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Sustainable Supply Chain Management: Review of the Apple/Foxconn Case Study

Colorado State University Global

ORG530: Business Ethics and Corporate Social Responsibility

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Introduction

Everyone has a part to play in holding supply chain stakeholders accountable for

unethical behavior – beginning with firm leadership, first tier suppliers, lower tier suppliers,

employees, customers, regulatory bodies, and other stakeholders. While this may be true,

everyone’s motives to do the right thing, becomes a product of the firm’s values, economic status

and regulatory environment. Companies that have a focus on sustainably managing their supply

chains, strategically manage the information flows and cooperation among supply chain

companies, while taking into account all 3 dimensions of sustainable development – economic,

environmental and social (Clarke & Boersma, 2017). To gain a better understanding of this

concept, this paper will examine supply chain interdependencies and related levels of

accountability, in addition to the Apple/Foxconn Supply Chain Case Study – an example of a

supply chain relationship that faced and remediated social challenges.

Supply Chain Interdependencies & Related Accountabilities

A supply chain is an interdependent set of organizations & stakeholders involved in the

upstream and downstream, end to end flow of information, products and services, starting with

the raw supply providers, through channel members, to the customer and/or end user (Bowrey &

Clements, 2019). Accountability within the supply chain may begin with the multinational

organization who establishes partnerships with the other organizations that play a part in

producing the products or services sold to consumers, however responsibility doesn’t end with

the top of the chain, the multinational organization. Accountability in this sense can be defined

as recognizing what you are responsible for and then documenting and reporting on performance

in connection to these responsibilities (Bowrey & Clements, 2019). In the past, efficiency and

responsiveness of supply chains were core priorities for organizations, but more are realizing the
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need to establish and nurture relationships with socially and environmentally responsible firms –

those who value and uphold their same ideals & standards. In a recent survey conducted by the

Peerless Research Group, 75% of the respondents have adopted Supplier Codes of Conduct, and

85% indicated that they are updating contracts to ensure supplier compliance, in an effort to

strengthen oversight and align socially responsible practices throughout the chain

(Aschendbrand, et al, 2018). This shift towards strengthening and extending socially responsible

practices across the supply chain is primarily driven by increased stakeholder pressure, as well as

the increased competitive advantage realized from being socially responsible.

Stakeholder pressure is as a result of consumers who are increasingly motivated to buy

responsibly. Increased availability and speed of information flow through communication

vehicles such as social media, gives consumers quick access to information that can sway

purchasing decisions (Aschendbrand, et al, 2018). Poor CSR across the supply chain can

significantly impact the reputation of an organization, through the concept of labelling by

association – where an organization is labeled by consumers as irresponsible, as a result of being

associated with firms that act irresponsibly (Aschendbrand, et al, 2018). Organizations are also

realizing that they can strategically leverage sustainable supply chain management as a tool to

strengthen competitive advantage by harnessing the strengths of the chain. They can leverage

partner capabilities, such as technology readiness, and competencies such as logistics and service

quality to gain a competitive edge (Bowrey & Clements, 2019). In addition, there are tangible

financial benefits associated with supply chain resource efficiencies, as seen in the example of

IKEA who is working to reduce the carbon footprint of their supply chain by investing in solar

energy panels for not only their own company owned buildings, but also for their supplier base

in an effort to save money through reduced utility costs (Kaye, 2013). The integration of socially
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responsible practices between supply chain partners has a direct impact on the overall

performance of an organization, and as such becomes a strategic tool for growth and overall

sustainability.

In order to truly leverage the power of sustainable supply chain management,

organizations must take steps to understand the larger cultural forces that uniquely impact each

tier in its supply chain, and also be prepared to share in the responsibility for ensuring

environmentally sound and respectable working conditions (Lucas, et al, 2013). In the study

conducted by the Peerless Group, 70% of respondents indicated that they have a formal process

to understand where their supply is manufactured and who manufactures it, in an effort to get

more insight into lower-tier suppliers (Clarke & Boersma, 2017). A challenge that presents

itself, is the distance between the firms and its many suppliers, and the resources and costs

associated with providing broad based oversight supply chain members. Contractual

relationships primarily exist only with first-tier suppliers, which makes it difficult to hold lower-

tier suppliers accountable for adhering to organizational practices and policies. Studies show

that the most serious environmental and social breaches are caused by sub-suppliers rather than

direct suppliers (Wilhelm, 2016), which stresses the importance of an end-to end sustainable

supply chain management strategy. A common approach that has been employed, is the reliance

on first-tier suppliers to act as agents who fulfill the lead firm’s sustainability requirements and

subsequently implementing similar requirements in their own supplier operations (Wilhelm,

2016). Within this model, multinational organizations have implemented practices such as

setting social and environmental targets for their first-tier suppliers, regarding their second-tier

suppliers, and offering sustainability training and assessment tools to first & second tier suppliers

(Villena, V. & Gioia, D., 2020).

