valley is full of amazing engineers who are excited to work in the tech industry means that it is the best location for your startup to locate (relatively, and if you need a lot of engineers, not all startups do, some need more sales focused or science focus etc and there are better cities for those companies).
  - runako 15y ago

krupan 15y ago

I don't know, do all the unemployed people in a America right now want to work on assembly lines in factories? I know, just because I don't want to doesn't mean everyone else thinks that way, but it just doesn't seem like the correct long-term fix for unemployment. Factory work just doesn't seem like a viable long-term career. I suppose it's the non-hourly-wage assembly-line jobs that come with manufacturing that are desirable, but how many of those jobs would be created by making the huge investment to build factories and supply chains here in the U.S.? A non-zero number, but is there a more efficient way of creating career-for-life support-a-family type jobs in the U.S.?

showerst 15y ago
It's not that they necessarily want factories, it's that they're looking for stable career for life jobs for people with _low skills_, which is the difficult part. There are tons of openings in the US for plumbers, and (i believe, not sure post housing boom) also electricians, welders, pipe-fitters, etc. The problem is that these are all jobs that require a few years of training, which the US system isn't very well set up for. The factory thing is an easy-out because we have this huge base of people who have basically no skills and we want (need) to absorb them into the economy as fast as possible, and without investing tons of money to train them. Even if we had this money, and the capacity to train them, dropping an extra 100k nurses (or whatever) into the system at once probably wouldn't be a good thing either. This is a long term problem that we probably won't solve until we hit the point that we're educating enough people in the right things that competition for unskilled jobs hits more or less equilibrium.
- _delirium 15y ago
  The problem is that these are all jobs that require a few years of training, which the US system isn't very well set up for. Automation is also making the skill/demand curve look more step-like I believe, where your value stays near zero up until you cross the "better than a machine could do" threshold, instead of scaling in some more smooth way. That makes it harder to get training on the job by just taking low-end jobs and moving up. From what I've read about welding (e.g. http://www.nytimes.com/2009/06/24/business/24jobs.html?pagewanted=all http://www.nytimes.com/2009/06/24/business/24jobs.html?pagew...), highly skilled, experienced welders are very much in demand. But, since low-end welds can be done by machines nowadays, there's much less demand for a welder with <10 yrs experience than there used to be. Consequently, there's no obvious path to get that first 10 years of experience.

kenrikm 15y ago

If you're interesting in learning more about this read the book "The Goal" it's presented as a novel and the main character is rather daft, however it has a lot of insight in it if you can look past that fact they everything is explained as if the main character is really slow.

snitzr 15y ago
+1 because The Goal teaches The Theory of Constraints, which is useful for anyone managing team resources.
- jgervin 15y ago
  +1 Had to read "The Goal' at SMU to graduate. I suggest all developers, managers or entrepreneurs to read it today! If you are a startup, when you read it think developers/designers as your industrial machines.
drucken 15y ago
I was just going to post a comment about Goldratt's book. If you think the Beer Game is too simplistic, you really must read that book, it is eye opening - though it will feel a little slow to the HN crowd at first :)

deleted 15y ago

[deleted]

tlb 15y ago

Having gone through the painful exercise of building robots in the US, I appreciate the problem. Our end-end supply chain latency was 16 weeks, far too long to scale effectively to match demand. Many component changes we wanted to make would have created a 6-week delay, so we had to compromise. A place with a factory across the street that could make screws in 3 hours sounds like heaven.

e40 15y ago
But what is the cause and what is the effect? The supply chain latency in the US is so high because over the last 3-4 decades we've moved from a producer to a consumer. It's because we don't manufacture stuff anymore that this latency is an issue.
- bdunbar 15y ago
  It's because we don't manufacture stuff anymore that this latency is an issue. I love it when people say that. I love it because I work for a company that very much does still make stuff in the US. We just make more stuff, with fewer people. We also make stuff in Asia, EU, Mexico. It's hard to stereotype who makes what - but generally sites in NA make the complicated, expensive widgets, Asia make the high volume not-so complicated gear, EU is a mix.
  - ChuckMcM 15y ago
    Harder to find. Where is the alibaba.com of the US? Lets say I want to manufacture a device with a printed circuit board, a case, and some artwork. Where can I fill out a form and have it go to at least a dozen the US manufacturers and have them come back with bids? This is a huge gap that filling would reap both financial and political rewards.
    - showerst 15y ago
      You can't, because that work can't be done here economically, we've moved further up the value chain. On the flip side, let's say you want to manufacture a new custom processor for your ipad competitor, or turbine for your new 787 competitor. You won't get those things in China, at least not without significant involvement from US companies.

