
The Beer Game -or- Why Apple Can’t Build iPads in the US - mkswp
http://blog.marksweep.com/post/20469283331/the-beer-game-or-why-apple-cant-build-ipads-in-the
======
jonknee
> Because of the bullwhip effect illustrated by the game, Apple needs to have
> factories in China because the supply chain is there. We learned in the Beer
> Game that minute changes have massive ripple effects along the supply chain.

> The U.S. has lost that industrial base and it’s extremely difficult to get
> it back. It’s not about unions, jobs Americans don’t want - it’s about
> delay.

Considering that Foxconn is starting to make iPads in Brazil, this article is
way oversimplifying things. It's mostly about labor costs and environmental
aspects. The iPad is assembled in China, but most of its components are from
elsewhere. The CPU is from Texas, a lot of the other chips are from Korea,
etc. It could be assembled in the US without supply troubles.

[http://www.macrumors.com/2012/04/05/apple-gains-
certificatio...](http://www.macrumors.com/2012/04/05/apple-gains-
certification-to-sell-brazilian-assembled-ipad-2-new-ipad-certification-
pending/)

~~~
crazygringo
Brazil is an exceptional case because of their import tariffs which are far,
far higher than any other country in the world.

From the linked article:

"with domestic production of the iPhone and iPad providing a means by which
Apple could avoid hefty import taxes in one of the world's most populous
countries. "

I don't know any of the details, but I would assume Foxconn is performing the
absolute minimum level of assembly necessary to meet "domestic manufacturing"
requirements. So it is in no way an effective counterexample.

Plus, Brazilians are used to long supply-chain delays (like major supermarkets
in major cities running out of Diet Coke or Ruffles) in a way that Americans
will not put up with. Something tells me Foxconn's Brazilian factory may not
be too different.

~~~
jonknee
> I don't know any of the details, but I would assume Foxconn is performing
> the absolute minimum level of assembly necessary to meet "domestic
> manufacturing" requirements. So it is in no way an effective counterexample.

It's absolutely a counterexample. The iPad is assembled in China, but its
parts are from all over the world. Now it's also assembled in Brazil. The
supply chain in China isn't critical to the iPad's assembly, just critical to
the iPad's assembly at the current profit margins. Despite the hot air in the
article, you could absolutely manufacture iPads in the US. Much like Brazil
they would cost more, but that's not what the article was talking about, it
said they can't be made anywhere else. That's bullshit, proven by Brazil.

~~~
siglesias
I think that all that is going on with Brazil is that it's a miniature replica
of the Foxconn plants in China, and as been mentioned numerous times, it's
only because it would be MORE expensive to make them in China (however
inexpensive) and ship to them to Brazil than to deal with an inflexible supply
chain in Brazil and make them there. Even factoring in demand and supply
volatility. If things don't go well for the plant, on the world scale, it's
only Brazil. All of these were factored into the decision to build them there.

China is responsible for making every iPad in the world outside of Brazil. You
can't assume the same amount of risk for that scale. If a component goes bad
or if demand skyrockets, you want as many responsive factories around as
possible to pick up the slack or to get you new components. Why wouldn't you
want to locate your supply chain in China? Only if you have a situation that
looks like Brazil--high import tariffs.

~~~
pault
Correct. The retail price of imported consumer electronics in brazil is
literally double that of the U.S.

------
tlb
Having gone through the painful exercise of building robots in the US, I
appreciate the problem. Our end-end supply chain latency was 16 weeks, far too
long to scale effectively to match demand. Many component changes we wanted to
make would have created a 6-week delay, so we had to compromise. A place with
a factory across the street that could make screws in 3 hours sounds like
heaven.

~~~
jonknee
You were also operating at an entirely different scale than Apple. You'd have
a hard time getting your end product to the US, while Apple simply buys up
enough air freight from China to screw up everyone else's supply chain.

Apple doesn't go to the factory next door and buy screws when it needs them,
they need millions of screws to very specific specs and sign deals to have
them made by different suppliers for years at a time.

They'll go as far as financing the new factory that is required to fulfill
their monster orders. The same rules just simply do not apply.

~~~
excuse-me
One of the examples ( in the original article that this posts copies ) Apple
changed the glass on the screen with 6weeks until launch. Corning had opened a
factory nearby to make the glass and were able to change the screen shape
quickly another nearby company was able to drop everything and make new
gaskets.

It takes 6weeks to ship product from Corning's US factory to China.

~~~
cubicle67
are you referring to this?

 _‘I Want a Glass Screen’

In 2007, a little over a month before the iPhone was scheduled to appear in
stores, Mr. Jobs beckoned a handful of lieutenants into an office. For weeks,
he had been carrying a prototype of the device in his pocket.

Mr. Jobs angrily held up his iPhone, angling it so everyone could see the
dozens of tiny scratches marring its plastic screen, according to someone who
attended the meeting. He then pulled his keys from his jeans.

People will carry this phone in their pocket, he said. People also carry their
keys in their pocket. “I won’t sell a product that gets scratched,” he said
tensely. The only solution was using unscratchable glass instead. “I want a
glass screen, and I want it perfect in six weeks.”_ †

This is a anecdote that now seems to be repeated as fact, but I have serious
doubts about it. For starters there was a six month gap between the first demo
and launch, and the iPhone was demoed with the glass screen, as evidenced by
this quote from David Pogue from January 9, 2007 _Apple went through numerous
iterations of the glass surface, trying to find one that’s not too slick or
too rough, or that shows grease and fingerprints too much._ ††

† [http://www.nytimes.com/2012/01/22/business/apple-america-
and...](http://www.nytimes.com/2012/01/22/business/apple-america-and-a-
squeezed-middle-class.html?pagewanted=2&_r=1)

†† [http://bits.blogs.nytimes.com/2007/01/09/some-hands-on-
time-...](http://bits.blogs.nytimes.com/2007/01/09/some-hands-on-time-with-
the-iphone/)

~~~
comex
From June:

[http://www.ilounge.com/index.php/news/comments/apple-
upgrade...](http://www.ilounge.com/index.php/news/comments/apple-upgrades-
iphone-battery-adds-anti-scratch-glass/)