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Apple/Foxconn Supply Chain Management Case Study

Apple – the largest technology company in the world, based in California –

specializes in producing computer hardware and software, including popular digital products

such as iPhones, iPads, iPods and Mac computers. In the 1990s, Apple sold off most of their in-

house manufacturing capacity, keeping only one Macintosh computer manufacturing facility in

Cork, Ireland (Chan, et al, 2013). They shifted to an outsourcing model, leveraging contract

manufacturers who specialize in providing final assembly and value-added services for

technology firms (Chan, et al, 2013). Apple currently has over 200 suppliers, with most being

located outside of the United States (Seth & Young, 2020). The Taiwan based manufacturer,

Foxconn, is Apple’s largest supplier and manufacturer of iPhones, with 35 supplier locations,

and 29 of the total being located in China (Seth & Young, 2020). Apple considered

manufacturing their iPhones in the United States, however they simply wouldn’t be able to

source the resources and talent needed to produce iPhones at the cost and speed needed in order

to meet consumer demands. Analysts estimated that it would take roughly 9 months to locate

9,000 qualified engineers to oversee operations – something that Foxconn was able to do in 2

weeks (Lau, 2015). This model has proven to be beneficial for Apple, as it allows them to meet

their goals of, “providing the most value for the least cost in the least amount of time” (Clarke &

Boersma, 2017). As a result of the Apple’s unrelentless ambition to create greater profit

margins, paired with the high demands of speed and quality, suppliers are pressured to cut down

on production costs, which translates into lower compensation, questionable hiring practices and

unsafe working conditions (Clarke & Boersma, 2017).

Foxconn came under fire in 2012, when the New York Times published an article on

labor conditions at the manufacturer, reporting overtime violations where employees – some of
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which were underage – worked 12 hours per day up to 7 days per week in horrible conditions

(Lau, 2015). One Foxconn factory harbored as many as 200,000 workers, inhabiting onsite and

offsite residential units, who were paid between $50 and $100 per month, some of which had to

be paid back to Foxconn for housing and food (Clarke & Boersma, 2017). There were also

reports of explosions and questionable practices related to the use of poisonous cleaning

chemicals on iPhone screens (Lau, 2015). Following a rash of suicides at Foxconn campuses,

leading up to the media firestorm that ensued, Foxconn increased worker salaries slightly above

the legal minimum, and they also pledged to reduce overtime from 100 hours per month (almost

3 times the legal overtime limit), to the statutory maximum of no more than 36 hours per month

(Pun, 2016).

Apple became labelled by association for their connection to Foxconn, being accused of

running sweatshops, resulting in worldwide controversy in both offline and online media (Clarke

& Boersma, 2017). In response, they released their first Supplier Responsibility Progress report

in 2011, to increase transparency and to illustrate the measures taken by Foxconn to remediate

labor violations and working conditions at their factories (Pun, 2016). They also became a

member of the Fair Labor Association, and began mandating audits of their supply chain, starting

with a special audit of their largest supplier, Foxconn (Pun, 2016). Apple’s corporate social

responsibility reports have evolved over time to show their commitment to sustainably managing

their supply chain, and trends show that their Supplier Code of Conduct performance has greatly

improved, with 82% of their suppliers ranked as high performing in 2019, an increase of 56%

since 2014 (Apple, 2020).

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Conclusion

Research shows that there is a growing number of organizations taking steps to increase

oversight and accountability for the members of their supply chains. The challenge remains in

balancing the pressure imposed on suppliers to produce more and faster with less, while also

meeting the demands of multinational organizations to run socially responsible operations. The

driver of these efforts must begin with leaders understanding and accepting their moral

responsibility to do the right thing. While consumer pressure can have an impact on some

industries, in the case of Apple and Foxconn, Apple consumers were largely absent in this

process, as the sales of their products were largely unaffected by their supply chain controversies

– they continued to make record profits following the incident (Clarke & Boersma, 2017). In

this example, the benefits outweighed the costs associated with Foxconn supply chain

transgressions. This is why this effort becomes more of a heart project, led by leaders who

believe in the holistic benefits of establishing and maintaining a sustainable supply chain.
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References

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Aschendbrand, J., Proctor, J. and Trebilcock, B., (2018). The ethical supply chain. Supply Chain

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