There has been no shortage of significant supply chain related news these past months, but I would dare state that the most troubling thus far this year broke this weekend.

A global supply manager at Apple was arrested and charged with offenses that include wire fraud, money laundering and unlawful monetary transactions involving more than one million dollars in alleged kickbacks.  According to the Wall Street Journal article, (paid subscription may be required)  “this incident underscores the pressures on companies that hope to serve as suppliers to the fast-growing Silicon Valley giant.” An indictment also names an employee of one of Apple’s suppliers as a co-conspirator.

The U.S. Internal Revenue Service and the FBI conducted the investigation uncovering an elaborate scheme involving at least three suppliers where confidential information that would allow these suppliers to negotiate on more favorable terms with Apple was shared.  The suppliers in question provided mechanical parts, tooling and fixtures related to the manufacture of Apple iPads and iPhones. Information allegedly shared by those indicted include Apple’s planned sales volumes, product specifications, competitors target prices and bids, which in essence provided overall intelligence on how to best bid for Apple’s business. Correspondence with suppliers was made through Hotmail and Gmail email accounts, payments were made in traveler’s checks and as many as 14 U.S. and overseas bank accounts were utilized in depositing the monies.

To Apple’s credit, the company reacted swiftly, filing a civil suit against the alleged conspirators charging them with fraud and violations of racketeering laws.  The company also issued a statement indicating that it has “zero tolerance for dishonest behavior inside or outside of the company.”

The fact that these incidents continue to be uncovered is troubling in itself.  As many in our community are astutely aware, Apple fosters intense secrecy about its supply chain activities both among its suppliers and its internal employees. Now that an Apple supply manager allegedly violated that policy for personal gain implies that certain individuals will take extraordinary risks for personal gain, not to mention that certain suppliers themselves felt the need to take part in such unethical and criminal behavior in order to maintain or advance their supplier business interests with the company.  Further, as has been noted in past incidents of this type of behavior, the incidents themselves occurred for many months before detection.  Apple indicated that activities related this alleged incident dated back to October of 2006.

There are real questions to ponder.  Does huge supplier contracts with potential for long-term business volume foster an environment that ‘winks’ at unsavory business practices?  The suppliers alleged to be involved in this incident stemmed from China, South Korea and Singapore.  Would North America or European-based suppliers be just as susceptible to practicing these activities?  Are certain corporate security and ethical standards not being consistently enforced?  There are so many questions ….

What’s your view?

Bob Ferrari