High End

The newest version of the Mac Pro, a top-of-the-line computer used by graphic designers and filmmakers who require the fastest performance, is going on sale at the height of the holiday shopping season in customizable configurations starting at $2,999 and $3,999 depending on the chip’s power and amount of memory.

The sleek, rounded black machine, which looks like a space-age trash can or a small jet engine, is 9.9 inches tall and is an eighth the size of the current Mac Pro, the company said. Intel’s Xeon processors will let it handle some calculations at twice the speed of the existing model, Apple has said, and will use 70 percent less power because of its smaller size. The computer comes with 256 gigabytes of flash-based storage, expandable to one terabyte — the equivalent of 1,000 gigabytes.

Twenty States

Apple executive Phil Schiller said in October that more than 2,000 people in 20 states were working on the Mac Pro. The Cupertino, California-based company released a video of the highly automated processes used to build the machine, showing a puck-shaped plug of aluminum being stamped into the shape of the cylindrical shell, and then passed through a series of robots for polishing, anodizing and painting. Other machines insert electronic components onto circuit boards.

The last frames of the video show the words “Designed in Cupertino, Assembled in the USA” being etched on the bottom of the machine by laser. Under U.S. Federal Trade Commission regulations, companies can’t include the term “Assembled in USA” if that process only includes final piecing together of imported parts “in a simple ‘screwdriver’ operation in the U.S.”

So far, the company’s push isn’t poised to have a big impact. Of Apple’s $170.9 billion in annual revenue, more than 70 percent of that comes from the iPhone and iPad tablet, which are built in China. The new Mac Pro will probably contribute less than 1 percent of Apple’s sales in 2014, said Gene Munster, an analyst at Piper Jaffray Cos. He predicts the company will sell 1.1 million Mac Pros in 2014, compared with 300 million iPhones and iPads.

Google, Lenovo

Other large technology companies have also been doing more work in the U.S., yet few have begun manufacturing components in the country. Google, which makes the rival Android mobile operating system and Motorola smartphones, has been assembling its Moto X device at a Flextronics International Ltd. factory near Fort Worth, Texas, hiring more than 2,000 people. In June, Lenovo said it was adding 115 people to work on final assembly of PCs in Whitsett, North Carolina.

“We are designing, engineering and assembling Moto X in the USA,” Gabe Madway, a spokesman for Motorola, said in an e-mail. “Our parts come from all over but are assembled and in some cases made in the U.S.”

While Beijing-based Lenovo, the world’s largest PC maker, isn’t doing fabrication in the U.S., the automation equipment used at its Whitsett plant was made in the country and the company uses packing materials from local vendors, said Milanka Muecke, a spokeswoman.

Labor Conditions

Apple has faced stepped-up scrutiny of its overseas labor in recent years. Allegations of use of underage workers, forced overtime and other infractions have led the company to investigate conditions at China-based manufacturing partners Hon Hai Precision Industry Co. and Pegatron Corp. Apple has joined the Fair Labor Association, and publishes regular results of hundreds of factory audits in a Supplier Responsibility Report.

In December 2012, Cook told Bloomberg Businessweek that the company would spend $100 million to build a new version of one of its Mac models in the U.S. In testimony before the U.S. Senate in May, Cook said the Mac Pro would be assembled in Texas using parts made in Illinois and Florida and equipment made in Kentucky and Michigan. And last month, the company said a new Arizona plant will employ 2,000 people to produce a glass alternative made of synthetic sapphires that are increasingly being used in smartphones to cover camera lenses and home buttons.

Rebuilding Expertise

Cook declined to say how many total jobs Apple might create in the U.S. The biggest challenges have been getting more suppliers to set up shop, and re-establishing production-related expertise that has been disappearing since big technology companies started turning to foreign companies for manufacturing in the 1990s and 2000s, he said.

“We’re responsible for 2,000 jobs so far, and we’ll see how high that goes,” Cook said in the October interview. “The important thing is to re-develop the skills.”

Some of Apple’s suppliers are already taking steps to boost their operations in the U.S. Last month, Hon Hai said it would spend $30 million to build a factory in Harrisburg, Pennsylvania. Hon Hai CEO Terry Gou said the focus at that plant would be on developing automation technologies, not creating job-intensive production lines.