"Apple also announced that the entire top surface of the iPhone, including the
3.5-inch screen, has been upgraded from plastic to optical-quality glass for
better scratch resistance and visual clarity."

~~~
Klinky
I don't think that helps the original story. Supposedly Jobs is telling his
employees that he "wants a glass screen", yet reviews months before this
supposed conversation occurred state that the iPhone is already using a glass
screen. Weather or not this was the anti-scratch surface or not is hard to
say, but it does cast some doubt on the story as relayed in the NYT article.

------
ap22213
The reason why iPads are built in China is because of a thing called
Comparative Advantage [1].

Even though the US could reasonably produce iPads _more_ efficiently than
China, it doesn't. The reason is that the US is even more efficient at
supplying higher-cost services (software, finance, etc.) than China that it
would be at producing iPads. Therefore, the US is better off training more of
its workforce for higher-cost services than to train them to be laborers.

[1] <http://en.wikipedia.org/wiki/Comparative_advantage>

~~~
e40
This is part of it, but there are other important factors at play here. In
China, the contractors of Apple don't have to adhere to US labor and
environmental laws. These are huge factors in decision to outsource production
to China.

~~~
josefresco
...not to mention currency and wage issues.

------
jdietrich
I hear a lot of people saying that America needs more manufacturing jobs, but
I can't recall ever hearing anyone say that they want to spend the rest of
their life doing repetitive assembly operations on a production line.

We use Chinese workers because they're cheaper than robots. These are awful,
tedious, soul-destroying jobs, but they're just marginally better than
backbreaking agricultural labour. Nobody deserves to do those jobs and soon
nobody will have to, because we will have automated them out of existence.
That's unequivocally a good thing.

~~~
Tichy
I wonder, would agricultural labour be backbreacking if you only had to meet
your own demand (and owned enough fields for the purpose)? Serious question, I
don't know.

~~~
barrkel
I've only had to work in vegetable and fruit gardens belonging to my
grandmother, but if it scales, then yes, it would be backbreaking. Only worth
it if you enjoy it or otherwise derive self-actualization from it etc.

------
kevinalexbrown
From a practical perspective, it seems to me that the Beer Game rests in three
parts: in imperfect information, time delays, and most importantly,
independence of agents. If _each_ member of the supply chain knew consumer
demand perfectly far enough in the future, they could compensate. Likewise, if
_each_ member of the supply chain could instantly scale their process, they
could compensate. The key, though, is that even if you perfectly forecast, or
can instantaneously process and ship your stock, everyone down the line from
you must do so as well.

From what I gather, having the supply chain in China or Brazil addresses the
second two problems. The advantage of China isn't just cheap labor, it's
cheap, _readily available_ labor. A change in demand (like switching the
screens on the iPhone) can be met relatively easily, which partially solves
the time delay problem. And the more of the supply chain you hold in one
geographic location makes shipping time faster. The independence of agents
issue gets addressed when Apple can coordinate the actions of each member of
the supply chain better. I imagine this is, for the moment, easier in China
than the US.

Where I part ways with the article is the bail-out. The US labor pool doesn't
seem elastic enough to address the time-delay part of the bullwhip effect. If
Foxconn suddenly had a temporary drop in demand and had to lay off thousands
of laborers, it would not be a huge issue. If they need to hire them again,
zip, pretty quick. Likewise if they need to request huge overtime commitments
because they can't train new workers fast enough, no problem. US workers are
particularly averse to uncertain job prospects, perhaps with good reason, but
with the effect that scaling work (and wages) up and down is less tenable. And
perhaps this is where the unions come in - the overtime payments from forcing
workers to work more hours to meet demand is much more costly in a union than
a non-union environment, for better or worse.

Edit: I've just now recalled that one summer, I worked for a large bread
factory. They loved hiring college students in the summer because they knew
that they didn't really care about staying in the union. Summer demand for
baked goods skyrockets. A plant manager showed me how they were lagging behind
demand by something like 2 million dollars / week (I've forgotten the exact
number, but it was staggering to me). In his words "you can imagine what that
does for business." But they couldn't just start hiring more workers, or
scaling up the plant, because then they'd have more workers than the knew what
to do with once the winter hit, when people were working 20-30 hrs/week. And
this is one case where almost the entire supply process was in the US, minus
wheat they might have gotten elsewhere.

~~~
Retric
That's one piece. The other huge issue is that a Chinese worker can produce an
iPad for less than a robot while an American worker costs more. A lean supply
chain looks great on the books, but it's also a huge bet that nothing bad
happens. However, add flexible enough automation like say having 500,000
humans and you are far less dependent on any one customer so you can ramp up
and down vary quickly. Which both reduces the need for a large supply chain
and cuts the response time to changing market conditions.

~~~
scott_s
_The other huge issue is that a Chinese worker can produce an iPad for less
than a robot while an American worker costs more._

Not by as much of a margin as one would think. Listen to part 3 of This
American Life's retraction of the Daisey story:
[http://www.thisamericanlife.org/radio-
archives/episode/460/r...](http://www.thisamericanlife.org/radio-
archives/episode/460/retraction)

The conclusion is that the difference per iPad or iPhone is a small percentage
of the profit. They argue that it is, in fact, the supply chain that makes the
difference.

~~~
Retric
The estimate was moving manufacturing in the US would cost up to 65$ per
iPhone and Apple is selling around 80 million iPhones a year. That
approximation 5 billion dollars in lost profit each and every year just to
build iPhones in the US. That's simply untenable for a publicly traded company
even ignoring the added cost for iPod's and iPad's. Now they could probably
give up say 100 million in profit per year and have dramatically better
working conditions in China, but even that's a hard sell to stockholders.

Having said that, Apple could redesign the iPhone to be easier for robot's to
assemble and move manufacturing back to the US, but it's simply untenable to
have Americans assemble such things at this scale in the US. But, this is
where the supply chain issues show up and if they designed the iPhone to be
built by robots they would as you suggest probably locate those robots in
China.

~~~
scott_s
_The estimate was manufacturing in the US would cost up to 65$ per iPhone_

Versus how much in China? The conclusion I recall was that the difference was
small - so small that even if the prices were flipped, Apple would still
probably opt for China because of the speed. Which, again, is because of the
integrated supply chain.

