Tim Cook announces plans to manufacture Mac computers in USA

  1. People don’t realize how little labor is involved in electronics. Here is one of the fastest growing companies in Canada: http://www.aeicm.com/ August Electronics Inc. in Alberta. It’s one of a number of contract electronics manufacturers that I’ve seen pop up in the US and Canada the last 3-5 years. It’s basically capital investment. Similar to injection molding, you basically need 1-2 people to feed a bunch of machines with components. Everything else is automated. Maybe a little more QC at the end.

  2. Mexico manufacturers a lot of computers, TVs, cell phones. I’m sure it is mostly assembly, but still. From my experience, most of those facilities are pretty light on manual labor too.

  3. Tim Cook’s expertise is logistics. I’m sure that this will save Apple money. There will be significant tax advantages in terms of avoiding tariffs and getting tax credits. I don’t see anything altruistic or patriotic. It’s a smart business move.

There really isn’t much of a choice. The Chinese government has stated that the new goal is to move manufacturing from externally focused to internally focused. Whether Chinese manufacturers really want to do this or not, it has been stated by the government as THE goal so anyone who does not follow the line will find it difficult doing business. So the US really has to figure out how to bring manufacturing back, because really there is no choice.

That’s true too. I know in the ventilation industry, costs have risen because the gov’t mandates that a certain amount of capacity is for the Chinese market only. It’s squeezed how much is available for export.

We’ll see in other categories. Talking to plumbing manufacturers, everyone is at 50% capacity because the US construction market is so soft.

Interesting article in Forbes.

Good read.

Our business units actually have a mixed strategy, some focus heavily on Asian manufactured, and ODM assisted manufacturing whereas others focus on domestic/internal engineering and manufacturing. (Both in the US and Asia).

I think the biggest argument against the ODM model is the fact that although you may get a “Cheaper” price, the added costs of communication, addressing quality issues, and rework due to the low quality of some of the engineering talent means you may break even at the end of the day.

The most they will be able to tout is ‘Assembled in the USA’ and then they may well have to state the percentage of components sourced from the USA as well.

Unfortunately, due to the previous decade’s incentives to move large scale manufacturing off shore, I think most manufacturers are going to slowly transition into Taiwan, Vietnam and elsewhere before making serious efforts to return to the States.

The problem with Taiwan is their labor rate is too high to make sense of the cross ocean transport costs. With Vietnam they have already been raising rates over the past several years so this is short term also.

The interesting thing is the automation discussion. Will manufacturing come back to the US without adding any significant jobs? Will lights out factories be the norm?

Great article - Why Apple And GE Are Bringing Back Manufacturing

This article on the core front page a few weeks ago also shows the secondary and tertiary benefits of manufacturing locally, the money recirculates in the local economy:

A local ‘chamber of commerce’ style TV ad from a few years ago followed a 2$ coin, showing how if it is spent here, the local economy benefits: you buy something from the shop down the road, he then buys a coffee from a neighbouring shop, the coffee shop then buys supplies from the factory you work at etc.

I found this study that puts a dollar value to buying locally, which I expect correlates a lot to manufacturing locally:

”In a study comparing the economic impact of ten Andersonville businesses and their chain competitors, it was found that:

Locally-owned businesses generate a substantial Local Premium in enhanced economic impact.

For every $100 in consumer spending with a local firm, $68 remains in the Chicago economy.

For every $100 in consumer spending with a chain firm, $43 remains in the Chicago economy.

For every square foot occupied by a local firm, local economic impact is $179.

For every square foot occupied by a chain firm, local economic impact is $105.”

If final assembly and all packaging is currently done overseas, and the majority of the customers are in North America, it certainly makes logistic and shipping cost sense to do final assembly here. The smaller components will still be made overseas but larger unwieldy parts like the curved stand for iMacs and displays can be made in the USA near the final assembly location. Should allow for a better JIT assembly line, less standing inventory (not that Apple has a problem with that), and the opportunity to ship less air overseas. With the tighter packaging on iPads, the laptops, and phones it makes less sense.

So, I’d imagine the iMacs and whatever the next gen Mac Pro might be (if they continue) would be good candidates for US fabrication and assembly.

Do they build the factory near the UPS or FedEx shipping centers?

I think it’s also about curbing the loss of institutional knowledge…or the recognition that separating the designing and the making is often a bad idea if you want to continue to know how to make things. This is a good story about the GE Appliance Park that hit on this point:

Fantastic article wiley. Thanks.

This part:

Even then, changes in the global economy were coming into focus that made this more than just an exercise—changes that have continued to this day.

Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.
The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory here at home. (Natural gas now costs four times as much in Asia as it does in the U.S.)
In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year.
American unions are changing their priorities. Appliance Park’s union was so fractious in the ’70s and ’80s that the place was known as “Strike City.” That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.
U.S. labor productivity has continued its long march upward, meaning that labor costs have become a smaller and smaller proportion of the total cost of finished goods. You simply can’t save much money chasing wages anymore.

Wiley, the single most important article I have read this year. Thanks.

Like you noted, this section sums up a lot.

With Apple’s pull, I bet UPS and FedEx will build their shipping centers around the Apple *factory.

*I’m sure they’ll reinvent the factory as we know it too. Probably name it something like “Dreams+Materials Center of Realization”.

In all seriousness… actually, yes, I’m being serious.

That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.

That’s only $28k a year before tax. Ugh. The article made me feel sad. Mind you, that’s what a lot of unionized plants in Canada are paying (or less actually).

I’ve been searching for an article I read a few months ago that gave the reasons why the iPhone would never be manufactured in the US. The bulk of the thinking was that since nearly everyone who has a mutual fund is in some way an Apple shareholder, they would never allow Apples costs to rise to the point where they weren’t pulling in tens of billions in profits each I quarter. Therefore, they would have to maintain their ever cheaper manufacturing off shore.

At the time, that article really resonated with me. Wall Street would continue to call the shots, and things would go on as they have. Now I’m starting to see that there’s no way Apple can continue the way they build things. And it’s not just Apple, of course.

Read the print version last night. Inspiring.

Well, NeXT did it 20 years ago so you may not be wrong
http://money.cnn.com/magazines/fortune/fortune_archive/1990/02/26/73121/index.htm

With my current employment, I have what I consider about 500,000 square feet of “lights out” factory. And while we do not employ thousands to fill that space, we do employ hundreds. There are plenty of techs to maintain the autmated equipment and workers who perform the final pack out. Its not that we need them for the packing, but it is a final QC check.

And while the US has been bleeding manufacturing jobs since the 80s, there is only so many jobs you can eliminate through automation. It could be that we have bottomed out. But only time will tell.