brudgers 15y ago

I first read about the beer game in The Fifth Discipline. That was the first book on business I ever bought. http://www.amazon.com/The-Fifth-Discipline-Practice-Organization/dp/0385260954 http://www.amazon.com/The-Fifth-Discipline-Practice-Organiza...

damoncali 15y ago

Or they could just do like Dell does - require suppliers to carry inventory (on the suppliers' books) within minutes of their factories. You can do that in America just as easily as you can in China.

mef 15y ago
That mitigates demand fluctuations, but does not mitigate a short feedback loop for changes or problems.
brendn 15y ago
That may insulate factories from fluctuating inventory supply, but it doesn't solve the problem of fast turnaround when changes are needed. If a part needs to be redesigned, the supplier may still have a weeks-long lead time to get the new part shipped, and has the additional problem of obsolete inventory that is now wasting space near the factory.
- damoncali 15y ago
  You're missing my (sloppily made) point. China vs US has nothing to do with that. Either you consolidate your suppliers and squeeze the snot out of them, or you suffer the bullwhip effect. It can be done in the US, China, or the North Pole. The reason it's in China is cost.
mindslight 15y ago
"Solve" it on paper by making it someone else's problem? This philosophy is a large part of why manufacturing jobs left in the first place.
- damoncali 15y ago
  You think they don't do this in China? Look around. Making your problems someone else's problems is a time honored business practice.
  - mindslight 15y ago

jonknee 15y ago

> Because of the bullwhip effect illustrated by the game, Apple needs to have factories in China because the supply chain is there. We learned in the Beer Game that minute changes have massive ripple effects along the supply chain. > The U.S. has lost that industrial base and it’s extremely difficult to get it back. It’s not about unions, jobs Americans don’t want - it’s about delay. Considering that Foxconn is starting to make iPads in Brazil, this article is way oversimplifying things. It's mostly about labor costs and environmental aspects. The iPad is assembled in China, but most of its components are from elsewhere. The CPU is from Texas, a lot of the other chips are from Korea, etc. It could be assembled in the US without supply troubles. http://www.macrumors.com/2012/04/05/apple-gains-certification-to-sell-brazilian-assembled-ipad-2-new-ipad-certification-pending/ http://www.macrumors.com/2012/04/05/apple-gains-certificatio...

nknight 15y ago
Red herring. Brazil has some massive import duties, and cut a special deal with Foxconn for local manufacturing. The economic analysis is severely thrown off.
- jonknee 15y ago
  According to the article they need to be assembled in China because of the supply chain. I don't see how import duties suddenly make the supply chain work on the other side of the globe.
  - nknight 15y ago
    You can make anything work given enough money. It will cost them substantially more to manufacture the devices in Brazil, but this may be more than offset by lack of import duties and the tax deal.
crazygringo 15y ago
Brazil is an exceptional case because of their import tariffs which are far, far higher than any other country in the world. From the linked article: "with domestic production of the iPhone and iPad providing a means by which Apple could avoid hefty import taxes in one of the world's most populous countries. " I don't know any of the details, but I would assume Foxconn is performing the absolute minimum level of assembly necessary to meet "domestic manufacturing" requirements. So it is in no way an effective counterexample. Plus, Brazilians are used to long supply-chain delays (like major supermarkets in major cities running out of Diet Coke or Ruffles) in a way that Americans will not put up with. Something tells me Foxconn's Brazilian factory may not be too different.