Given the lower labor costs and smooth supply chain Apple has built in Asia, the co
mpany
may never bring high-volume manufacturing of devices such as the iPhone back to the U.S., said Mike Fawkes, who oversaw Hewlett-Packard Co.’s supply-chain operations until 2008. While labor costs in China have been rising in recent years, they are still 60 percent lower than those in the U.S., according to Boston Consulting Group.

“It’s a positive sign to see Hon Hai further establish its U.S. presence,” said Fawkes. “That said, a $30 million factory is a drop in the bucket for manufacturing of any consequence.”

The inspections carry enormous weight with factory owners, who stand to win or lose millions of dollars in orders depending on their ratings. With stakes so high, factory managers have been known to try to trick or cheat the auditors. Bribery offers are not unheard-of. Often notified beforehand about an inspector’s visit, factory managers will unlock fire exit doors, unblock cluttered stairwells or tell underage child laborers not to show up at work that week.

Unauthorized subcontracting, or farming work out, to an unapproved factory (as was the case for the Quaker Pet Group order in China), is “very, very common,” according to Gary Peck, founder and managing director of the S Group, a design and sourcing company based in Portland, Ore.

Though almost all retailers prohibit the practice in their contracts, suppliers still do it to save money, speed production and meet high-volume orders.

And even inspections conducted at authorized factories can be deeply flawed. When NTD Apparel, a contractor for Walmart that is based in Montreal, hired a firm to inspect the Tazreen factory in Bangladesh before 112 workers died in a fire in November, the monitors’ questionnaire asked whether the factory had the proper number of fire extinguishers and smoke detectors on each floor. But it did not call for checking whether the factory had fire escapes or enclosed, fireproof stairways, which safety experts say could have saved lives.

“If it’s a check-the-box inspection, you better have the right boxes to look at,” said Daniel Viederman, chief executive of Verité, a nonprofit monitoring group.

Sajeev Jesudas, president of UL Verification Services, which conducted the Tazreen audit, said inspecting for fire escapes and fireproof stairways was “the responsibility of the local building inspectors.” Bangladesh has been faulted for having far too few officials to inspect factories.

Greg Gardner, the chief executive of Arche Advisors, said Western retailers and brands often seek different levels of audits. Some, like Levi’s and Patagonia, want rigorous — and costly — audits, while others prefer limited, inexpensive audits that will not jeopardize relationships with favored suppliers.

Audits can be very brief. A single inspector might visit a 1,000-employee factory for six to eight hours to review all types of manufacturing issues, like wages, child labor or toxic chemicals. Some auditors receive only five days of training, whereas the federal Occupational Safety and Health Administration requires three years of training and experience assisting inspectors before employees can lead an inspection of a sizable factory in the United States.

In the Rosita case, after the workers went on their rampage, the Western companies that bought the factory’s knitwear grew alarmed. So Rosita’s owner, South Ocean, a conglomerate based in Hong Kong, commissioned a new inspection.

That inspection, conducted by Verité, which is based in Massachusetts, was a scathing broadside. Verité’s monitors found “ongoing physical abuse” and “verbal and psychological harassment,” with managers compelling workers who arrived late to stand for “many hours without rest.”

Verité’s three-day inspection found errors in calculating wages, chemical containers labeled only in English and unreasonably high production quotas for which workers were disciplined or fired for not meeting. The inspectors noted that workers “often face harsh treatment,” including jeering from managers if they requested sick leave or annual leave. The monitors also found that managers had fired employees for missing work because of a death in the family and that security guards had beaten workers involved in union and protest activities.

Mr. Viederman of Verité said the earlier inspection, performed by a major monitoring firm, SGS, demonstrated the shortcomings of checklist audits. The SGS inspection involved a one-day visit, largely seeking yes-no answers, probably for a modest fee.

He noted that SGS had interviewed employees only inside the factory, where workers were often unlikely to speak candidly, and not outside — for instance, at bus stops or at home, where workers might open up.

