News from the supply chain that the Apple has told its assemblers Foxconn and Pegatron to dial back production of the iPhone XR says a lot about manufacturing in China. Apple could not get away with that in most other parts of the world.
Smartphones are complex products. They incorporate thousands of parts, and some of those parts take a long time to get (known in the industry as the “lead time”). Demand growth over the last few years also has caused some of those parts to be in short supply, especially things like memory chips or multilayer ceramic capacitors. You have to commit to these parts many months in advance, so product planners put a great deal of effort into ensuring that the right ones are on hand when you need them.
Taiwan-based firms Foxconn, Pegatron, Wistron, Compal, or others who do this kind of assembly work contract for orders orders based on committed volumes, but you can typically adjust how many you actually want to take until you get closer in to the scheduled delivery date, when you enter a “frozen zone” during which you can’t change your delivery volumes for a given time period anymore.
The circuit boards in a phone are assembled on automated lines that first use high-speed machines to glue electronic components in place, followed by a soldering operation and automated inspection. Final assembly is usually a different game. Every phone assembly line I have seen in the last decade is organized as a series of manufacturing cells. This means a group of workers organized around flexible workbenches, usually in a U-shape, passing partially completed phones from one person to the next.
This style of organizing a line is important, because it gives you a lot of flexibility. Let’s say you can produce four phones a minute on a line. For a 10-hour shift, that would give you 4 x 60 x 10 = 2400 phones per day. If you want 24,000 phones a day, set up 10 lines, or 100 lines for 240,000 phones a day. Then if you run two shifts, double that and you are up to almost a half million units a day. If you used 25 workers per cell (I’m not sure the actual number Foxconn uses), that would translate into 5000 workers on the final assembly side. You would need a few thousand more to handle the circuit board production and other subassembly and logistical tasks.
The key thing to note is the flexibility to adjust volumes up or down, and here is where China excels as a place to manufacture. Need 10,000 workers fast? Sure, there are contract labor agencies that will help you hire that many. Need to shrink your production? No problem – compared to other parts of the world, it’s relatively easy to shrink in China. Flexible labor is a huge advantage for Chinese manufacturers, and when your demand is hard to predict, China is the place to be. Like I said last week, Apple could ask its assemblers to set up somewhere else, but then they’ll have to do a much better job on forecasting, or training its customers (including me) to have different expectations of what we can get and when.
