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The Beer Game -or- Why Apple Can’t Build iPads in the US

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Re: The Beer Game -or- Why Apple Can’t Build iPads in the US

#161
post #17

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.

So I totally resonate with this, but I ask this question:

"What would it take to create a factory that could make an arbitrary fastener in 3 hours?"

There are things like having material stock, stamps, etc. But if you look at a screw factory one of the things that jumps out at me is that all the machinery is old old old. Which is to say, the typical fastener factory seems to have machines that were originally tooled up to make war material in the 40's and 50's.

Today, I've sintered carbide cutters, lasers, and machine tools that can repeatedly cut to a tenth. So why can't I build a factory which uses programmable tooling (aka 'soft tooling') that can produce thousands of fasteners per minute? The process can be made parallel in a very straight forward way, more production stations.

Not a YC startup, but how do we get investment in this kind of idea? Can we even? I love reading some of Elon's comments about how ossified the space manufacturing industry is, and how they created things in weeks that the 'experts' were saying would take months or even years to make. We've got Jeff Bezos pulling F-5 engines out of the Atlantic, can we get him to fund the most amazing fastening company ever? Such that any fastener in the catalog can be produced in quantities from 1000 to 1,000,000 with a process where manufacturing costs are fixed across the volume window?

If not, why not?

Re: The Beer Game -or- Why Apple Can’t Build iPads in the US

#162
post #156

Earlier quoted context omitted.

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... The conclusion is that the difference per iPad or iPhone is a small percentage of the profit. They argue that i…

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 hav…

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.

Re: The Beer Game -or- Why Apple Can’t Build iPads in the US

#163
post #74

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…

> 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.factcheck.org/2008/12/auto-worker-salaries/

Re: The Beer Game -or- Why Apple Can’t Build iPads in the US

#164

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 po…

I'd agree, current pay rates for GM workers are higher than the industry normal and in that case they cannot keep up with the industry in terms of cost. Formal bankruptcy where they could get rid of the parts which brought them to bankruptcy would have been much better.

Yes it would have laid many workers but correction has to happen when wrong decisions are made and that is always better than to continue the path which nearly brought a company to its end.

Re: The Beer Game -or- Why Apple Can’t Build iPads in the US

#165
post #74

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…

Not only salaries, but also benefits. I think Health Care Insurance (that the company provides)is often overlooked. American Health Care cost for businesses has increased a ton over the last few decades.

This comment got down voted, it is not mine but it is legitimate point in the discussion. Looks like there are leftist out there doing this?

Re: The Beer Game -or- Why Apple Can’t Build iPads in the US

#166
post #156

Earlier quoted context omitted.

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 hav…

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.

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.

Re: The Beer Game -or- Why Apple Can’t Build iPads in the US

#167

Earlier quoted context omitted.

You can't, because that work can't be done here economically, we've moved further up the value chain. On the flip side, let's say you want to manufacture a new custom processor for your ipad competitor, or turbine for your new 787 competitor. You won't get those things in China, at least not without significant involvement from US companies.

"You can't, because that work can't be done here economically, we've moved further up the value chain." Fundamentally I don't believe that. I could just be stupid. I see the automation that is possible in the US, the infrastructure, and you tell me that its not possible for someone to make a business out of assembling things? Sure its cheap to pull 10 dextrous laborers out of the Chinese working class and make an ass…

It's not that it isn't possible, it's that given the resources we have, it isn't optimal.

Your thesis is wrong not because it can't be done, but because the competitive gains (transportation, communication) don't outweigh the gains to doing much higher value-added tasks. (Not to speak of the potential costs in having to pay higher wages, deal with environmental concerns, etc, but i'll leave those out because they're political, not fundamental.)

Let's say the US only has 10 engineers, but they're really really good. China has 50 engineers, but they're less good. (Good being a stupid shortcut to saying they have more domain expertise/resources, not Jingoism about the quality of Chinese engineers).

Now the US engineers _could_ start a factory making iPods, and they'd be just as good as the Chinese, or just a little better and sell for around the same price, with a profit $X. It's relatively low startup cost, and has relatively low barriers to entry.

Or, the US engineers could start a factory making specialized composite-material airframes for space ships, which the Chinese lack the ability to build at all (so far), with a profit of $50 * X. It's much higher startup cost, and has huge barriers to entry, so there won't be competition for years.

The US engineers can build the wings, buy iPods from the Chinese engineers, and still pocket a huge difference! Meanwhile the Chinese engineers are thrilled to build ipods, because it's the first step in learning the skills to build Rockets. (Nonsense example, but you get the idea) This is basic comparative advantage with respect to a value-added chain.

Your theory would override this IF we had unlimited engineers and a basically level playing field for production costs at the low end, but we don't for tons of reasons, mostly around regulation (which I'm not saying is a blanket bad thing).

With only so much capital, why make iPods when you could be making satellites?

Now of course this example is trivial for lots of reasons, but the general pattern has been playing out for 100 years.

As nations gain expertise and working capital, they move up the value chain and outsource what they lack the resources or environment to build cheaply. Historically this gain in ability has been accompanied by an associated gain in wages/worker protections (for lots of complex reasons), which even further propels you a nation to move up the value chain, since you only want to build the most profitable possible things that you can.

Re: The Beer Game -or- Why Apple Can’t Build iPads in the US

#168

Earlier quoted context omitted.

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 s…

Actually, I'd say this is a long-term problem that we won't solve until we stop expecting everyone to have a job and figure out some way to distribute out to everyone a piece of the value created by automation.

Some day we are going to expect only some people to have to work for a living? How are we going to choose the poor saps that have to work while the robots feed all the rest of us while we sit by our swimming pools?

Re: The Beer Game -or- Why Apple Can’t Build iPads in the US

#169

Earlier quoted context omitted.

...paying American wages would add up to $65 to each iPhone’s expense. The point of the article is to illustrate that wages are not the only problem. Chaotic effects in multi-tier supply chains are also a real problem. I would pay more for an iPhone that I knew was made in America. I'm sure I'm not the only one. You are certainly a minority. I don't think most people value nationalism at $65. Personally, I'd rather h…

You only chose to respond to a portion of what I wrote or didn't read the first sentence so I've italicized it for clarification: they just might not be able to produce 100% of their products there [in Fremont] . Maybe you're not familiar with guitars either, but Fender American made are substantially more expensive but they are in definitely in demand. There is also demand for a cheaper entry level product--both pro…

Are Fender guitars substantially different depending on origin? (For instance[1], different wood, electronics, composition, etc.) If they are, even if it stems from where they are manufactured, then I don't think it serves the argument perfectly because I don't really see how a Made-in-America iPhone would be superior to the one we have now. Lower tolerances? More robust?

Maybe I'm naive but I think food and instruments show a lot more characteristics of the craft worker than electronics.

[1]http://www.strat-talk.com/forum/stratocaster-discussion-foru...

Re: The Beer Game -or- Why Apple Can’t Build iPads in the US

#170
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.

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