Danshui Plant No. 2

2038 Words Mar 22nd, 2014 9 Pages
Overview:
Apple Corporation released iPhone 4 on June 24, 2010 and sold more than 1.7 million units in the first three days. To prepare for the launch of the new product, Apple contracted with the Danshui Plant No. 2 to assemble the new iPhones. Danshui Plant No.2, a contract manufacturer in southern China that assembles electronic products for companies wishing to save on labor costs, received a one-year contract starting on June 1, 2010 with the Apple Corporation to assemble 2.4 million iPhone 4s. In the first three months of the contract it became obvious that the plant was unable to assemble the expected 200,000 iPhones per month and was operating at a loss. Although the plant is known for hiring semi-skilled workers, the new
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2 was operating at a loss of $672,000.
Based on the current operating report, the plant is missing the targeted production line with a shortfall of 10%. Even with a 90% production rate for the first three months of the contract, the plant is not meeting the expected $100,000 profit budget and is operating at a loss of $672,000 (over the expected $90,000 expected profit budget based on the 90% production rate). Based on current modeling, this is a significant loss of profits. Danshui Plant No. 2 needs to formulate an aggressive production schedule and profit modeling for the remaining 9 months of the contract to meet the contract required, to avoid significant profit losses during the term of the contract, and satisfy the Apple Corporation to gain future contracts.
Based on our analysis of the situation, we feel that the number one cause of the shortfall is the labor problems facing the Danshui Plant No. 2. Although the plant has raised the wages by almost 30%, it cannot find enough qualified workers to hire. Although this figure is higher than originally budgeted by the plant, it is still not enough to compete with its competitor, Foxconn, where starting wages for skilled labor have increased by 35%. Even with the current wage increase, the Danshui Plant No. 2 will need to ramp up the production for the remaining nine months to gain profitability. This may be a challenge for

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