Charles Kernaghan, executive director of the Institute for Global Labor and Human Rights, was shocked when he read the SGS inspection report for Rosita. “The auditors were saying everything was in perfect order,” he said. “It shows how ineffective these monitoring organizations can be.”

Effie Marinos, sustainability manager at SGS, defended her company’s findings. She said SGS had followed the inspection protocol developed by the Business Social Compliance Initiative, a factory certification group for European businesses.

Ms. Marinos said the protocol for Rosita did not require interviewing workers outside the factory, a practice that she cautioned could undermine a relationship between a Western company and its suppliers.

“You don’t want to start the whole approach with a lack of trust, that they are trying to fool you, that they are behaving unethically,” she said. “It can sour an entire relationship.”

Bypassing Inspection Rules

The Walmart purchase orders read “Ethical Standards Required.”

In mid-2011, the Quaker Pet Group, whose biggest customer was Walmart, began looking for cheaper factories where its trendy dog clothes could be made, according to a former Quaker employee who requested anonymity for fear of reprisal from Quaker. The company has also sold its goods to Petco, PetSmart and smaller retailers.

Quaker settled on a plant called Jiutai Bag and Gift Factory in Dongguan, Guangdong. After visiting the site, Quaker’s president, Neil Werde, sent a note to a Jiutai representative in June 2011. “I was pleased with your factory,” Mr. Werde wrote, according to an e-mail shared by the former employee. “Good luck on the Walmart inspection.”

That inspection did not occur. Quaker officials became concerned that Jiutai would not be able to pass an inspection, the former employee said.

But there was a workaround. While Jiutai would make the garments, Quaker would fill out order forms to say that the items had been made by Ease Clever Plastic Manufactory, then an approved Walmart supplier. Ease Clever is an established manufacturer that ships products to Target and other large companies, according to the global trade database Panjiva. Jiutai, by contrast, had only one recent listing in the database, for a small shipment to Puerto Rico in 2011.

The stickiest issue was how to get the clothing made by Jiutai past Walmart inspectors. An inspection at Ease Clever was scheduled for September 2011, when the Walmart representatives would check that the dog outfits were being manufactured there, the former employee said.

Jiutai simply took the clothes to Ease Clever, according to the former employee. Those moves were outlined in a later e-mail from a Jiutai representative to Mr. Werde.

“The Walmart inspectors showed up and said, ‘Oh, they are being made here.’ It’s not as challenging as you would think,” the
former employee said. “You have your finished-goods area and just show them the cartons being packed out.”

In an e-mail to Mr. Werde, the Jiutai representative, identified as Mr. Hu, detailed how the setup had worked as he pushed Quaker for payment.

In July, Mr. Hu wrote, a company based in Hong Kong called KYCE, apparently acting as a liaison, helped arrange an order for the Christmas dog clothes. “JiuTai only make the clothes,” Mr. Hu wrote.

In September, “we hang the clothes” in display cases and “send to Ease Clever warehouse for Walmart during inspection,” Mr. Hu added, including photographs of the costumes. After the inspection, the clothes went back to Jiutai, and Jiutai, after making final adjustments, packed and delivered the clothes to the shipping terminal, Mr. Hu wrote. Mr. Hu and KYCE representatives did not respond to multiple e-mails seeking comment.

Throughout September, according to Walmart purchase orders, Quaker shipped $2.1 million worth of pet outfits from Yantian, China, to various American ports. The purchase orders list Mrs. Claus dresses, Santa suits and reindeer suits — the exact outfits Mr. Hu of Jiutai said he had made at his factory and then photographed. But the purchase orders list Ease Clever as the supplier, not Jiutai.

Contacted by telephone last month about the inspection and shipment, Jay Xie, a sales manager for Ease Clever, said the company had allowed the use of its Walmart certification. “His factory had not yet been audited — he used my factory because it was already audited,” Mr. Xie said of the Jiutai factory manager. Mr. Xie said this had happened only once, as a friendly act to help a fellow manufacturer.

The shipment, though, was late, according to the former employee and Mr. Hu’s e-mail. And soon after Walmart started selling these items, Quaker began receiving complaints, according to the former employee. When Walmart conducted a quality test on the Mrs. Claus dress, it found holes, and the outfit failed the test. Walmart executives then summoned Quaker employees to its sourcing office in Shanghai for an explanation, but Quaker did not disclose the subcontracting to Walmart at that time, the former employee said.