gnaffle 15y ago

If they can build iPhones in Brazil, why can't they build iPads in the US? That it's not cost effective to do so now doesn't mean that this will always be the case. The US has high import taxes on lots of stuff, if they raised them on electronics we would have US made iPads in a flash (not that I'm saying this is the right approach). I think Apple's "tell us all the details about your cost structure and we'll talk business" approach to their suppliers combined with their enormous cash reserve and history of pre-paying for parts (and even factories) should enable them to make their devices pretty much anywhere.

tlogan 15y ago

I'm not sure this a correct explanation: if this is correct then Foxconn would never starting making iPads in Brazil (http://www.webpronews.com/foxconns-brazilian-ipad-factory-to-begin-production-2012-01 http://www.webpronews.com/foxconns-brazilian-ipad-factory-to...).

clarkmoody 15y ago

I love the article up until the lame political statement at the end. GM / Chrysler bankruptcy != Business disappears and all suppliers go bankrupt. This is the straw-man argument of the left. The American auto bailout was a purely political play to save the unions who supported the Democrats. With billions in hard assets and a huge intellectual property base, the auto companies would have made great investments to potential buyers. Does anyone actually believe that no one would even attempt to pick up the pieces of the auto industry, sans-unions, and try to come out ahead? If you agree with the media/government spin, then you believe that the auto companies would have fired all employees, sold all of the manufacturing equipment and plants, and closed shop forever. The reality is that the company could have used existing bankruptcy law to get rid of some of the union/pension overhead and return to profitability. This is exactly what American Airlines is doing right now. Only in the extreme case would they even need to sell the company.

mikescar 15y ago
> The American auto bailout was a purely political play to save the unions who supported the Democrats. Are you kidding? http://www.politico.com/news/stories/1208/16740.html http://www.politico.com/news/stories/1208/16740.html
- krupan 15y ago
  To be fair, the article this whole discussion is referencing says, "Obama was right in bailing out the auto industry when GM and Chrysler were going bankrupt." As usual, both sides want to take credit for the positives and blame each other for the negatives. :-)
- philwelch 15y ago
  Bush made the initial federal loans to keep them from going broke. Obama made a second bailout, but this time in exchange for equity, which gave the US government a commanding share in GM and Chrysler. It wasn't couched in so many words, but GM and Chrysler were actually nationalized.
functionoid 15y ago

nextparadigms 15y ago

Maybe politicians will finally understand that "manufacturing jobs" are not coming back to US and stop wasting money by trying to get them back. "Manufacturing" itself could be back - if they start encouraging 99.9% robot manufacturing facilities, and manufacture stuff more efficiently than any Chinese company. Yes, it won't bring "manufacturing jobs", but it will bring a lot of capital into the country, and will also spur new type of jobs and businesses in relation to that, or it would make it a lot easier for US entrepreneurs to mass-produce their products just from a prototype. That's the sort of thing politicians should be encouraging - not try to bring back blue-collar jobs.

jgervin 15y ago

Cost is the main driver here. I am lefty, but I agree the unions are a little out of control. I am sorry, but a guy who stands in a production line building cars should not be making $125k per year (source was a series on TV, think 60 minutes where they talked to some of those workers). I am glad unions are there to help make sure people are not overworked and have benefits, but come on guys. You shot yourself in the foot there.

richieb 15y ago
Why not? That kind of job is boring and repetitive. You would not do it, would you?
Caballera 15y ago
Not only salaries, but also benefits. I think Health Care Insurance (that the company provides)is often overlooked. American Health Care cost for businesses has increased a ton over the last few decades.
- functionoid 15y ago
  This comment got down voted, it is not mine but it is legitimate point in the discussion. Looks like there are leftist out there doing this?
smacktoward 15y ago
> I am sorry, but a guy who stands in a production line building cars should not be making $125k per year You should be pleased to learn then that they don't: * http://www.nytimes.com/2008/12/10/business/economy/10leonhardt.html?_r=3&hp http://www.nytimes.com/2008/12/10/business/economy/10leonhar... * http://www.factcheck.org/2008/12/auto-worker-salaries/ http://www.factcheck.org/2008/12/auto-worker-salaries/
- webXL 15y ago
  Fact-checking FactCheck.org: Let's assume that a union worker won't get an extra $15 per hour worked that current retirees are receiving. So take $15 off of their labor costs of $70 per hour (complexity through obfuscation). So that's $55 = VALUE of actual wages and benefits EARNED by WORKING 1 hour hours_worked_per_year = 52*40 = 2080 earnings_per_year = hours_worked_per_year * $55 = $114,400 So you're correct, according to FactCheck.org, it's not $125k per year. But the point is still valid when you account for benefits. If my employer gives me a new Ferrari each year as a benefit, no one would consider me underpaid if I made $10/hour doing secretarial work.