~~~
Retric
That was how much _extra_ the labor would cost to manufacture in the US not
the total cost. They did mention a low estimate of 10$ but that's still close
to a billion a year in lost profits on iPhones. Add iPod's, iPad's, and Mac's
and you quickly get back around 5 billion.

~~~
scott_s
You are correct, and I wanted to check what exactly they did say. Luckily,
there is a full transcript:
[http://podcast.thisamericanlife.org/special/TAL_460_Retracti...](http://podcast.thisamericanlife.org/special/TAL_460_Retraction_Charles_Duhigg_extended_interview.pdf)
The discussion on this point starts on page 17. In there is the point I
originally wanted to make, voiced by Charles Duhigg:

 _But labor is such an enormously small part of any electronic device, right?
Compared to the cost of buying chips or making sure that you have a plant that
can turn out thousands of these things a day or being able to get strengthened
glass cut exactly right within, you know, two days of this thing being due,
that's what's important. Labor is almost insignificant. What is really
important are supply chains and flexibility of factories._

~~~
Retric
Let's put it this way if your adding 5% to the cost of the product adding a 4
week supply components that you sell at 1/2 price every year. Moving iPhone
manufacturing to the US would cost Apple _significantly_ more than that. It's
true that one of the major problems with a supply chain for computer
components is how rapidly they depreciate, but labor costs are insignificant
in large part because they are in China.

Honestly, I think he is thinking you assemble an iPhone like you do a car with
giant welders and cranes. The reality is much closer to just a table with
buckets for components and a small chain of workers that knows all the steps
plus some basic quality control. Because, it's mostly just joining components.

The actual chips are created by machines which can be located just about
anywhere, just ask Intel. Even boards are often done by machines, because it's
so hard to tell if someone did it wrong when soldering by hand. There are
robots that can do these same operations, but humans add flexibly and it's
easy to see if they messed up. Plus at current Chinese wages they just plane
cost less.

~~~
mbell
The PCBs in cell phones are almost exclusively done by machines. You can't
hand solder a BGA, a machine applies solder paste as the last step in the PCB
manufacturing process and then a pick and place (robotic arm pulling parts off
reels) sets the chips before sending the PCB through a reflow machine (an
oven).

Even for small batch runs of boards with QFP chips (which you can hand solder)
you would machine all this, and I mean like 50 board runs. I've even done this
in lab for 10 board proto runs. You make a solder paste stencil out of plastic
to apply the paste after you get the boards back from the PCB manufacturer,
place the chips and solder them in a reflow oven (or even a frying pan works
if you paying attention and have an IR temp sensor).

The only bits you hand solder, even in Asian, are components that are too
large or can't withstand the temperatures of machine soldering, be it wave or
reflow (think full size RCA connectors on a board with many fine pitch ICs or
a wall wart). This is normally a post processing step after everything else
has been reflowed. Connectors of this type don't really exist in cell phones,
they are all surface mount with some minimal unsoldered through hole supports.

The manual assembly that comes into play with a modern cell phone involves
connecting the various PCBs with their interconnects and placing them in the
proper location within the packaging and of course all the post electronics
stuff.

~~~
Retric
I agree with what you said.

By putting boards together I meant something much closer to this:
<http://www.youtube.com/watch?v=VTQXGLDXQk8> vs.
[http://www.ethiotube.net/video/18959/Cell-Phone-Assembly-
Pla...](http://www.ethiotube.net/video/18959/Cell-Phone-Assembly-Plant-In-
Bahir-Dar-Ethiopia) where you can see several people using a soldering irons
about 2 min 10 seconds into the video.

But, it looks like the iPhone uses screws where a lot of companies used blobs
of sodder to secure things. <http://www.youtube.com/watch?v=5U6HjbGCtqE> Which
I suspect increases their labor costs to reduce the number of assembly errors
and allow them to be repaired. Of course if they did this in the US, the cost
benefit equation changes and I suspect they would do more soldering because
it's so fast.

PS: The point I was trying to make with Intel is once your 99.9% automated vs
say 98% the laber costs stop being the major concern. Which is why Intel still
builds chip factory's in the US. It's great to be close to your suppliers, but
it's also valuable to be closer to your engineering team.

~~~
mbell
Both videos are about very different classes of devices from a "modern cell
phone". For example you can't blob solder on a data link to a 960 × 640 full
color LCD, you'd lose signal integrity.

Intel builds their factories in the US because they are required to by law
(export controls on certain high tech). I think they are allowed to build some
lower tech stuff outside the US (Israel for instance).

------
chrisrhoden
In case anyone's curious why beer was used as the product in the game, it's
likely because US law requires that alcohol be distributed in (almost) this
way:

[http://en.wikipedia.org/wiki/Three-
tier_(alcohol_distributio...](http://en.wikipedia.org/wiki/Three-
tier_\(alcohol_distribution\))

~~~
pagekalisedown
For a good documentary that illustrates the system we have in place, check
out:

<http://en.wikipedia.org/wiki/Beer_Wars>

~~~
eogas
It's also free to watch on hulu for anyone who's interested:

<http://www.hulu.com/watch/235712/beer-wars>

~~~
pbhjpbhj
free to watch on hulu for anyone _from_USA_ who's interested

FTFY. Hulu restricts access pseudo-geographically using IP-based geolocation
it seems.

------
dgabriel
I think they teach this game at most business schools, and it seems to be a
popular and eye-opening experience. If you hit wikipedia, there are a number
of links to online versions you can play (some for free, some not).

<http://en.wikipedia.org/wiki/Beer_distribution_game>

~~~
A_A
That's right. the Beer game is one of the first things taught in Operations
Management in most b-schools, as an example of Supply Chain Management. [I was
fortunate to have been introduced to the subject by John Sterman]

In general, delays (i.e. lead times) and variations in orders will do that
Beer game effect to any supply chain, no matter where it's located. Apple
products are "made in china" because of various reasons -- comparative
advantage, business cluster etc.

I'd highly recommend a good reading of systems dynamics (and business
dynamics) for those looking for more info.

For those interested, two recommended books:

 __* "Clock Speed" by Charles Fine (MIT)

 __* "Business Dynamics" by John Sterman (also of MIT, and a great
professor):<http://goo.gl/K4OG> (Amazon.com link)

------
clarkmoody
I love the article up until the lame political statement at the end.

GM / Chrysler bankruptcy != Business _disappears_ and all suppliers go
bankrupt. This is the straw-man argument of the left.

The American auto bailout was a purely political play to save the unions who
supported the Democrats. With billions in hard assets and a huge intellectual
property base, the auto companies would have made great investments to
potential buyers. Does anyone actually believe that _no one_ would even
attempt to pick up the pieces of the auto industry, sans-unions, and try to
come out ahead?

If you agree with the media/government spin, then you believe that the auto
companies would have fired all employees, sold all of the manufacturing
equipment and plants, and closed shop forever.

The reality is that the company could have used existing bankruptcy law to get
rid of some of the union/pension overhead and return to profitability. This is
exactly what American Airlines is doing right now. Only in the extreme case
would they even need to sell the company.

