Advantages and challenges of contract manufacturing

The Inditex (Zara) case that we discussed today, gave us an opportunity to expand on the role of contract manufacturing to modern supply chains. Even though your notes mainly mention cost savings as a major driving force behind contract manufacturing, It has been convincingly argued that Asian economies offer other advantages as well.

For example Apple has noted that if it were to manufacture its iPhones in the USA, it would need 9 months just to find the thousands of engineers that would be needed to oversee operations.

In addition, the amount of flexibility that Chinese and other Asian factories can display in production scheduling is beyond anything that can be matched by western firms. (read: How the U.S. Lost Out on iPhone Work including the memorable story about waking up 8,000 workers in the middle of the night to start the 12 hour shift for the first production run of the iPhone).

Unfortunately, such flexibility often comes by engaging in serious violations of ethical norms that most western firms adhere to and also serious violations of labor and safety laws. An article published 2 days ago in the New York Times does a superb job in describing these problems: In China, Human Costs Are Built Into an iPad

Pic by R. Donovan, Flickr (cc license)

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