_sentient 15y ago

I think there's another aspect to this, which is the fact that Apple is not primarily concerned with the US market. 80% of Apple's most profitable product, the iPhone, are sold outside the USA. Even if you could get cost parity in production, there's no real reason why Apple should move manufacturing back to the US, just because they started off as an American company.

kevinalexbrown 15y ago

From a practical perspective, it seems to me that the Beer Game rests in three parts: in imperfect information, time delays, and most importantly, independence of agents. If each member of the supply chain knew consumer demand perfectly far enough in the future, they could compensate. Likewise, if each member of the supply chain could instantly scale their process, they could compensate. The key, though, is that even if you perfectly forecast, or can instantaneously process and ship your stock, everyone down the line from you must do so as well. From what I gather, having the supply chain in China or Brazil addresses the second two problems. The advantage of China isn't just cheap labor, it's cheap, readily available labor. A change in demand (like switching the screens on the iPhone) can be met relatively easily, which partially solves the time delay problem. And the more of the supply chain you hold in one geographic location makes shipping time faster. The independence of agents issue gets addressed when Apple can coordinate the actions of each member of the supply chain better. I imagine this is, for the moment, easier in China than the US. Where I part ways with the article is the bail-out. The US labor pool doesn't seem elastic enough to address the time-delay part of the bullwhip effect. If Foxconn suddenly had a temporary drop in demand and had to lay off thousands of laborers, it would not be a huge issue. If they need to hire them again, zip, pretty quick. Likewise if they need to request huge overtime commitments because they can't train new workers fast enough, no problem. US workers are particularly averse to uncertain job prospects, perhaps with good reason, but with the effect that scaling work (and wages) up and down is less tenable. And perhaps this is where the unions come in - the overtime payments from forcing workers to work more hours to meet demand is much more costly in a union than a non-union environment, for better or worse. Edit: I've just now recalled that one summer, I worked for a large bread factory. They loved hiring college students in the summer because they knew that they didn't really care about staying in the union. Summer demand for baked goods skyrockets. A plant manager showed me how they were lagging behind demand by something like 2 million dollars / week (I've forgotten the exact number, but it was staggering to me). In his words "you can imagine what that does for business." But they couldn't just start hiring more workers, or scaling up the plant, because then they'd have more workers than the knew what to do with once the winter hit, when people were working 20-30 hrs/week. And this is one case where almost the entire supply process was in the US, minus wheat they might have gotten elsewhere.

15y ago

nileshtrivedi 15y ago

There ought to be an app for the beer game.

OzzyB 15y ago

Would it be fair to say that the reason Apple has their entire supply chain in China is because those "supply clusters" were already there because of the Japanese consumer tech companies that built them up in the 80's? (I have no idea when or how exactly, but the "80's" seems to be around the time of the "Japanese Electronic Invasion") In other words, for a "new" company like Apple, starting out with all their new iDevices, it simply made sense for them to go where the supply was? It's kind of like Apple "piggybacked" and exploited all the gains made by the Sonys, Sharps & Casios of the world, and beat them at their own game. I think if we move beyond the analogies of cars and other consumerables, and focus on what Apple is really doing, which is essentially Consumer Tech, then it simply makes sense for them to be where the guy that makes those fancy LCD screens is at?

zipdog 15y ago

The beer game is also mentioned in Peter Senge's The Fifth Disciple, where he suggests it originated from MIT in the 1960s. I think he had one less link in the chain (3 players not 4) but still the effect was the same. btw, His book is a good intro to the way small changes effect integrated systems, particularly in business.