In March 2013, Walmart received a tip, via its global ethics hot line, about the unauthorized subcontracting and looked into it.

Kevin Gardner, a spokesman for the company, confirmed that subcontracting in this case occurred in 2011, and that Walmart officials “met with the supplier after the investigation to go through the findings and reinforce what our expectations are pursuant to subcontracting.”

Even though Walmart was alerted to the case nearly two years after the products were made and only after a hot line tip, the retailer pointed to the episode as an example of how its investigation and compliance system was working, not faltering.

“We investigated. We talked with the supplier. We think this does show the processes were in place,” Mr. Gardner said.

In January of this year, Walmart established a “zero tolerance” policy, saying it would drop suppliers who used subcontractors without the company’s approval. Walmart adopted the policy after garments headed to the company were found in the fire debris at Tazreen, an unauthorized factory.

Quaker and Mr. Werde declined to comment. The pet specialty company remains a Walmart supplier, Mr. Gardner said.

Cat-and-Mouse Games

The question-and-answer sheet that the factory’s managers distributed to all their employees was explicit: if an inspector ever asked, “Are there injury records?” they were to answer, “Have not heard of any work-related injuries.”

And if an inspector asked, “Any corporal punishment in the factory?” the employees were to reply, “No.” If monitors inquired about underage workers at the plant, employees were coached to respond, “Employment for those less than 16 years old is prohibited.”

This sheet, prepared by managers at a Chinese factory and obtained by The Times, had one purpose: to trick inspectors.

Supply chain experts and monitors say that far too often, factory managers play cat-and-mouse games with inspectors because they are desperate to avoid a failing grade and the loss of a lucrative stream of orders.

The experts provided real-life examples. To avoid appearing illegally overcrowded, one factory moved many machines into trucks parked outside during an inspection, a monitor said. Whenever inspectors showed up at certain plants in China, the loudspeakers began playing a certain song to signal that underage workers should run out the back door, according to several monitors. During inspections in India, some factories displayed elaborate charts detailing health and safety procedures that, like stage props, were transferred from one factory to another, another monitor said.

For monitoring companies with major retailing clients, the auditing regimen can be nonstop. The territory itself is daunting — 5,000 factories produce garments in Bangladesh alone. A retailer that uses 1,000 factories worldwide might want to pay no more than $1,000 an inspection — that could mean a one-day, check-the-box audit — instead of $5,000 for thorough, five-day inspections. That would cost $1 million instead of $5 million.

“You have this intense price pressure downward on these inspection firms, turning them into a commodity business,” said Mr. O’Rourke of the University of California, Berkeley.

Auret van Heerden, president and chief executive of the Fair Labor Association, a nonprofit group that Apple uses to monitor its Foxconn factories in China, said many inspectors were too rushed. “Many are doing a factory a day, and many auditors, more than one factory a day,” he said. “They’re on a plane and going to a new city the next day. They don’t have much time to think about it or dwell on it.”

Despite some improvements, many supply chain experts say monitoring has inherent shortcomings. Not long ago, Nike and other sporting goods companies were shaken by revelations that children, ages 5 to 14, toiled up to 11 hours a day making soccer balls for them in Sialkot, Pakistan.

A study found that half of Pakistan’s soccer ball workers were making less than the minimum wage, with many stitching the balls’ panels together at home, making it hard for factory monitors to unearth such violations.

Nike responded by requiring its main contractor there, Silver Star, to consolidate production in one big factory. Knowing how skilled many contractors have become at gaming the monitoring system, Nike took an unusual step and ordered Silver Star to set up a system of elected worker representatives who would be charged with speaking up about safety problems, wage violations or other issues.

“We’ve learned that monitoring alone isn’t enough,” said Greg Rossiter, Nike’s chief spokesman.

Mr. van Heerden said, “You can never visit facilities often enough to make sure they stay compliant — you’ll never have enough inspectors to do that. What really keeps factories compliant is when workers have a voice and they can speak out when something isn’t right.”

