Presumably because of Apple’s rocky PR and financial results of late, Tim Cook gave two purportedly “Exclusive!” interviews, to NBC News and Businessweek. The big takeaway from both “Exclusives!” was the same, however: that Apple will move some production of the Mac back to the US next year.
You were instrumental in getting Apple out of the manufacturing business. What would it take to get Apple back to building things and, specifically, back to building things in the U.S.?
It’s not known well that the engine for the iPhone and iPad is made in the U.S., and many of these are also exported—the engine, the processor. The glass is made in Kentucky. And next year we are going to bring some production to the U.S. on the Mac. We’ve been working on this for a long time, and we were getting closer to it. It will happen in 2013. We’re really proud of it. We could have quickly maybe done just assembly, but it’s broader because we wanted to do something more substantial. So we’ll literally invest over $100 million. This doesn’t mean that Apple will do it ourselves, but we’ll be working with people, and we’ll be investing our money.
Thus far, I have not seen any acknowledgment that this move comes just two months after Lenovo made a similar announcement, that it was going to bring production of formerly IBM products back to Tim Cook’s old stomping grounds in IBM’s former production hub of North Carolina.
And so, perhaps predictably, the analysis of the move has been rather shallow. NBC first focuses on the jobs crisis here, and only later quotes Cook’s comments about skills (which echoes Steve Jobs’ old explanation for why Apple produced in China).
Given that, why doesn’t Apple leave China entirely and manufacture everything in the U.S.? “It’s not so much about price, it’s about the skills,” Cook told Williams.
Echoing a theme stated by many other companies, Cook said he believes the U.S. education system is failing to produce enough people with the skills needed for modern manufacturing processes. He added, however, that he hopes the new Mac project will help spur others to bring manufacturing back to the U.S.
“The consumer electronics world was really never here,” Cook said. “It’s a matter of starting it here.”
Businessweek also focuses on job creation (though Cook makes it clear that he doesn’t think Apple has to create manufacturing jobs, just jobs, which is consistent with his suggestion that someone else will be assembling the Mac in the US).
On that subject, it’s 2012. You’re a multinational. What are the obligations of an American company to be patriotic, and what do you think that means in a globalized era?
(Pause.) That’s a really good question. I do feel we have a responsibility to create jobs. I don’t think we have a responsibility to create a certain kind of job, but I think we do have a responsibility to create jobs.
Matt Yglesias purports to look for an explanation of Apple’s onshoring in this excellent Charles Fishman article on the trend. But with utterly typical cherry-picking from him, he finds the explanation in the 125 words that Fishman devotes to lower US wages rather than the remaining 5,375 words in the article, which describe how teamwork–teamwork including line workers–leads to innovation and higher quality.
Which is too bad, because Fishman’s article and Cook’s comments to Businessweek set up a pretty interesting dialogue about innovation.
Before I look at that, though, let me point to this other comment from Cook, which may provide a simpler explanation for the insourcing.
The PC space [market] is also large, but the market itself isn’t growing. However, our share of it is relatively low, so there’s a lot of headroom for us.
We know Lenovo is insourcing to better provide customized ThinkPads quickly. Here, Cook suggests he sees a way to pick up market share in the PC space. I would suggest it likely the Mac insourcing relates to this perceived market opportunity, and would further suggest that Apple’s reasons might mirror Lenovo’s own: to deliver better responsiveness to US-based customers, if not actual customization (though that would be news).
But that’s not what I find so interesting about the way the Fishman article and Cook interview dialogue.
Fishman’s article largely focuses on why GE has brought production back to its Appliance City in Louisville, KY. And while more docile unions and energy costs are two reasosn GE has made the move, the biggest benefit is that when entire teams–including line workers–focused on products, they could build better quality move innovative products more cheaply. Fishman uses GE’s GeoSpring water heater as an example.
The GeoSpring in particular, Nolan says, has “a lot of copper tubing in the top.” Assembly-line workers “have to route the tubes, and they have to braze them—weld them—to seal the joints. How that tubing is designed really affects how hard or easy it is to solder the joints. And how hard or easy it is to do the soldering affects the quality, of course. And the quality of those welds is literally the quality of the hot-water heater.” Although the GeoSpring had been conceived, designed, marketed, and managed from Louisville, it was made in China, and, Nolan says, “We really had zero communications into the assembly line there.”