~~~
mikescar
> The American auto bailout was a purely political play to save the unions who
> supported the Democrats.

Are you kidding?

<http://www.politico.com/news/stories/1208/16740.html>

~~~
krupan
To be fair, the article this whole discussion is referencing says, "Obama was
right in bailing out the auto industry when GM and Chrysler were going
bankrupt."

As usual, both sides want to take credit for the positives and blame each
other for the negatives. :-)

------
roc
See also: <https://en.wikipedia.org/wiki/Business_cluster>

It's worth noting that one needn't offset all the advantages of a cluster for
production outside of it to make sense: There is no shortage of US auto
manufacturing plants that are not in Detroit nor in places with anything
remotely like its cluster advantage.

But for rapidly-changing products, the advantages of a cluster are compounded.
If you're not changing screens and screws and implementing brand new
technologies on an annual basis, being able to get a custom part ASAP is less
of an advantage. But if you _are_ changing things every single year ...

I wouldn't be surprised to see US manufacturing return. Particularly as energy
(shipping) prices continue to increase, China's wage advantage dissipates and
automation matures. But it's going to start with fairly mature, static and/or
commodified products.

~~~
mhurron
What do you think is going to provide more short term profit, move
manufacturing back the the US and build X with US workers, or move
manufacturing out of China to another cheap country when Chinese labor gets
too expensive?

What's gone isn't coming back until it's cheaper to build it in the US. That's
what moved it to China in the first place, and that's what will move it from
China.

~~~
roc
> _"What's gone isn't coming back until it's cheaper to build it in the US."_

Yes and no. Yes, at a high level that's true. But you seem to be making an
assumption that human labor costs will remain an important component and that
the "it" being manufactured will remain constant.

Consider that automation may not even be cheaper on a 'net screws turned per
hour' basis than cheap humans. But quality and consistency matters. Speed of
line changes matters. Speed of retraining matters. And, further, current
designs are limited to what can be assembled cheaply (that is: reasonably
quickly/safely/accurately) by two human hands and ten human fingers, with a
human attached (who hopefully doesn't require slow or expensive tools/safety
equipment/etc).

Automation removes those concerns entirely. Caustic compounds could be mixed
on the spot, fixation technologies that are infeasible for human dexterity are
possible, multiple steps could be completed in parallel, etc.

So keep in mind that while it may be sufficiently cheaper to have, say,
Brazilians turning screws than Chinese, such that iPads could some day be
cheaper to build in Brazil - it's entirely likely that before that happens,
robots will be building newer iPad designs, more cheaply than could ever be
feasibly constructed by humans even at a zero wage.

------
raganwald
People often draw analogies between software development and manufacturing. If
you’re going to do that, it’s vital to take the “supply chain” of information
into account. The inefficiencies inherent in creating a supply chain
consisting of a developer, a tech lead, a product manager, an operations
manager, and finally a user resemble the supply chain in the drinking game.
Orders go one way, features go the other way.

~~~
ImprovedSilence
Did you finish the article? I think it's more focused on the hardware aspect
of apples supply chain, and not so much on software development.

~~~
ww520
I think GP is drawing an inferred analogy in the software development process,
using the supply chain to explain the relationship among all the parties
involved.

------
JVIDEL
Considering less than 1% of the price of an iPhone or iPad "stays" in China as
the cost of assembly, moving all production back to the US for that 1% seems
ridiculous.

In any case you guys should concentrate in the 30% (or so) of the price that
goes into parts and components, almost all made by Korean and Taiwanese
companies.

Besides most of those components are already made using highly-automated
processes because humans lack the precision needed to manufacture at such
small scales.

Not saying it would be easy, just that it isn't impossible, and 30% is a much
better deal than 1%.

------
gnaffle
If they can build iPhones in Brazil, why can't they build iPads in the US?

That it's not cost effective to do so now doesn't mean that this will always
be the case. The US has high import taxes on lots of stuff, if they raised
them on electronics we would have US made iPads in a flash (not that I'm
saying this is the right approach).

I think Apple's "tell us all the details about your cost structure and we'll
talk business" approach to their suppliers combined with their enormous cash
reserve and history of pre-paying for parts (and even factories) should enable
them to make their devices pretty much anywhere.

------
diogenescynic
Apple could afford to reopen the plants they had in Fremont, _they just might
not be able to produce 100% of their products there_. From the NY Times
article he refers to: paying American wages would add up to $65 to each
iPhone’s expense.

Fender does this--they offer you the choice of a Chinese, Mexican, Japanese,
or American made guitar and just price accordingly. I would pay more for an
iPhone that I knew was made in America. I'm sure I'm not the only one. Other
examples: Whole Foods, Trader Joe's, Annie's Homegrown (BNNY).

~~~
simonh
Disclosure: I'm a Brit, and my wife is Chinese.

Frankly I have no time for flag-waving 'Buy American' and for that matter 'Buy
British' favouritism. I've seen the poverty in rural China first hand,
industrialisation over there has it's rough edges that need to be addressed,
but if we care about world poverty then that means cutting all the jingoistic
claptrap and 'allowing' them to earn a better living.

There are legitimate cases where buying locally makes sense, especially in the
case of regional foods or traditionally crafted goods. I'm all for preserving
traditional ways of life if it makes sense, but I don't think iPhone assembly
line production falls in that category.

The US, Britain and the western world in general has grown rich exporting
goods and services to the rest of the world and importing cheap commodities
and goods. Fair trade benefits both sides of the bargain. It's time to set
aside protectionism and recognise it for the pernicious imperialism and
borderline racism it really is.

~~~
rbarooah
Don't you think that decades of isolationist Maoism had more influence on the
rural poverty in China than US and British protectionism?

~~~
mseebach
The Mao isolation was just a continuation of _centuries_ of Ming isolation,
and, emphatically, yes.

