There was a front page piece in the investment section on a factory explosion in China. The company has a reputation for being a rough and ready type operation, but factories in the United States have their share of explosions as well. The point that interests me at the moment is not the relative safety of the Chinese factories, but the incidents illustration of supply chain fragility.
Aries Poon, Lorretta Chao and Yukari Iwatani Kane, Wall Street Journal, 24 May 2011.
A deadly factory explosion is putting new scrutiny on the technology industry's biggest Chinese manufacturer and raising concerns about the supply of tablet computers, laptops and televisions from Apple Inc. to Hewlett-Packard Co.
Global markets sink amid worries about China's economic growth, while a deadly factory blast in China is raising concerns about the supply of tablet computers and laptops from Apple and Hewlett-Packard.
A spokesman for Hon Hai said the company's tests at the affected workshops could last two days. "The workshops could be back online as soon as they pass the test," he said.
But the closures, if prolonged, could have a broad-reaching impact on the world's electronics supply from cellphones to game consoles. In addition to Apple and H-P, Hon Hai, which reported more than $80 billion in revenue last year, also makes products for companies such as Sony Corp., Dell Inc. and Nintendo Co., analysts say.
"They're basically the consumer electronics assembler of the world," said Gene Munster, an analyst with Piper Jaffray & Co.
The article lists the following customers and type of work that would be effected, Apple: iPhones and iPads; Acer: Personal computers; Amazon: Kindle e-reader; Cisco: Networking gear; H-P: Printers and computers; Dell: Personal computers; Motorola: Mobile devices; Microsoft: Xbox game system; Sony: PlayStation game system.
In our modern global system of commerce, having one supplier make so many parts for so many different end users allows for increase efficiency through various mass production techniques. Not every product, or service has this, but many of them do. If you can also get your materials from a country that cuts its exchange rate so that everything is on sale- all the time- so much the better.
Companies can and do make back up plans, and use alternate sources, but if these sources were as cheap as the main supplier, they wouldn’t be an alternate source. Much like plant maintenance, it is a temptation for upper management that lives and dies on the quarterly results to make that quick cut in safety or supply chain redundancy when they need a boost to make their quarterly targets.