To get ready to make the GeoSpring at Appliance Park, in January 2010 GE set up a space on the factory floor of Building 2 to design the new assembly line. No products had been manufactured in Building 2 since 1998. An old GE range assembly line still stood there; after a feud with union workers, that line had been shut down so abruptly that the GeoSpring team found finished oven doors still hanging from conveyors 30 feet overhead. The GeoSpring project had a more collegial tone. The “big room” had design engineers assigned to it, but also manufacturing engineers, line workers, staff from marketing and sales—no management-labor friction, just a group of people with different perspectives, tackling a crucial problem.
“We got the water heater into the room, and the first thing [the group] said to us was ‘This is just a mess,’ ” Nolan recalls. Not the product, but the design. “In terms of manufacturability, it was terrible.”
The GeoSpring suffered from an advanced-technology version of “IKEA Syndrome.” It was so hard to assemble that no one in the big room wanted to make it. Instead they redesigned it. The team eliminated 1 out of every 5 parts. It cut the cost of the materials by 25 percent. It eliminated the tangle of tubing that couldn’t be easily welded. By considering the workers who would have to put the water heater together—in fact, by having those workers right at the table, looking at the design as it was drawn—the team cut the work hours necessary to assemble the water heater from 10 hours in China to two hours in Louisville.
In the end, says Nolan, not one part was the same.
So a funny thing happened to the GeoSpring on the way from the cheap Chinese factory to the expensive Kentucky factory: The material cost went down. The labor required to make it went down. The quality went up. Even the energy efficiency went up. [my emphasis]
Compare Fishman’s description of that team process to the language Cook uses to describe how Apple innovates.
Creativity is not a process, right? It’s people who care enough to keep thinking about something until they find the simplest way to do it. They keep thinking about something until they find the best way to do it. It’s caring enough to call the person who works over in this other area, because you think the two of you can do something fantastic that hasn’t been thought of before. It’s providing an environment where that feeds off each other and grows.
So just to be clear, I wouldn’t call that a process. Creativity and innovation are something you can’t flowchart out. Some things you can, and we do, and we’re very disciplined in those areas. But creativity isn’t one of those. A lot of companies have innovation departments, and this is always a sign that something is wrong when you have a VP of innovation or something. You know, put a for-sale sign on the door. (Laughs.)
Everybody in our company is responsible to be innovative, whether they’re doing operational work or product work or customer service work. So in terms of the pressure, all of us put a great deal of pressure on ourselves.
I wouldn’t say we don’t have meetings. I wouldn’t go that far. I’m talking about how the kernels of ideas are born. We want ideas coming from all of our 80,000 people, not five or three. A much smaller number of people have to decide and edit and move forward, but you want ideas coming from everywhere. You want people to explore. So that’s what I was talking about before. [my emphasis]
Both are saying every single employee can and should be part of innovation.
Now look at the number Cook uses: 80,000. He may say every Apple employee has a responsibility to innovate, he wants ideas coming from “all of our 80,000 people.” But that leaves out a million people that–GE is discovering–can help to drive innovation, the line workers, because Apple doesn’t employ the million people who manufacture its products.
To his credit, Cook doesn’t treat Apple’s Foxconn employees entirely like drones. He boasts about Apple’s efforts to make life better for its contracted manufacturing employees.
If you look at our website, we’re publishing working hours for almost a million people across our supply chain. Nobody else is doing this. We are very much managing this at a micro level. And you know, maybe as important as that, we are training workers on their rights. We have trained 2 million people, and we’ve brought college courses to the factories where people can begin to earn their degrees.
So we’re doing a number of things that I think are really great, really different, and industry-leading.
And, tellingly, a move that had been spun as an effort to better monitor the manufacturing process–sleeping in Foxconn’s employee dorms–turns out to have been an effort to get closer to the manufacturing process.
We have executives that have stayed in dorms. It’s not unusual. Honestly, this wasn’t to see what life was like in a dorm. It was that we worked so closely with these manufacturing partners and in the manufacturing plants [that] it’s convenient to do. And actually several of our people wind up doing that.
In addition, we have hundreds of people that reside in China in the plants on a full-time basis that are helping with manufacturing and working on manufacturing process and so forth. The truth is we couldn’t innovate at the speed we do if we viewed manufacturing as this disconnected thing. It’s integrated. So it’s a part of our process.
But it’s not–at least not yet–part of what Apple considers integral to Apple, those 80,000 employees expected to push innovation. (And of course Cook refers to manufacturing as a process but insists creativity is not one.)
At least according to Fishman, seeing manufacturing as separate from the innovation at the core of the business misses out on key opportunities.