I think the GP meant modern protectionism in the sense of "Buy
American/British/etc" movements.

~~~
rbarooah
By talking about how the US and Britain had grown rich through trade and
'imperialist' protectionism and mentioning racism, the GP seemed to be
implying that the poverty in China was somehow created by these western
countries.

Aren't those modern "buy British" or "buy American" movements voluntary? Might
there not be good reasons for supporting those who are economically tied to
you by culture and legal jurisdiction?

~~~
mseebach
There is no possible way I can read the GP to mean that. He only mentions
imperialism and racism after talking about, and with clear reference to, "Buy
American".

Most of the movements are voluntary for now, but not all:
[http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestm...](http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009#Buy_American_provision)

> Might there not be good reasons for supporting those who are economically
> tied to you by culture and legal jurisdiction?

Yes and no. But if the support takes the form of a bail-out, you're just
wasting your money while delaying the inevitable and making the eventual crash
much more painful. If you instead let industries fizzle out over time, it's
much easier for something to appear to take it's place.

~~~
rbarooah
So, do you disagree with the point in the original article about the bail-out
of the auto industry preventing a much wider loss?

~~~
rbarooah
Good grief. Downvoted multiple times without explanation?

The original top-level article that this thread is about made what seemed to
be a reasoned point at the end about the bailout of the auto-industry, and I
am simply asking mseebach whether he disagrees with it, since he made
reference to bailouts.

Why on earth would that get downvoted?

------
developer9
Great article until "Obama was right in bailing out the auto industry when GM
and Chrysler were going bankrupt. Because it wasn’t just GM and Chrysler that
were going to fail, it was an entire ripple-effect of suppliers, tool
manufacturers, raw material suppliers, trucking companies and dealers that
were going to go away."

That's not the full reason that they did it though. It's because they were
making vehicles for our military. If our country started relying solely on
foreign countries for our military, they could disable our ability to
replenish or grow our ground fleets.

But, even that is not far enough down the rabbit hole. There are enough non-
government owned vehicles in the U.S. to more than make up for the lack of
vehicles they would have lost, even if every other country simultaneously
decided that we were the enemy, our military could use the country's existing
resources (assuming we were ok with that).

And moreover, we are already reliant on other countries for our military and
the running of our country. The only "advantage" of a government that pumps
everyone's tax money into a select number of private companies, directly or
indirectly, is that "survival of the fittest" is damaged. The "disaster" is
delayed- the inevitable damage grows greater. It is the economical equivalent
of forestry agencies that protected forests from forest fires, when forests
naturally managed themselves via fires started by lightning strikes, such that
large fires would inevitably start and be uncontrollable. Large bailouts can
cause incredibly bad things to happen.

So, the question is, why did they do it? Band-aids and politics. It was not
long-term thinking. And that is the story of our government. For the most
part, no one is willing to make the political sacrifice for long-term gain.
What we need now is for someone to help make government stable and predictable
again, and to reduce the amount of red-tape it takes for U.S.-based businesses
to succeed. But, it is going to take a disaster for that to happen- a disaster
that will be much worse because of bailouts and other shenanigans. But, as for
now, we will live in the growing forests our forest rangers protect for us.

------
nextparadigms
Maybe politicians will finally understand that "manufacturing jobs" are not
coming back to US and stop wasting money by trying to get them back.
"Manufacturing" itself could be back - if they start encouraging 99.9% robot
manufacturing facilities, and manufacture stuff more efficiently than any
Chinese company.

Yes, it won't bring "manufacturing jobs", but it will bring a lot of capital
into the country, and will also spur new type of jobs and businesses in
relation to that, or it would make it a lot easier for US entrepreneurs to
mass-produce their products just from a prototype.

That's the sort of thing politicians should be encouraging - not try to bring
back blue-collar jobs.

------
robomartin
It's about the need for "low impedance" or "low inertia" systems.

"Low inertia" means that the affected area can support a higher rate of change
than a "high inertia" system.

This affects all facets of business, from the supply chain to labor.

I have to disagree with the protection of highly unionized systems. They are
bad, bad, bad for the economy and for the survival of the affected industry.
Not only do unions burden business with unreasonable rules and wages, they
also create a very high inertia labor force. Making any change falls on a
range from impossible to very difficult. In sharp contrast to this, a low
inertial non-union labor force is far more flexible.

Let's face it, workers in the US have grown comfortable with their reality and
don't want to change. I'm sure this is what it looked like when buggy whips
and horse-drawn carriages started to loose market share. A low inertia system
would allow the entire enterprise to pivot quickly, make adjustments and try
to evolve into whatever might be the new wining paradigm. Not so when you have
a highly regulated, highly taxed and unionized framework to contend with.

------
hkmurakami
There's another, perhaps overlooked, place that does exactly what the author
proclaims as China's manufacturing advantage (proximity, flexibility, etc).
And it shouldn't be surprising: It's Toyota's auto manufacturing empire in
Aichi Prefecture, Japan.

Aichi is only 2000 square miles in area[1], and Toyota's supply chain is
concentrated on its Eastern half. It takes less than 1 hour by car (or more
relevantly, by truck) to travel between all of the major players in the supply
chain (Aisin, Toyota Industries, Denso, etc). Of course, all of Japan's
manufacturing is in Jeopardy with increased manufacturing costs and the strong
yen (which are analogous to what HN posters here have discussed as distinct
Chinese advantages over US manufacturing).

Another place that I suspect has a similar centralized, flexible manufacturing
ecosystem: Germany's auto industry (with the granddaddy of all industrial
suppliers, Bosch, situated right in the middle of it all).

[1] <http://en.wikipedia.org/wiki/Aichi_Prefecture>

~~~
eitally
Coincidentally, this is also why "vertical" integration almost never works
when the various horizontals are not colocated. The supply chain complexity
often introduces enough extra cost (whether time or money) that it's more
efficient to just purchase components locally rather than ship things around
within a global corporation.

------
draggnar
Will 3d printing and manufacturing advances (Foxconn can hire 3,000 employees
overnight, but robotics lower labor needs) make the supply chain effect less
important, lowering the costs of moving manufacturing back to the US? Will
they come back to be closer to retailers?