ktizo 15y ago

In the UK, you pay much higher taxes for importing components than you do for importing final product, so manufacturing anything in the UK that requires parts from overseas is economically pointless, even if you wanted to (such as in the case of the raspberry pi). I have always been suspicious of the concept of post-industrial economies as I have always thought that they relied on a colonial logic of intellectual superiority which doesn't really exist. The plan seemed to be that the western world is good at organising and designing stuff, and those people over there are much cheaper for doing the actual work of building this stuff for us, especially since our local labour market started getting ideas about rights and profit share and stuff. However, the organising and designing of stuff turned out not to be quite as difficult as we had so arrogantly assumed, so all we do is get rid of out ability to make stuff by having an entire generation used to someone else doing it for them, while eventually all the white collar jobs go overseas as well. Personally, I think that if you try being a post-industrial economy for long enough, you will end up being something much more like a pre-industrial one, but with a few rich people left, all flying around on those nifty new Chinese jetpacks.

RedwoodCity 15y ago

There are plenty of counter examples to this. Boeing has suppliers for key components for its airplanes as far away as Italy and Japan. Toyota and BMW assemble vehicles in the US from imported parts. A CPU from intel is often fabricated in a US based factory, tested in Costa Rica, and packaged in Asia. The issue has too many variables related to margins, tax breaks for factories, and import tariffs; to say the whole electronics supply chain is moving one direction. As wages and living standards rise in China it is likely that some production will move to other countries and regions, which in the longterm is a good thing because it spreads the wealth.

mkswp 15y ago
Some good points here. There are a lot of variables however, Boeing has run into the problem of the bullwhip effect too with the Dreamliner: http://articles.latimes.com/2011/feb/15/business/la-fi-hiltzik-20110215 http://articles.latimes.com/2011/feb/15/business/la-fi-hiltz...

RedwoodCity 15y ago

jsz0 15y ago

Do we even have the affordable housing & mass transportation required for something like this anymore? The 'FoxConn cities' in China look a lot like the old factory towns in the United States that have mostly disappeared. Even with the huge number of home foreclosures most cities simply do not have affordable housing for an influx of even 100,000 people. Most cities don't have the mass transit capacity to carry them to work. They don't have room in their schools for tens of thousands of new students. They could be built of course but it's not a turn-key solution the way it is in China. If Apple started the process today I bet it would take 5-7 years at minimum.

hkmurakami 15y ago

There's another, perhaps overlooked, place that does exactly what the author proclaims as China's manufacturing advantage (proximity, flexibility, etc). And it shouldn't be surprising: It's Toyota's auto manufacturing empire in Aichi Prefecture, Japan. Aichi is only 2000 square miles in area[1], and Toyota's supply chain is concentrated on its Eastern half. It takes less than 1 hour by car (or more relevantly, by truck) to travel between all of the major players in the supply chain (Aisin, Toyota Industries, Denso, etc). Of course, all of Japan's manufacturing is in Jeopardy with increased manufacturing costs and the strong yen (which are analogous to what HN posters here have discussed as distinct Chinese advantages over US manufacturing). Another place that I suspect has a similar centralized, flexible manufacturing ecosystem: Germany's auto industry (with the granddaddy of all industrial suppliers, Bosch, situated right in the middle of it all). [1] http://en.wikipedia.org/wiki/Aichi_Prefecture http://en.wikipedia.org/wiki/Aichi_Prefecture

eitally 15y ago
Coincidentally, this is also why "vertical" integration almost never works when the various horizontals are not colocated. The supply chain complexity often introduces enough extra cost (whether time or money) that it's more efficient to just purchase components locally rather than ship things around within a global corporation.

tzs 15y ago

We used to occasionally get to play games like that for actual money when I was an undergraduate. Every so often, grad students in economics would come around to the undergraduate houses at dinner time to announce that they were looking for volunteers for economic experiments that night. The experiments would typically take place in the social sciences building, with each participant being put in a separate office (that was one of the reasons they were at night--so there would be offices they could borrow). We'd be given instructions on the game to be played, and the phone numbers of other offices if the game involved communication between the players, and the game would start. Each player would start with a certain amount of game money, and when the game is over that would be converted to real money and the player kept it. On average, if I recall correctly, players would make about $20-30 or so each in these games. That doesn't sound like a lot, but for a college student in the '80s that would be enough for several nice meals away from food service, or for 3 or 4 albums at the record store. You'd almost always get at least $10, and sometimes someone would make $75-100.

