Quality control with teeth: Apple bites Foxconn

The best way to make a head chef angry is to send your plate back to the kitchen during a busy lunch rush. Well, Apple just reportedly sent between five and eight million iPhones back to contract manufacturer Foxconn’s kitchen over quality control issues. The Register took a stab at estimating the cost to Foxconn and came up with a 1.6 billion dollar hit, adding to other recently revealed revenue woes.

Apple is a famously secretive company, and the story, however vague, offers a glimpse at the tightness of its quality control standards.

Apple still produces the iPhone 4 and the iPhone 4s in addition to the flagship iPhone 5. No specific word on which model or models the company returned, but when Apple released the iPhone 5 in 2012, the Cupertino company returned substantial numbers of units to Foxconn for scratches to the aluminum composite skin and other manufacturing flaws. Additionally, Apple had imposed new build quality rules that rejected accidental production indentations larger than .02mm. A reported three to four thousand Foxconn workers staged a strike in Zhengzhou in 2012 due to difficulties meeting Apple build quality standards while hitting Foxconn’s production quotas.

Apple is renowned for its design prowess, and the ambition of its hardware design is satisfied by a number of factors that are difficult for other companies to replicate. In fact, Apple’s quality assurance system is built into every step of the manufacturing process, including design, sourcing components, custom manufacturing processes, and even shipping.

Apple doesn’t just design its products; it designs the actual manufacturing processes needed to produce them. The unibody enclosure Apple uses for its Macbooks is stamped from a single piece of aluminum using manufacturing processes designed in Cupertino. Apple is known for retooling entire factories for its manufacturing partners. In exchange, the company has guaranteed availability of the factory’s whole capacity.

Apple has unmatched control over its supply chain. The stories are almost legendary now; in 2003, the company bought nearly all of the available air shipping capacity from China for the holiday season to ensure a steady supply of iPods to its major market countries. In addition to averting supply chain disruptions, Apple thwarted competitors attempting to move their own freight during the same quarterly sales window. The tightness and efficiency of its supply chain also extends to the availability of components such as capacitative touch screens and its custom batteries, all of which are built to the specifications of Apple’s exacting designs. By contrast, most other companies make bulk purchases of premade, off-the-shelf components for their devices.

Due to its supply chain efficiencies, arguably none of Apple’s competitors are able to match the build quality of Apple’s products at Apple’s price point. Although Apple is known as a luxury brand, in order to beat its prices, competitors have to make QC compromises Cupertino regards as unacceptable. The company uses its quality assurance and quality control systems as a cudgel, the same way that its supply chain has become a competitive weapon.