~~~
DanBC
The robot tech might be developed in the US (or where ever) but is still built
in China. That makes sense, because it's used in China. And as expertise in
building stuff concentrates in China all they need to do is keep quality high,
keep costs low, and maybe keep an eye on human rights, and they'll keep the
jobs.

The barriers to US companies become higher. You've got to get the machines.
You then need people to run those machines. Those people will consider
themselves to be skilled or semi-skilled, and require high wages. You need to
run the machines 24hours, thus you need 3 shifts per day; two of those shifts
will require higher wages than the day shift.

I doubt that huge volume manufacturing is going back to the US anytime soon.

~~~
stonemetal
_The robot tech might be developed in the US (or where ever) but is still
built in China. That makes sense, because it's used in China. And as expertise
in building stuff concentrates in China all they need to do is keep quality
high, keep costs low, and maybe keep an eye on human rights, and they'll keep
the jobs._

If we assume raw materials are bought on the global market (so same price in
the US and China), then the only cost variables are labor and shipping to
market. Once Robotics drives the difference in labor costs below the
difference in shipping costs robots in the US makes more sense than laborers
in China. There is an inflection point even if you assume the use of robotics
in China.

~~~
18pfsmt
I believe you are missing regulatory compliance costs, which are significant
in the US. I'm not quite sure how robotics alters that variable though.

~~~
stonemetal
They help some but it doesn't go away 100%. Robots mean lower worker
regulatory costs, but environmental regulation costs still count against the
US.

------
_sentient
I think there's another aspect to this, which is the fact that Apple is not
primarily concerned with the US market. 80% of Apple's most profitable
product, the iPhone, are sold outside the USA.

Even if you could get cost parity in production, there's no real reason why
Apple should move manufacturing back to the US, just because they started off
as an American company.

------
OzzyB
Would it be fair to say that the reason Apple has their entire supply chain in
China is because those "supply clusters" were already there because of the
Japanese consumer tech companies that built them up in the 80's?

(I have no idea when or how exactly, but the "80's" seems to be around the
time of the "Japanese Electronic Invasion")

In other words, for a "new" company like Apple, starting out with all their
new iDevices, it simply made sense for them to go where the supply was?

It's kind of like Apple "piggybacked" and exploited all the gains made by the
Sonys, Sharps & Casios of the world, and beat them at their own game.

I think if we move beyond the analogies of cars and other consumerables, and
focus on what Apple is really doing, which is essentially Consumer Tech, then
it simply makes sense for them to be where the guy that makes those fancy LCD
screens is at?

------
wtvanhest
That is an interesting theory but I would guess that the real reason is their
devalued currency which allows apple to save a huge percentage on production.

Sure cheap labor helps, but is cheap partially due to the currency difference.

Despite anecdotal stories, The US still makes up 20% of world manufacturing
and retains its spot as the global leader.
<http://en.wikipedia.org/wiki/Economy_of_the_United_States>

The colocation theory (the theory which the author is talking about) is a good
thoery to explain silicon valley though.

If you want to run a tech company, you want it to be colacated near your
supply chain (engineers), and other service providers. This is probably a big
reason why Silicon Valley has remained dominant despite so many other cities
trying.

~~~
rbarooah
How is it that you accept that 'colocation theory' explains Silicon Valley,
but you dismiss it as explaining Shenzhen without explaining why one is
different from the other?

~~~
wtvanhest
That is a good question, sorry I wasn't more clear. The basic reason is that
there is plenty of manufacturing all over the Midwest that could easily
produce the entire Apple supply chain.

Shenzhen can also produce that supply chain, but they are no more capable than
a lot of American cities.

What Shenzhen has that America doesn't are cheap labor, and a devalued
currency.

Silicon Valley is different primarily because there is no other city with the
concentration of brilliant engineers vs others. NYC for example probably has
more computer engineers by numbers, but there are more opportunities for those
engineers to make huge pay in other industries outside of startups. The fact
that Silicon Valley is full of amazing engineers who are excited to work in
the tech industry means that it is the best location for your startup to
locate (relatively, and if you need a lot of engineers, not all startups do,
some need more sales focused or science focus etc and there are better cities
for those companies).

~~~
joejohnson
>>The basic reason is that there is plenty of manufacturing all over the
Midwest that could easily produce the entire Apple supply chain.

Do you have a source for that? Foxconn has greater than 1 million employees. I
don't think there is any company with a labor force of that scale in the US,
or anywhere else in the world. And, per the article at the top of this thread,
the bigger issue is the supply chain. If iPhones were made in the Midwest,
they would still be importing glass, simple hardware, and thousands of other
parts that are still made in China.

~~~
philwelch
For comparison, the USPS is one of the biggest private employers in the US if
not the biggest, and it has just under 600,000 employees. The active US
military is around 1,500,000 strong. China's active military is closer to
2,300,000 strong. There are more full-time Foxconn employees than active
troops in the militaries of any but about three countries.

------
kenrikm
If you're interesting in learning more about this read the book "The Goal"
it's presented as a novel and the main character is rather daft, however it
has a lot of insight in it if you can look past that fact they everything is
explained as if the main character is really _slow_.

~~~
snitzr
+1 because The Goal teaches The Theory of Constraints, which is useful for
anyone managing team resources.

~~~
jgervin
+1 Had to read "The Goal' at SMU to graduate. I suggest all developers,
managers or entrepreneurs to read it today! If you are a startup, when you
read it think developers/designers as your industrial machines.

------
krupan
I don't know, do all the unemployed people in a America right now _want_ to
work on assembly lines in factories? I know, just because I don't want to
doesn't mean everyone else thinks that way, but it just doesn't seem like the
correct long-term fix for unemployment. Factory work just doesn't seem like a
viable long-term career.

I suppose it's the non-hourly-wage assembly-line jobs that come with
manufacturing that are desirable, but how many of those jobs would be created
by making the huge investment to build factories and supply chains here in the
U.S.? A non-zero number, but is there a more efficient way of creating career-
for-life support-a-family type jobs in the U.S.?

~~~
showerst
It's not that they necessarily want factories, it's that they're looking for
stable career for life jobs for people with _low skills_, which is the
difficult part.

There are tons of openings in the US for plumbers, and (i believe, not sure
post housing boom) also electricians, welders, pipe-fitters, etc.

