Is it time to diversify your Supply Chain?

November 23, 2022

Companies often wrestle with the weights of risks, costs, and quality when making all types of business decisions. Globalization has sped up for decades partially due to more developed economies making cost-based decisions regarding their supply chain. Covid19, inflation, the war in Ukraine, and other recent factors have forced many companies to reset their supply chain strategies.

A recent CNBC article reported that Tim Cook, Apple’s CEO, has just announced plans to localize processor manufacturing to a factory in Arizona. Today, all Apple processors including its popular A-Series and M-Series lines powering the iPhone and Macbooks are supplied from factories in Taiwan.

Why create supply dependencies for a critical component of your products to factories across the world? The answer has always been because it's cheaper. Many manufacturing operations claim they cannot put a product to market at a competitive price point without outsourcing to suppliers in lower-cost countries. Is this decades-old strategy slowly shifting back to local production? Is Apple the first of many to rethink its supply chain?

These are interesting questions that will impact global trade and only time will tell. If Apple's decision is an indication of a new trend, we can expect localization to pick up steam into 2023 and beyond.

It cannot be cheaper for Apple to manufacture processors out of an Arizona plant compared to Taiwan. The difference in labor cost alone is vast. What Apple may be doing now is factoring in the risks associated with sourcing all processors from Taiwan. This shifting weight in supply chain decision-making is being driven by several factors. The first is the uncertainty surrounding the efficiency of today’s global supply chains. They’re being disrupted more frequently and unpredictably than before. This makes supply chain planning and forecasting more chaotic than in recent memory. The second element is the rise in geopolitical tensions and those associated with perceived risks. Russia’s invasion of Ukraine has placed more focus on the chances of a Chinese invasion of Taiwan. Imagine if all of Apple’s processors had been manufactured out of Ukraine this year instead of Taiwan. The lower production cost may no longer justify the geopolitical and supply chain risks associated with bringing in products and components from faraway regions. While Apple may keep most or significant productions out of Taiwan, they are willing to potentially pay a higher price per unit out of an Arizona plant to de-risk their operations through diversification. The future of the global supply chain is now more unpredictable if the cost factor has a lowered weight in strategy and decision-making. At the very minimum, Apple’s decision should serve as a wake-up call to business leaders managing complex and global supply chains who have kept a cost-driven strategy on auto-pilot.

Read the Full CNBC Article