For years, too many American companies have treated the actual manufacturing of their products as incidental—a generic, interchangeable, relatively low-value part of their business. If you spec’d the item closely enough—if you created a good design, and your drawings had precision; if you hired a cheap factory and inspected for quality—who cared what language the factory workers spoke?
This sounded good in theory. In practice, it was like writing a cookbook without ever cooking.
GE is rediscovering that how you run the factory is a technology in and of itself. Your factory is really a laboratory—and the R&D that can happen there, if you pay attention, is worth a lot more to the bottom line than the cost savings of cheap labor in someone else’s factory.
Bringing jobs back to Appliance Park solves a problem. It is sparking a wave of fresh innovation in GE’s appliances—every major appliance line has been redesigned or will be in the next two years—and the experience of “big room” redesign, involving a whole team, is itself inspiring further, faster advances.
In fact, insourcing solves a whole bundle of problems—it simplifies transportation; it gives people confidence in the competitive security of their ideas; it lets companies manage costs with real transparency and close to home; it means a company can be as nimble as it wants to be, because the Pacific Ocean isn’t standing in the way of getting the right product to the right customer.
Now, it’s unclear whether Apple needs–or would benefit–from using its factories as laboratories (though some of Apple’s most famous screw-ups might have been avoided by the process). But it’s telling that at least one of the two things Cook points to as made in the US–the iPhone glass–was developed in that kind of manufacturing environment (albeit many years ago). And the other US-made component–the Samsung processor made in Austin–probably has to do with security, given how cutthroat Apple and Samsung also compete on smart phones.
But who knows? Once Apple starts making the ameriMac, it may learn what GE has: that having a million badly paid workers in China isn’t worth the trouble–and more importantly, the trade-offs in innovation–that it causes.
Wonder what percentage will Apple build vs contract employees or a Flextronics or Sanmina subcontracts (read lower pay and less/no benefits). Better than offshore though.
As to Apple and Microsoft et al bemoaning lack of USofA engineering talent, how about subsidizing a degree in the form of all out grants to high achievers/low income, or low easy payback loans. Christ knows Apple has the money.
“The consumer electronics world was really never here,” Cook said. “It’s a matter of starting it here.”
GE had a robust Consumer Electronics Division, their design folks were working out of the same building as I was. Jack Welch sold them to Thomson SA, in the late 80s. There was also a statue of the art Cathode Ray Tube (CRT), aka color television picture tubes manufacturing plant there (Syracuse, NY), but the entire assembly line was sold to Hitachi in 1987.
We knew how to make a lot of things then, now that place, Electronics Park (a beautiful campus), was sold to Lockheed Martin. Now they “bring bad things to life”, like weapons systems.
@Arbusto: And they don’t really want that–not Apple at least. What Jobs, at least, was looking for was people w/Engineer type skills but w/o Engineer type pay/obstinence.
I think Jobs believed you could get that kind of stuff w/o any knowledge of physics.
@emptywheel: The sheer number of engineers that could be brought together on short notice was a key part of Jobs’ (and others’) rationale, as well as the willingness of China to set up “instant factories” with all manufacturing gear to implement or experiment with products and processes. Currently, I don’t see those as possible in the U.S., especially under time pressure. I question the value of instant products, but if that’s the path, China is the solution.
That doing business in the US, even in its law-denuded state, entails fewer business and political, including its too-aggressive stance on protecting IT rights, and puts manufacturing closest to some of its biggest retail customers, could never be among the reasons to manufacture in the US. Right?
@emptywheel: “I think Jobs believed you could get that kind of stuff w/o any knowledge of physics.”
You got it EW. Make ’em just like Steve, except with brown noses. Once a salesman always a salesman, and what Jobs sold was a cult of personality. After he accumulated enough money and position he was able to abuse the engineering talent and bask in his self anointed glory. He was always flacking the myth of Jobs the Creator and source of everything wonderful and cool.
Don’t think Jobs ever got over Woz being a real engineer, or Gates bailing him out when Apple was going down the tubes.
I believe you did a post not too long ago that documented Apple’s offshoring as being relatively recent, and done at a time of record profits. Jobs and Mittens were cut from the same cloth. Take the money and run, screw every one else.
@Story of O: Sure. But that’s a factor of ignoring what the US engineers say earlier in the process and/or a back-ended process that would embarrass most producers in this management climate.
@lefty665: One other interesting aspect of Cook’s BW interview is how much gets invested in some personalities, rather than how much gets invested in all those 80,000 people.
The skills gap is a myth, plain and simple. I was, up until last week, working for the un-named other big contract manufacturer.