The problem is that these are all jobs that require a few years of training,
which the US system isn't very well set up for. The factory thing is an easy-
out because we have this huge base of people who have basically no skills and
we want (need) to absorb them into the economy as fast as possible, and
without investing tons of money to train them. Even if we had this money, and
the capacity to train them, dropping an extra 100k nurses (or whatever) into
the system at once probably wouldn't be a good thing either.

This is a long term problem that we probably won't solve until we hit the
point that we're educating enough people in the right things that competition
for unskilled jobs hits more or less equilibrium.

~~~
_delirium
_The problem is that these are all jobs that require a few years of training,
which the US system isn't very well set up for._

Automation is also making the skill/demand curve look more step-like I
believe, where your value stays near zero up until you cross the "better than
a machine could do" threshold, instead of scaling in some more smooth way.
That makes it harder to get training on the job by just taking low-end jobs
and moving up.

From what I've read about welding (e.g.
[http://www.nytimes.com/2009/06/24/business/24jobs.html?pagew...](http://www.nytimes.com/2009/06/24/business/24jobs.html?pagewanted=all)),
highly skilled, experienced welders are very much in demand. But, since low-
end welds can be done by machines nowadays, there's much less demand for a
welder with <10 yrs experience than there used to be. Consequently, there's no
obvious path to _get_ that first 10 years of experience.

~~~
showerst
That's an interesting point, and one that further suggests that we're better
off shifting to more services and less manufacturing for the low-end stuff.

Eventually automation might replace the bottom level of nurses and plumbers,
(more so nurses than plumbers), but it will take _much_ longer.

I have some family/friends who are in that 'only high school diploma, no
credentials/money/drive to go to a non-community college' trap, and one big
barrier is that the training programs for Nursing Aides, Auto Tech, and even
office/clerical have 1 year+ wait times. Even though they _want_ to gain these
skills, they need to support themselves until they get into the program, and
while they're working through it.

Even though there's great demand for the skills, and workers who want to gain
them, the training pipeline just hasn't expanded yet.

~~~
ericd
I've long wondered why we're not investing more in skilled labor/vocational
training as a country - any idea what the bottleneck is there? A lack of
qualified instructors? Specifically, I think it'd be great if the govt. made
training a valid alternative to "looking for a job" as a requirement for
continued welfare/unemployment (might already be the case, but I've not heard
of that being so).

------
snitzr
There is a difference between the bullwhip effect and JIT (just in time)
manufacturing. Building your assembly plant near your suppliers is JIT and it
helps reduce in-process inventory. Less in-process work and faster delivery to
the assembly plant means you can ship product faster. This is important for a
fast-moving tech manufacturer.

The bullwhip effect is caused by delay and uncertainty in demand. JIT helps
minimize its effects, but doesn't ensure its elimination. Coordinating your
demand with retailers is one way to prevent the bullwhip effect. I'm guessing
Apple has effective inventory and order coordination with their retailers.

------
RedwoodCity
There are plenty of counter examples to this. Boeing has suppliers for key
components for its airplanes as far away as Italy and Japan.

Toyota and BMW assemble vehicles in the US from imported parts.

A CPU from intel is often fabricated in a US based factory, tested in Costa
Rica, and packaged in Asia.

The issue has too many variables related to margins, tax breaks for factories,
and import tariffs; to say the whole electronics supply chain is moving one
direction.

As wages and living standards rise in China it is likely that some production
will move to other countries and regions, which in the longterm is a good
thing because it spreads the wealth.

~~~
mkswp
Some good points here. There are a lot of variables however, Boeing has run
into the problem of the bullwhip effect too with the Dreamliner:
[http://articles.latimes.com/2011/feb/15/business/la-fi-
hiltz...](http://articles.latimes.com/2011/feb/15/business/la-fi-
hiltzik-20110215)

------
tzs
We used to occasionally get to play games like that for actual money when I
was an undergraduate. Every so often, grad students in economics would come
around to the undergraduate houses at dinner time to announce that they were
looking for volunteers for economic experiments that night.

The experiments would typically take place in the social sciences building,
with each participant being put in a separate office (that was one of the
reasons they were at night--so there would be offices they could borrow). We'd
be given instructions on the game to be played, and the phone numbers of other
offices if the game involved communication between the players, and the game
would start.

Each player would start with a certain amount of game money, and when the game
is over that would be converted to real money and the player kept it.

On average, if I recall correctly, players would make about $20-30 or so each
in these games. That doesn't sound like a lot, but for a college student in
the '80s that would be enough for several nice meals away from food service,
or for 3 or 4 albums at the record store. You'd almost always get at least
$10, and sometimes someone would make $75-100.

------
brownbat
I found the in depth reporting at the Atlantic last month a bit more
revelatory:

[http://www.theatlantic.com/magazine/archive/2012/01/making-i...](http://www.theatlantic.com/magazine/archive/2012/01/making-
it-in-america/8844/)

Though it sort of agrees that supply chain is important, just frames it
differently.

The reason Standard Motor still employs (expensive) low skilled US workers
like Maddie is because it wants to have her seal up a part immediately after
the high skilled worker (Luke) finishes his precision machining role. Workers
of Luke's caliber (with knowledge of metallurgy, coding, specific machine
training) aren't reliably found in the lowest labor cost countries (at the
moment, Poland is getting competitive here).

If robots for Maddie's job get cheaper, or demand grows such that the factory
needs to run multiple shifts, or if the factory can somehow move Luke
overseas, then Maddie loses her job. If any of these things happen, but firms
like Standard keep their Maddies, they get bought out by gigantic German
manufacturers, or just undercut on the store shelves until no one's buying
their products anymore.

------
zipdog
The beer game is also mentioned in Peter Senge's The Fifth Disciple, where he
suggests it originated from MIT in the 1960s. I think he had one less link in
the chain (3 players not 4) but still the effect was the same.

btw, His book is a good intro to the way small changes effect integrated
systems, particularly in business.

------
tlogan
I'm not sure this a correct explanation: if this is correct then Foxconn would
_never_ starting making iPads in Brazil ([http://www.webpronews.com/foxconns-
brazilian-ipad-factory-to...](http://www.webpronews.com/foxconns-brazilian-
ipad-factory-to-begin-production-2012-01)).

