3 Stories of Effective, Awry, and Awful Supply Chains

Fantastic Mr. Foxconn is at it again. The Taiwan-based electronics manufacturer just announced that it is investigating bribery charges against one of its executives, calling into question attempts to clean up its dirty record. A messy supply chain can make or break a business, but who's really responsible for the actions of one employee? From MacBooks to shrimp, I'll examine three separate cases and let you be the judge.

Apple's Foxconn farewell
Foxconn is a massive computer manufacturing company that manufactures various components for many of the major electronics companies out there. Foxconn's Chinese factories have been home to explosions, union busts, worker suicides, child labor, and (as of this week) bribery at the executive level. But even though Foxconn caters to dozens of well-known corporations, Apple (NASDAQ: AAPL  ) has taken the brunt of Foxconn's labor infractions.

Apple has responded by hiring third-party labor associations, increasing its own supply chain oversight, and most recently moving some of its manufacturing to the United States.

The company's decision to cough up $100 million to bring manufacturing to one of the most expensive and unionized countries in the world is reason enough to give shareholders pause. But as fellow Fool Travis Hoium points out in a recent article, there are plenty of reasons for the Apple to fall closer to the tree.

Intel-ligent design
Intel (NASDAQ: INTC  ) has avoided much of the outsourcing drama that has plagued the electronics industry in recent years. The company manufactures most of its products in its own facilities, with 78% of its wafer fabrication conducted in the United States.

Technology companies rely on a variety of specialized materials, and conflict minerals have long pervaded the cellphones, tablets, and laptops that we use every day. Intel was the first company to announce its commitment to an entirely conflict-free product, and its supply chain management is the envy of many of its competitors.

In addition to mapping 90% of its supply chain and conducting on-site smelter visits to ensure that suppliers are adhering to their policies, Intel's stringent management has also helped its manufacturing become faster, more efficient, and more cost-effective.  

Something fishy about shrimp
In a recent deep-dive analysis, fellow Fool Sara Murphy discovered that there's a moral dilemma to slipping another shrimp on the barbie. The U.S. currently consumes one-third of Thailand's shrimp output, but the origins of those imports is a harrowing tale. Photojournalist Jason Motlagh's investigation shows firsthand the behind-the-scenes atrocities that take place in thousands of shrimp-peeling sheds before the crustaceans make their way to carefully monitored processing plants.

Sara's corporate inquiries revealed some progress, but a continuing lack of complete oversight. Costco (NASDAQ: COST  ) performs audits, but notifies suppliers in advance that they're headed in for a look. Darden Restaurants (NYSE: DRI  ) prefers to leaves its inspections to third and fourth parties, which assure the corporation of their compliance. Wal-Mart and Whole Foods (NASDAQ: WFM  ) get best in show as they head toward 100% seafood certification with the help of stringent requirements created by the Marine Stewardship Council.

The future of supply chains
Monitoring supply chains isn't just an ethical issue. Knowledge is power, and conscious companies can demand the best from their suppliers, whether that's quality products, timely delivery, environmental adherence, or a variety of other factors that affect the reputation of a company and the effectiveness of its product.

Historically, companies could choose to look the other way when supply chain origins went awry. Nowadays, a corporation's blind eye will be met with a critical one from consumers, shareholders, and other stakeholders.

The three supply chain stories above have been addressed in three different ways. Apple is bringing some manufacturing back home, Intel is monitoring its minimal third-party suppliers, and the shrimping industry is relying on certification to laud the good and admonish the bad.

Foolish bottom line
Investing decisions are never easy, and it's tough to know how to compare factors as seemingly separate as earnings per share and labor rights violations. Supply chain management is a unique and important clue into a company's overall management effectiveness. I've made an outperform call for Intel on my Motley Fool Caps page, and am looking forward to seeing where it and other cognizant companies end up in the next few years.

Apple has been a longtime pick of Motley Fool superinvestor David Gardner, and has soared more than 214% since he first recommended it for Stock Advisor in January 2008. David specializes in identifying game-changing companies like this long before others are keen to their disruptive potential and helping like-minded investors profit while Wall Street catches up. Learn more about how he picks his winners with a free online tour of his flagship service: Supernova. Inside you’ll discover the science behind his market-trouncing returns. Just click here now for instant access.


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