Still, after a string of fatal disasters and repeated failures in uncovering serious violations, many experts doubt that even a highly organized and supervised inspection industry can improve factory conditions in country after country. Heather White, a research fellow at Harvard and a longtime factory auditor, said, “It starts as a dream, then it becomes an organization, and it finally ends up as a racket.”

Reposted from VOXXI:

Is there a reverse in manufacturing trends? Late last year, Apple announced that it was moving part of its manufacturing back to the U.S. Many saw this as a PR stunt by the company, as it had suffered an blow to its image after the media looked into problems with Apple’s Chinese production partnership with Foxconn. Apple users were shocked to learn that the company’s iPhone was being built in a factory that violated workers’ rights.

Apple has dumped Foxconn for other reasons and is now manufacturing iPhones with a different company, also in China. The production of Mac minis, however, will now occur in the U.S. The move is generally seen only as symbolic because the company, which has $121 billion in cash, is only investing $1 million for its production facility in the U.S.

But Apple is not alone in insourcing — and it’s not because these companies want to win a PR battle or appease American consumers.  It’s all about money.

The Manufacturing Jobs Giant

In the 1980s, it was Japan who became the manufacturing giant. We all feared the great rising sun of Japan; its economy was expanding at a dramatic rate, just like China’s is now. And just about every product in the U.S. had that ominous mark: Made in Japan. When Japan became too expensive, manufacturing moved to Mexico, Taiwan and Korea. Korea is still relatively cheap, but Korean companies have actually gone off shore to cheaper places like Guatemala and Haiti.

The International Labor Organization claims real wages in Asia between 2000 and 2008 rose by 7.1 – 7.8 percent per year. Continuing on this trend of rising real wages, the 2012 National Bureau of Statistics of China report estimated that wages in the urban areas of China experienced an increase of 17.1 percent in 2011. This trend is not good if you’re looking to hire workers in Asia to build something for you. But there are other problems, too.

According to an article in The Economist, Chinese workers are organizing. When they strike, they get pay raises — and not just the small 5 or 10 percent raises we get in the U.S. Wages sometimes double overnight after the government demands companies meet workers’ demands, as happened recently to Honda. The company had to give a 47 percent raise to workers at its Chinese auto plant.

Meanwhile, Mexico’s average pay in manufacturing is almost equal to that of China, and with its proximity to the U.S., it’s becoming a better deal for companies. Manufacturing costs are also coming down in the U.S. thanks to lower energy costs.

Apple’s insourcing is high-profile because it’s Apple. But GE has also brought manufacturing home in a big way — much bigger than Apple. GE is spending nearly $1 billion in redressing one of its idle manufacturing plants in Louisville, Kentucky.

This is a serious move by GE, one they expect to make money on. Nonetheless, GE will continue to build in China.

According to Charles Fishman who wrote an article on insourcing for The Atlantic, the issue of cost is not just about wages. The equation is complicated and has to take into account many things including energy costs. For some companies, the math is showing it would be better and cheaper to build in the U.S.

Manufacturing jobs in the U.S.

This is nothing new. Some foreign auto companies have been manufacturing and assembling in the U.S. for years now: Honda, Hyundai and Mercedes-Benz all have manufacturing plants in Alabama. Subaru has its plant in Indiana, and Toyota has plants in Missouri, Alabama and Tennessee.

Many companies (less than 100) have moved manufacturing back to the U.S. in the last few years. Apple’s move might be for PR purposes, and it might not be. But after the Great Recession, it appears lessons have been learned.

If more companies really studied their bottom line, they might see that manufacturing in the U.S. might yield stronger profits, and strengthen the country as a whole.

But the big question remains: Will this trend last?

But at least one economic seer, Goldman Sachs’ chief economist Jan Hatzius, is throwing a bit of cold water on the idea. He recently released a report, which is getting a lot of attention on the web, arguing that the U.S. “manufacturing renaissance” is cyclical, not structural – meaning, the sector is doing as well as would have been predicted under any circumstances at this point in an economic recovery, and that the gains don’t point to a real seismic shift in U.S. manufacturing competitiveness. “Measured productivity growth has been strong,” admits Hatzius in the report, entitled “U.S. Manufacturing Renaissance: Fact or Fiction?” “But U.S. export performance – arguably a more reliable indicator of competitiveness—remains middling at best.”

