Operation Management in Apple Inc - Case Study Example

OPERATION MANAGEMENT: APPLE Inc. Operation Management: Apple Inc. Introduction Apple Inc. is one of the most successfulcomputer and phone manufacturing globally. The company is headquartered in the Cupertino, California. The company is the second largest after Samsung in the information technology industry and the third in the phone production industry globally. Despite the company flourishing, experienced various contemporary issues, which in one way or another have disrupted its operations. The essay examines two important contemporary issues that have affected Apple Inc.’s operations. Apple Company has experienced a couple of challenges with its suppliers, which have been occasioned by the 2011 Thai floods and corporate social responsibility arising from child labour issues. Apple Inc. has experienced numerous supply chain disruptions that have affected its operations in the past and the present. Various incidents have occurred, which have led to either a delay or reduction in the company’s production capacity. One of the common incidents that affected the company’s supply chain was the 2011Thai floods (Arthur, 2011) and the earthquake in Japan in the same period, which disrupted its suppliers operations significantly (Oskin, 2013). Apple has also been criticised for negligence in its corporate social responsibility such as the case the case of China where its suppliers have been accused of neglecting their workers and the use of child labour (Lopez, 2013). The above issues are critical to the operations of Apple Inc. because they have had a severe impact on the company`s operations. For instance, the 2011 Thai floods, led to delays in the production of some parts and Mac computers while the rioting workers led to production delays in Foxconn, the company’s Chinese supplier (Chris, 2012). According to Mims (2011), many of Apple`s suppliers relocated to Thailand from Japan due to numerous disasters that affected the country and thus in 2011, the company was sourcing some critical parts for the production of Mac computers from Thailand. Therefore, due to the Thai 2011 floods, the company’s production faced a significant disruption, which prompted the companys CEO, Tim Cook, to announce that they expected a decrease in production of the number of Mac computers in the future. According to Paul (Paul, 2015), Apple Inc. Made the following sales in the year 2011, 2012 and the year 2013. Year Sales 2011 16735000 2012 18158000 2013 16341000 (Paul, 2015) From the sales above it is evident the Thailand floods disrupted Apple`s supply chain leading to a decrease in sales in the 2013 because the company was unable to achieve its optimal production capacity due to shortages of essential components resulting in lower sales. For this reason, the company’s revenues plummeted significantly during the same period from $23221 to $21483 as shown in the table below Paul (2015). Years Revenues(millions) 2011 $21783 2012 $23221 2013 $21483 (Paul, 2015) From the figure above it is evident the company’s revenues decrease considerably in the in 2013 from the sales of Mac computers compared to the high figure recorded in 2012 after a tremendous increase from 2011. However, this was attributed to the safety stock of components in the company’s warehouses before the destruction of the facilities and disruption of the suppliers operations in 2011 by Thai floods in Thailand. Apple Inc. has also been criticised for failures in its corporate social responsibilities. Its Chinese suppliers have been accused of abusing their workers (BBC News, 2015). These companies include Foxconn and three other companies managed by Pegatron, which have been criticised for overworking the workers, employing underage children and poor working conditions in their facilities, even though, Apple continues to collaborate with them. For instance, Greene (2012) states that Foxconn Company that manufactures iPhones has been accused of providing poor working conditions that led to the rioting of its workers. For this reason, the company was forced to shut down for a day trying to contain workers from rioting; hence resulting in the disruption of production activities. On the other hand, the companies managed by Pegatron were accused of hiring underage employees or rather children below the age of 18; harassment of workers by overtime managers to sign forms indicating they worked fewer hours than the recommended; workers working for 66-69 hours week above the recommended 60 hours among many other issues. All these factors significantly impacted on Apple’s corporate image in the industry and market because the company was expected to ensure its suppliers maintain the code of ethics about labour in all its suppliers premises Armitage, 2013). Apple Inc. tried to solve the Mac computer`s shortage problem caused by the Thai floods by deciding to concentrate its supply chains with the mainland companies in Asia rather than those close to the sea. This was strategically decided so that the company could reduce effects of the flooding that impacted on suppliers of raw materials (Apple Inc., 2009). There is a perfect theory of problem-solving that can be used to explain the effectiveness of the solution Apple planned for Mac computer components shortages. The Triz or the theory of inventive problem-solving is an appropriate approach to evaluating the case of Apple’s decision. Thailand was a perfect location for many companies due to its accessibility to the sea as it enabled the company to reduce transportation costs of raw materials. Despite the advantages of locating these companies in Thailand, the disasters associated with the country surpassed the costs that could be incurred by the raw material transportation companies. Thus, according to the principles of the Triz theory that when seeking a solution, one should think of finding it from an outside discipline; the company was able to identify the cause of the problems and the parameters used by other companies, which had been faced with the similar problems and how they overcame them and thus moved inland to avoid future disruptions (Barry, Domb, and Slocum., 1996). In regard to the child labour allegations, Apple Inc. had to act and show the whole world that it was committed to