------
scott_s
This is a great explanation, but this statement is wrong: _The U.S. has lost
that industrial base and it’s extremely difficult to get it back._

It's important to keep in mind that the US still makes a lot of stuff. In
fact, we still make more than most:
[http://www.npr.org/blogs/money/2011/02/07/133561265/3-ways-o...](http://www.npr.org/blogs/money/2011/02/07/133561265/3-ways-
of-looking-at-manufacturing-in-america)

However, we're employing less people to do it, and those that we do employ
require more education than before:
[http://www.npr.org/blogs/money/2012/01/13/145039131/the-
tran...](http://www.npr.org/blogs/money/2012/01/13/145039131/the-
transformation-of-american-factory-jobs-in-one-company)

------
jsz0
Do we even have the affordable housing & mass transportation required for
something like this anymore? The 'FoxConn cities' in China look a lot like the
old factory towns in the United States that have mostly disappeared. Even with
the huge number of home foreclosures most cities simply do not have affordable
housing for an influx of even 100,000 people. Most cities don't have the mass
transit capacity to carry them to work. They don't have room in their schools
for tens of thousands of new students. They could be built of course but it's
not a turn-key solution the way it is in China. If Apple started the process
today I bet it would take 5-7 years at minimum.

------
nileshtrivedi
There ought to be an app for the beer game.

------
damoncali
Or they could just do like Dell does - require suppliers to carry inventory
(on _the suppliers'_ books) within minutes of their factories. You can do that
in America just as easily as you can in China.

~~~
brendn
That may insulate factories from fluctuating inventory supply, but it doesn't
solve the problem of fast turnaround when changes are needed. If a part needs
to be redesigned, the supplier may still have a weeks-long lead time to get
the new part shipped, and has the additional problem of obsolete inventory
that is now wasting space near the factory.

~~~
damoncali
You're missing my (sloppily made) point. China vs US has nothing to do with
that. Either you consolidate your suppliers and squeeze the snot out of them,
or you suffer the bullwhip effect. It can be done in the US, China, or the
North Pole. The reason it's in China is cost.

------
Prophasi
From near the end: "Obama was right in bailing out the auto industry when GM
and Chrysler were going bankrupt."

It's myopic to equate GM and Chrysler with the American auto industry. My hope
was that those tragically unfit companies and their corrupt unions would go
bankrupt, only to have their assets swept up at fire-sale prices by a company
or person willing and able to ignite a rebirth of the industry.

Sometimes you gotta clear out the brush. The old, rickety, terribly designed,
onerously-high overhead, ridiculous pension brush.

------
jgervin
Cost is the main driver here. I am lefty, but I agree the unions are a little
out of control. I am sorry, but a guy who stands in a production line building
cars should not be making $125k per year (source was a series on TV, think 60
minutes where they talked to some of those workers).

I am glad unions are there to help make sure people are not overworked and
have benefits, but come on guys. You shot yourself in the foot there.

~~~
smacktoward
_> I am sorry, but a guy who stands in a production line building cars should
not be making $125k per year_

You should be pleased to learn then that they don't:

* [http://www.nytimes.com/2008/12/10/business/economy/10leonhar...](http://www.nytimes.com/2008/12/10/business/economy/10leonhardt.html?_r=3&hp)

* <http://www.factcheck.org/2008/12/auto-worker-salaries/>

~~~
webXL
Fact-checking FactCheck.org:

Let's assume that a union worker won't get an extra $15 per hour worked that
current retirees are receiving. So take $15 off of their labor costs of $70
per hour (complexity through obfuscation). So that's

    
    
      $55 = VALUE of actual wages and benefits EARNED by WORKING 1 hour
      hours_worked_per_year = 52*40 = 2080
      earnings_per_year = hours_worked_per_year * $55 = $114,400
    

So you're correct, according to FactCheck.org, it's not $125k per year. But
the point is still valid when you account for benefits. If my employer gives
me a new Ferrari each year as a benefit, no one would consider me underpaid if
I made $10/hour doing secretarial work.

------
ekianjo
The end of the article is bit of a nonsense: why, we have to save big failed
corporations like GMC just because of the supply chain ?Are you kidding me?
The supply chain of these manufacturers is going nowhere. If they were
dismantled, other companies would buy their assets anyway and keep using them
on American soil. Nothing is completely lost.

------
macco
Supply-Chain is certainly a point, but I doubt it's the only factor - relative
labour cost play an important role. Questions to ask:

1\. Why did the factories move in the first place.

2\. Why can companies like Airbus oder German car manufacturers survive -
their supply chain is distributed all over the planet, with the best paid
workers in Germany.

------
brudgers
I first read about the beer game in _The Fifth Discipline_. That was the first
book on business I ever bought.

[http://www.amazon.com/The-Fifth-Discipline-Practice-
Organiza...](http://www.amazon.com/The-Fifth-Discipline-Practice-
Organization/dp/0385260954)

------
kristianp
Relevant article by Andy Grove on US manufacturing from 2010:
[http://www.businessweek.com/print/magazine/content/10_28/b41...](http://www.businessweek.com/print/magazine/content/10_28/b4186048358596.htm)

------
ktizo
In the UK, you pay much higher taxes for importing components than you do for
importing final product, so manufacturing anything in the UK that requires
parts from overseas is economically pointless, even if you wanted to (such as
in the case of the raspberry pi).

I have always been suspicious of the concept of post-industrial economies as I
have always thought that they relied on a colonial logic of intellectual
superiority which doesn't really exist.

The plan seemed to be that the western world is good at organising and
designing stuff, and those people over there are much cheaper for doing the
actual work of building this stuff for us, especially since our local labour
market started getting ideas about rights and profit share and stuff.

However, the organising and designing of stuff turned out not to be quite as
difficult as we had so arrogantly assumed, so all we do is get rid of out
ability to make stuff by having an entire generation used to someone else
doing it for them, while eventually all the white collar jobs go overseas as
well.

Personally, I think that if you try being a post-industrial economy for long
enough, you will end up being something much more like a pre-industrial one,
but with a few rich people left, all flying around on those nifty new Chinese
jetpacks.

------
gogobyte
Because Apple and the whole USA IT industry can not build good enough software
for industrial automation. I mean, today's software building technology is too
primitive.

~~~
eitally
This is an idiotic post and you have absolutely no idea what you're saying. If
you'd like to discuss the situation, email me and we can talk.

....

Actually, after thinking about it a little more you may be more accurate than
I thought, if I read your statement literally. Thankfully, the US
manufacturing industry _is_ building good enough automation software.