It’s a very interesting point, and it matters a lot to the broader economy. Nations that do better in manufacturing gain an edge in the global economy: For every $1 of manufacturing output in a community, there’s another $1.48 of wealth created. That’s why economic advisors to the President, like National Economic Council head Gene Sperling, have been pushing pro-manufacturing policies. But the Goldman report would seem to indicate that the strength in U.S. manufacturing output reflects more the relative weakness of Europe (which is mired in a debt crisis) and Japan, rather than a long-term positive shift in the U.S. itself. “Over the next few years, the manufacturing sector should continue to grow a bit faster than the overall economy,” notes the report. “But the main reason is likely to be a broad improvement in aggregate demand rather than a structural U.S. manufacturing renaissance.”

Hatzius was on holiday this week and unavailable for comment (we’ll be following up with him next week), but one immediate question is whether exports really do provide a more accurate picture, as the report suggests. It may be that more goods manufactured in the U.S. are staying in the U.S. As we’ve traveled around the country reporting on this topic over the last couple of years, a number of big industrial firms have pointed to growing demand for their products here at home – Caterpillar, which makes an increasing amount of its large earth-moving equipment for domestic mining, agriculture, and energy operations, is a great case in point.

Then there’s the question of how to look at the productivity numbers. While U.S. productivity is up over the last several years relative to, say, China, which has been flat (and also suffers from rising wages), the big question is how much more it can go up. We feel there’s reason to be bullish on the growth potential there, given how materials science and the evolution of the “industrial internet” are fundamentally reshaping manufacturing in the U.S.’s favor. The once separate steps of designing a product, making or buying the parts, and then putting everything together are beginning to blend — a consequence of technologies such as additive manufacturing and 3-D printing. It means that manufacturing wants to be closer to engineering and design — a dynamic that would likely benefit the U.S., which still rules those high-end job categories. Add the ability to include sensors in every part and process, and you’ve got a whole new manufacturing ecosystem that allows companies to accelerate product development cycles and deliver more variety and value more quickly to ever more fickle consumers.

Of course, the jobs that are being created aren’t your father’s (or grandfather’s) factory jobs of knocking in four bolts a minute for eight hours a day. The new economics of Made in the USA are built in large part around acquiring cutting-edge technologies ahead of global competitors and then using those new techniques to produce more efficiently on super-automated factory floors. And while all the technology will translate into higher end jobs, it will also mean — barring dramatic growth — fewer jobs overall, especially in the middle. Positions will either be high end, or lower paid, since workers still have to compete with cheaper overseas labor (even with wage inflation in China, it will be years before the Chinese are on par with U.S. wages). It’s no accident that many of the new manufacturing clusters in the U.S. are in the South, where unions hold less power. “Yes, manufacturing is coming back, but it’s evolving into a very different type of animal than the one most people recognize today,” says James Manyika, says James Manyika, director of McKinsey Global Institute, which recently did an exhaustive study on this shift entitled “Manufacturing the Future.” “We’re going to see new jobs, but no where near the number some people expect, especially in the short term.”

It’s a sentiment that stands in sobering contrast to President Obama’s second term goal of creating a million new manufacturing jobs in four years. Some of the difference may lie in semantics. As Manyika points out, labor statistics underestimate the reality of manufacturing, since they count mainly jobs inside factories. Related positions in, say, Ford’s marketing department, or small businesses doing industrial design or creating new software for big exporters don’t get tallied. Yet these jobs wouldn’t exist but for the big factories. The official 9% of U.S. employment represented by manufacturing belies the importance of the sector to our overall economy. Manufacturing represents a whopping 67% of all private sector R & D spending, as well as 30% of the country’s productivity growth.

In short, manufacturing’s value can be measured in many different ways. “The ability to make things is fundamental to the ability to innovate things over the long term,” says Willy Shih of Harvard Business School and co-author of Producing Prosperity: Why America Needs a Manufacturing Renaissance. “When you give up making products you lose a lot of the added value.” That’s as good a reason as any to care about the future of manufacturing.