The CIA Meets High-Tech Supplier Management: Safeguarding Apple's Supply Chain

If you think Apple's development and production initiatives follow a secretive approach inside the company's four walls only, guess again. Apple takes as much interest in how its supply chain partners guard information as it does in how its own employees do. A recent Reuters exposé on the subject provides a case in point. In this article, the authors describe the employee environment at Apple supplier Foxconn, where individuals have "little reason to venture outside," which "reduces the likelihood of leaks, which in turn lessens the risk of incurring the wrath of Apple and its chief executive, Steve Jobs, whose product launches have turned into long-running, tightly controlled media spectacles." But control of employee physical location tells only part of the story. Reuters cites a source in the article who suggests, "Security is tight everywhere inside the factories … They use metal detectors and search us. If you have any metal objects on you when you leave, they just call the police." (Of course, the obvious irony is that in the US, we search employees for metal when entering certain facilities, but don't get me started on that.)

The story gets even better, however, when it comes to the techniques Apple applies to ensure its suppliers do not leak trade secrets. According to the story, those familiar with the supply chain said that "information is assiduously guarded and handed out only on a need-to-know basis; employees suspected of leaks may be investigated by the contractor … [and] on occasion, Apple will give contract manufacturers different products, just to try them out. That way, the source of any leaks becomes immediately obvious ..." Apple also relies less on the one-stop-shop manufacturing model employed by many other electronics firms, opting instead to divide parts among different suppliers, which means that "the only people who have all the secrets to any Apple product is Apple itself."

While these tactics may preserve company trade secrets and minimize the chance of information leaks prior to product launches, they also raise the supply risk, because they limit the role of most individual suppliers to that of a vendor rather than a collaboration partner. Granted, a printed circuit board may just be a printed circuit board, but when the stakes are as high as they are in the electronics market, even lower tier suppliers may be capable of contributing an innovative voice to a development process, potentially reducing supply risk (which may take the form of fewer warranty recalls, for example). I strongly believe that if all of Apple's iPhone suppliers better understood the end use of their contribution prior to final assembly, they could have come up with more creative energy-consumption techniques to improve the product's ridiculously short battery life. Yet Apple kept everyone almost everyone in the supply chain in the dark – just like my iPhone 3GS by 3:00 PM or so every day, unless I recharge it.

Jason Busch

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