The engineering coming from China is cheap by the hour, but mostly crap. The biggest problem was that they ignore all the specs they were given and re-engineered most of the products to be easier to build, but half the time the stuff didn’t work. We were constantly sending people over there to fix the problems.
Then there is the IP theft. What the IP problem means is that you can’t give the Chinese the information they need to troubleshoot, because that would allow them to fix their own designs being produced down the street, (in an identical factory run by the boss’s brother-in-law). Hence; defective units had to be shipped back here for trouble shooting, then returned to China to perform testing. I know at one point there was something like a 25% defect rate on an established network product they produced!
BTW, don’t let them kid you; making Printed Circuit Board Assemblies today is simple on the factory floor. You can train anyone that can read and write to operate the machines; all you do is load the parts and the blank boards into one end of the machine and the completed and inspected assemblies fall out the other end. Any soldering or placement defects are documented for each board needing rework. The programs for each board are generated by the same CAD/CAM software that is used in the product design with very little additional effort.
BTW those small, what we call, surface mount parts (SMT) are not for miniaturization; it is to reduce packaging cost for the parts and to simplify machine assembly. The fact that they sometimes have better operating specs and obviously make for smaller devices is mostly a side-effect.
Last I checked, the $100 million Apple supposedly will invest is about the size of the daily interest-rate float on their pile of hoarded cash.
In other words, this costs them nothing to do.
@Arbusto: When I was a kid, my dad worked for a large manufacturer as a machinist. They made oil-field and mining equipment. And they had a tuition-reimbursement scheme for employees who wanted to go to college. They paid tuition reimbursement to these folks to attend some of the finest private engineering colleges in the East, schools that charge 40k+ annual tuition today, bumping up the reimbursement rate based upon the employee’s grades. Get an “A”, and it was a full ride. Given the company was a heavy industrial manufacturer, they especially liked it when their employees studied mechanical and electrical engineering, but choice of major was not an issue.
And that was in addition to union wages, benefits and conditions of employment.
@emptywheel: Meet the new Jobs, same as the old Jobs. Just like yesterday… Who’d a thunk it? Unfortunately, the new jobs won’t be same as the old jobs (note to orionatl – Size does matter).
Suppose they’ll build the screens north of the Mason Dixon line and they’ll be AMonitors?
@anbrx: Or maybe “They bring good things to death”.
@JohnJ: They may simplify machine assembly but vastly complicate hand rework. In some instances, removing a chip and replacing it is impossible and still maintain board integrity and a finished look. So an expensive (relatively!) motherboard goes away just because of that.
@emptywheel: That may be true in general, but the engineering and build quality of finished Apple products is at the top end, and their process with China has been highly successful from both the profit and customer satisfaction perspectives. Even so, I would like to see them move everything back to the U.S. and use union labor. That could start a positive trend among the copycats.
@Starbuck: And we have come full circle, but at the board level this time. 40 years ago Datapoint rejected the CPUs they’d commissioned from Intel for essentially the same reason. They could replace components on their CPU boards, but the expensive integrated circuit CPU was trash if something went wrong with it.
Sigh, but you’re right. I’ve had to get higher magnification loupes and smaller soldering irons. Even then I’m about 50/50 working on boards these days. I find myself longing for archaic surface mount stuff from the early years of the millennium when the scale was relatively gross. Worked on an old tube amp recently, the point to point wiring was a luxury. It took longer to find my old Weller soldering gun to put enough heat in the joints then it did to fix the amp. Ain’t technology wunnerful?
I have personally replaced virtually every type of part on server boards. It takes a relatively cheap machine to heat just the chip and the surrounding board. That includes 992 ball BGAs.
The training class for it takes about 30 hours.
I just got done a 2+ year stint on the production floor as a hand solderer and rework specialist(with OT paid better than Tech work). We now use low power microscope at all stations and $800 temperature controller soldering irons.
Biggest problem is now the misguided Lead-free (ROHS). It melts at about 430°F compared to 360°F for 63/37 leaded solder which stresses parts and lifts PCB traces much easier (which I also can repair without any special tooling).
I should add that I also started with a weller Gun as well (don’t like to date myself but…)
@JohnJ: Thanks John, I appreciate that. I do electronics because I love it, but not enough to drop a grand in a soldering workstation. I’ll quit when it gets to that, I run out of real solder, or it quits working well, or hand/eye coordination, whichever comes first. OTOH, it’s a wonderful world. My kid can’t even see some of the stuff he designs without a microscope. THz takes really small waveguides. What an amazing world they’re building. My Dad would have loved it.