OPENING CASE: Apple: The Best Supply Chains in the World?
Summary
The opening case explores the supply chain management techniques used by information
technology company Apple. Apple is considered to have one of the world’s largest and most
efficient supply chains, a fact that has contributed to its becoming the world’s most valuable
brand. Discussion of the case can revolve around the following questions:
QUESTION 1: Why did Apple decide to outsource much of its production to companies around
the world rather than build its own production facilities?
ANSWER 1: Apple’s core strength is in conceptualizing and designing new products that
QUESTION 2: What makes Apple’s supply chains so productive and efficient?
ANSWER 2: Apple exerts a significant amount of control over its supply chain. Because demand
QUESTION 3: What do some of Apple’s recent problems tell you about the risks of developing
an extensive supply chain?
ANSWER 3: The issues with employee mistreatment at the Foxconn manufacturing facility in
China underscore the difficulties that companies face in monitoring the business practices of
Another Perspective: For more information on Apple’s extensive supply chain, go to
{http://www.apple.com/supplier-responsibility/our-suppliers/}.
CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: An electronics firm is considering how best to supply the world market for
microprocessors used in consumer and industrial electronic products. A manufacturing plant
costs approximately $500 million to construct and requires a highly skilled work force. The total
value of the world market over the next 10 years for this product is estimated to be between $10
billion and $15 billion. The tariffs prevailing in this industry are currently low. Should the firm
favor concentrated manufacturing or decentralized manufacturing? What kind of location(s)
should the firm favor for its plant(s)?
ANSWER 1: The firm should pursue a concentrated manufacturing strategy because (1) the
tariffs prevailing in the industry are low, (2) the cost of building a plant to produce the
QUESTION 2: A chemical firm is considering how best to supply the world market for sulfuric
acid. A manufacturing plant costs approximately $20 million to construct and requires a
moderately skilled workforce. The total value of the world market for this product over the next
10 years is estimated to be between $20 billion and $30 billion. The tariffs prevailing in this
industry are moderate. Should the firm favor concentrated manufacturing or decentralized
manufacturing? What kind of location(s) should the firm seek for its plant(s)?
ANSWER 2: This question is a tougher call than the scenario depicted in Question 1. The firm
should probably pursue a limited decentralized manufacturing strategy (meaning that the firm
QUESTION 3: A firm must decide whether to make a component part in-house, or to contract it
out to an independent supplier. Manufacturing the part requires a nonrecoverable investment in
specialized assets. The most efficient suppliers are located in countries with currencies that many
foreign exchange analysts expect to appreciate substantially over the next decade. What are the
pros and cons of (a) manufacturing the component in-house, and (b) outsourcing manufacture to
an independent supplier? Which option would you recommend? Why?
ANSWER 3: Manufacturing in-house would reduce the risk of currency appreciation and rising
costs from independent suppliers. Specialized asset investment would make the firm dependent
QUESTION 4: Reread the Management Focus on Philips in China and then answer the following
questions:
a. What are the major benefits to Philips of shifting so much of its global production to China?
b. What are the risks associated with a heavy concentration of manufacturing assets in China?
c. What strategies might Philips adopt to maximize the benefits and mitigate the risks associated
with moving so much product?
ANSWER 4:
a. China is an attractive production location for Philips for several reasons. Perhaps the most
b. Most students will recognize that Philips is taking a risk by concentrating its manufacturing in
c. Some students might recommend that Philips consider forming joint ventures with local firms
QUESTION 5: Explain how the global supply chain functions of (a) logistics and (b) purchasing
can be used to strategically leverage the global supply chains for a manufacturing company
producing mobile phones.
ANSWER 5: Logistics refers to the part of the supply chain that plans, implements, and controls
QUESTION 6: What type of interorganizational relationship should a global company consider
in (a) the inbound portion of its supply chains if the goal is to buy commodity-oriented
component parts for its own production and (b) the outbound portion of its supply chains if the
goal is to establish a strong partnership in reaching end-customers?
ANSWER 6: In the upstream/inbound portion of the supply chain, the company should consider
CLOSING CASE: H&M: The Retail-Clothing Giant
Summary
The closing case explores the use of supply chains by global clothing retailer H&M. The
company relies on a network of over 900 suppliers and 1,900 factories to source textiles and
manufacture clothing. Discussion of the case can revolve around the following questions.
QUESTION 1: Does it surprise you that the second-largest clothing retailer is selling in stores in
only 54 countries plus an additional 10 countries online? Why do you think it is not covering
more of the world’s countries?
ANSWER 1: As a fashion retailer, H&M must remain responsive to changes in customer tastes.
QUESTION 2: H&M does not own any of the factories that produce its clothes. Instead, it relies
on some 1,900 factories and 900 suppliers to create what its team designed. These factories and
suppliers are mostly in Europe and Asia. How can H&M ensure that its customers receive the
quality expected in the clothing?
ANSWER 2: H&M employs a team of approximately 80 employees whose sole responsibility is
QUESTION 3: H&M stresses sustainability in its promotional campaigns. How can it ensure
that the working conditions are appropriate for the 1.6 million people that serve in its supplier
network? Is it even H&M’s role to ensure that the working conditions and environmental impact
are great in every market it engages in?
ANSWER 3: Student responses will vary. Some may argue that H&M should not be held
QUESTION 4: If you worked for H&M, what would you suggest that it focus on to become even
larger than it is now? Should it have its own factories? Should it expand to more than the 64
countries (54 with stores and 10 online) that it is in now? Should it control more of the global
supply chains?
ANSWER 4: Student responses will vary. Some may suggest that the company should expand
MHE INTERNATIONAL BUSINESS VIDEO LIBRARY
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on a monthly basis. While there, be sure to “like” the clips that work well for you, and add notes
that might be helpful to your colleagues.
INCORPORATING globalEDGE™ EXERCISES
Use the globalEDGE™ site {globaledge.msu.edu/} to complete the following exercises:
Exercise 1
The globalization of production makes many people aware of the differences in manufacturing
costs worldwide. The U.S. Department of Labor’s Bureau of International Labor Affairs
publishes a Chartbook of International Labor Comparisons. Locate the latest edition of this
report, and identify the hourly compensation costs for manufacturing workers in China, Brazil,
Mexico, Turkey, Germany, and the United States.
Exercise 1 Answer
Search phrase: Chartbook of International Labor Comparisons
Exercise 2
The World Bank’s Logistics Performance Index (LPI) assesses the trade logistics environment
and performance of countries. Locate the most recent LPI ranking. What components for each
country are examined to construct the index? Identify the top 10 logistics performers. Prepare an
executive summary highlighting the key findings from the LPI. How are these findings helpful
for companies trying to build a competitive supply chain network?
Exercise 2 Answer
Search phrase: Logistics Performance Index