scott_s 15y ago

This is a great explanation, but this statement is wrong: The U.S. has lost that industrial base and it’s extremely difficult to get it back. It's important to keep in mind that the US still makes a lot of stuff. In fact, we still make more than most: http://www.npr.org/blogs/money/2011/02/07/133561265/3-ways-of-looking-at-manufacturing-in-america http://www.npr.org/blogs/money/2011/02/07/133561265/3-ways-o... However, we're employing less people to do it, and those that we do employ require more education than before: http://www.npr.org/blogs/money/2012/01/13/145039131/the-transformation-of-american-factory-jobs-in-one-company http://www.npr.org/blogs/money/2012/01/13/145039131/the-tran...

jdietrich 15y ago

I hear a lot of people saying that America needs more manufacturing jobs, but I can't recall ever hearing anyone say that they want to spend the rest of their life doing repetitive assembly operations on a production line. We use Chinese workers because they're cheaper than robots. These are awful, tedious, soul-destroying jobs, but they're just marginally better than backbreaking agricultural labour. Nobody deserves to do those jobs and soon nobody will have to, because we will have automated them out of existence. That's unequivocally a good thing.

Tichy 15y ago
I wonder, would agricultural labour be backbreacking if you only had to meet your own demand (and owned enough fields for the purpose)? Serious question, I don't know.
- barrkel 15y ago
  I've only had to work in vegetable and fruit gardens belonging to my grandmother, but if it scales, then yes, it would be backbreaking. Only worth it if you enjoy it or otherwise derive self-actualization from it etc.
- psyconn 15y ago
  Yes it is backbreaking or you are trapped by low margins into ever increasing size of fields so you can afford technology not to break your back.
- redwood 15y ago
  Nature is too erratic to not have episodes of famine if relying only on sustenance farming.
eitally 15y ago
1) There honestly are people who enjoy this kind of employment. 2) More usually, manufacturing work is appealing because it can be an easy springboard to a more rewarding role/career. It's still true today that thousands and thousands of Americans who have started (or are starting) their career as an assembler or machine operator have had the drive to improve their skills & knowledge and move far upward in the value chain.

robomartin 15y ago

It's about the need for "low impedance" or "low inertia" systems. "Low inertia" means that the affected area can support a higher rate of change than a "high inertia" system. This affects all facets of business, from the supply chain to labor. I have to disagree with the protection of highly unionized systems. They are bad, bad, bad for the economy and for the survival of the affected industry. Not only do unions burden business with unreasonable rules and wages, they also create a very high inertia labor force. Making any change falls on a range from impossible to very difficult. In sharp contrast to this, a low inertial non-union labor force is far more flexible. Let's face it, workers in the US have grown comfortable with their reality and don't want to change. I'm sure this is what it looked like when buggy whips and horse-drawn carriages started to loose market share. A low inertia system would allow the entire enterprise to pivot quickly, make adjustments and try to evolve into whatever might be the new wining paradigm. Not so when you have a highly regulated, highly taxed and unionized framework to contend with.

JVIDEL 15y ago

Considering less than 1% of the price of an iPhone or iPad "stays" in China as the cost of assembly, moving all production back to the US for that 1% seems ridiculous. In any case you guys should concentrate in the 30% (or so) of the price that goes into parts and components, almost all made by Korean and Taiwanese companies. Besides most of those components are already made using highly-automated processes because humans lack the precision needed to manufacture at such small scales. Not saying it would be easy, just that it isn't impossible, and 30% is a much better deal than 1%.

gogobyte 15y ago

Because Apple and the whole USA IT industry can not build good enough software for industrial automation. I mean, today's software building technology is too primitive.

