Labor Costs, The Beer Game, Apple, and Supply Chains

Recently, via Zite,  I came across a posting, “The Beer Game -or- Why Apple Can’t Build iPads in the US” by David Wu (@marksweep) that used the famous supply chain simulation game, The Beer Game, to allegedly explain why Apple has it manufacturing operations in China.

The lessons of the Beer Game are pretty evident. Delay in the supply chain causes amplified downstream problems. The problem wasn’t that we were kids running beer supply, the problem was the structure of the chain itself. Small changes at the front end lead to massive mistakes down the line.

And,

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.

These are not the lessons of the Beer Game.

Bullwhip effect from Wikipedia

The Bullwhip Effect (borrowed from Wikipedia)

The Beer Game is about knowledge within the supply chain, specifically visibility to finished goods demand, and more generally communication throughout the supply chain. There are many examples of supply chains that are tied right back to the cash registers so that suppliers see customer demand in real time. Though geography is not unimportant, mere physical proximity does not an effective, responsive supply chain make. After all, the Beer Game participants are sitting within eye sight of each other. This does not prevent chaos from predictably occurring. Predictably, because this supply chain simulation shows how the bullwhip effect operates, quite immutably, in the presence of miscommunication.

Labor Costs Drive Supply Chain Location

Mr. Wu does not seem to understand that labor costs drive the relocation of manufacturing and services to low wage countries. Even now, China itself is coming under pressures from this rule as its labor costs have been rising. Manufacturers are now scrambling for lower labor costs in Vietnam, Malaysia, and elsewhere. Capitalism has always driven for lower labor costs.

Lets hope that Mr. Wu’s father takes him out to the woodshed for another round of the Beer Game supply chain simulation. Perhaps then we will see a corrective posting on his site.