maintaining a supply chain that was free from workers abuse, and thus took tough actions on the suppliers that depended on cheap child labour. For instance, the company stopped trading with Guangdong Real Faith Pingzhou Electronics, which was a supplier of a circuit board component. It went ahead to report the company to the Chinese government. Moreover, the company carried a survey on all its suppliers in the chain and axed all the other companies that violated its labour codes in a bid to revamp its corporate image to the world (Garside and Arthur, 2013). To evaluate the effectiveness of the solution given by Apple, the SARA model of problem-solving can be used, which stands for Scanning, Analysing, Responding and Assessing the results. The model helps in solving a problem in four stages as abbreviated by the model’s name. Apple Inc. had first to scan the problem as per the accusations by the international community and the workers and realized the problem existed necessitating it to carry out an analysis of the problem and the real causes. Afterward, the company responded to the problem by acting appropriately, in this case, by axing and cutting ties with suppliers that used child labour in their operations. Finally, the company assessed the results of the whole problem-solving process (“Scanning, Analysing”, n.d.). There are three definite causes of the child labour issue and the rioting by the workers in the Apple`s suppliers’ companies. The use of child labour was aimed at reducing the cost of operations to maximise profits (Fernholz, 2014). This can be well articulated by the cost-benefit analysis that stipulates that for a business to achieve high profitability, it must reduce its costs of labour, time etc. to increase profits; hence explain the decision by the companies to employ children that do not have many demands like adults. The theory of motivation can also explain the whole problem of using children because of the lower cost of labour. Workers prefer to work in companies they are remunerated according to the work they do (Chapman, 2015). It is important for a company to motivate its employees by compensating them fairly. The adult workers ran away from these companies due to lack of motivation by their employers resulting in the hiring of children. Secondly, the incident of employees rioting in Foxconn Company was as a result of poor working conditions in the company (Greene, 2012). The workers complained of militant culture in Foxconn and long hours of working the required 60 hours a week. Some of the employees were reported to committing suicide due to pressure from the workplace. Usually, workers feel comfortable working in a safe and healthy condition. The theory of motivation can still be used to elaborate the reason the rioting of the workers. Finally, the incident of the Thai floods that disrupted the Apple`s supply chain was caused by poor planning of the company. The floods were predictable due to the climatic changes in Asia that had been taking place in 2011. The company had overlooked the choice of the locations opting for areas that would enable it to reduce costs of transportation. The SWOT model can be applied in explaining the cause of the Apple Thailand floods incident (Chapman, 2015). Apple concentrated on the Strengths of the companies located in Thailand because they used to produce all the components that Apple needed and forgot to examine the weaknesses and threats that these companies experienced (Schmidt, and Raman, 2012). Recommendations For Apple Inc. to prevent the occurrence of the same incidents in future, the following programs are recommended. The programs shall include establishing a close relationship with the suppliers and carrying out a series of activities such as visits to the supplier`s premises. A Program for Selecting the Best Supplier The company should create an independent department tasked with sourcing of the raw materials. The department should come up with strict guidelines on the nature of the supplier desired by the company, in addition to, providing the preferred locations of the suppliers, the proximity from the company and physical features around the location of the company. The department should identify alternative suppliers of raw materials in case disasters strike the main suppliers (Kleindorfer and Saad, 2005). The company should, therefore, encourage its suppliers to open manufacturing firms in the United States as well as considering opening up a sites to produce the most sensitive parts in the U.S. rather than doing the whole production process outside the U.S. The company should also consider increasing its safety stock inventory that will be cushion itself from shortages in the case of disasters (Taskin, and Lodree, 2010). The safety stock should be enough to facilitate production for a longer time despite the holding costs involved. The company should also come up with proactive measures to ensure it does not end up in facing incidents that affect its supply chain. The created department should also be in a position to make future predictions about business activities (Knemeyer, Zinn, & Eroglu, 2009). Finally, the company should reassess all its current suppliers following the above steps and start preparing in advance to curb any incidents that may occur. A Program for Eliminating Child Labour The company should agree with the suppliers to establish a recruitment department that is run by Apple`s staff. The created department should create a standard recruitment process, which is used to recruit all the workers for all Apple`s supplier. It should also intensify its corporate social responsibility by collaborating with the suppliers to construct schools and health centres in the communities surrounding the suppliers. Finally, the company should make it a habit to carry out monthly visits or surveys on the supplier`s premises to evaluate the type of labour used in the factories. Bibliography Apple Inc., 2009. Form 10-K 2009Raw Materials for Apple (AAPL). Available at: http://www.wikinvest.com/stock/Apple_%28AAPL%29/Raw_Materials [Accessed 5 May 2015]. Apple, (2015). Apple. Available at: https://www.apple.com/ [Accessed 5 May 2015]. Apple, 2015. Apple - Supplier Responsibility - Our Suppliers. 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