eitally 15y ago
This is an idiotic post and you have absolutely no idea what you're saying. If you'd like to discuss the situation, email me and we can talk. .... Actually, after thinking about it a little more you may be more accurate than I thought, if I read your statement literally. Thankfully, the US manufacturing industry is building good enough automation software.

ekianjo 15y ago

The end of the article is bit of a nonsense: why, we have to save big failed corporations like GMC just because of the supply chain ?Are you kidding me? The supply chain of these manufacturers is going nowhere. If they were dismantled, other companies would buy their assets anyway and keep using them on American soil. Nothing is completely lost.

kristianp 15y ago

Relevant article by Andy Grove on US manufacturing from 2010: http://www.businessweek.com/print/magazine/content/10_28/b4186048358596.htm http://www.businessweek.com/print/magazine/content/10_28/b41...

macco 15y ago

Supply-Chain is certainly a point, but I doubt it's the only factor - relative labour cost play an important role. Questions to ask: 1. Why did the factories move in the first place. 2. Why can companies like Airbus oder German car manufacturers survive - their supply chain is distributed all over the planet, with the best paid workers in Germany.

developer9 15y ago

Great article until "Obama was right in bailing out the auto industry when GM and Chrysler were going bankrupt. Because it wasn’t just GM and Chrysler that were going to fail, it was an entire ripple-effect of suppliers, tool manufacturers, raw material suppliers, trucking companies and dealers that were going to go away." That's not the full reason that they did it though. It's because they were making vehicles for our military. If our country started relying solely on foreign countries for our military, they could disable our ability to replenish or grow our ground fleets. But, even that is not far enough down the rabbit hole. There are enough non-government owned vehicles in the U.S. to more than make up for the lack of vehicles they would have lost, even if every other country simultaneously decided that we were the enemy, our military could use the country's existing resources (assuming we were ok with that). And moreover, we are already reliant on other countries for our military and the running of our country. The only "advantage" of a government that pumps everyone's tax money into a select number of private companies, directly or indirectly, is that "survival of the fittest" is damaged. The "disaster" is delayed- the inevitable damage grows greater. It is the economical equivalent of forestry agencies that protected forests from forest fires, when forests naturally managed themselves via fires started by lightning strikes, such that large fires would inevitably start and be uncontrollable. Large bailouts can cause incredibly bad things to happen. So, the question is, why did they do it? Band-aids and politics. It was not long-term thinking. And that is the story of our government. For the most part, no one is willing to make the political sacrifice for long-term gain. What we need now is for someone to help make government stable and predictable again, and to reduce the amount of red-tape it takes for U.S.-based businesses to succeed. But, it is going to take a disaster for that to happen- a disaster that will be much worse because of bailouts and other shenanigans. But, as for now, we will live in the growing forests our forest rangers protect for us.

Prophasi 15y ago

From near the end: "Obama was right in bailing out the auto industry when GM and Chrysler were going bankrupt." It's myopic to equate GM and Chrysler with the American auto industry. My hope was that those tragically unfit companies and their corrupt unions would go bankrupt, only to have their assets swept up at fire-sale prices by a company or person willing and able to ignite a rebirth of the industry. Sometimes you gotta clear out the brush. The old, rickety, terribly designed, onerously-high overhead, ridiculous pension brush.

brownbat 15y ago

I found the in depth reporting at the Atlantic last month a bit more revelatory: http://www.theatlantic.com/magazine/archive/2012/01/making-it-in-america/8844/ http://www.theatlantic.com/magazine/archive/2012/01/making-i... Though it sort of agrees that supply chain is important, just frames it differently. The reason Standard Motor still employs (expensive) low skilled US workers like Maddie is because it wants to have her seal up a part immediately after the high skilled worker (Luke) finishes his precision machining role. Workers of Luke's caliber (with knowledge of metallurgy, coding, specific machine training) aren't reliably found in the lowest labor cost countries (at the moment, Poland is getting competitive here). If robots for Maddie's job get cheaper, or demand grows such that the factory needs to run multiple shifts, or if the factory can somehow move Luke overseas, then Maddie loses her job. If any of these things happen, but firms like Standard keep their Maddies, they get bought out by gigantic German manufacturers, or just undercut on the store shelves until no one's buying their products anymore.