We can sometimes refer to the time-worn adage that success can bring more challenge, and as we have been noting in ongoing commentary on this blog that certainly applies to Apple Inc..

The company announced this week that it cumulatively sold more than 1.7 million iPhone4’s in the first three days of initial product launch, an all-time record in the history of Apple.  This comes in addition to Apple’s previous announcement that it has sold 3 million iPads in the first 80 days of product launch.  Such success however is compounding other supply chain developments and new challenges.

In a front page article, today’s Financial Times (free sign-up preview account may be required) notes that Foxconn, Apple’s prime contract manufacturer is preparing to shift part of its production related to Apple products to north and central China, where labor rates will be lower. The move is reported to be a response to the dramatic wage concessions granted to Foxconn’s workforce in southern China, after an unprecedented wave of worker suicides. The article notes: “Executives close to the annual negotiations between the two companies over next year’s orders said Foxconn’s demands to pass on some higher labour costs had not been met favourably by Apple  “But Apple is more ready now to use some of the new locations”, one executive said.”” Headcount at Foxconn’s main Shenzhen factory is up to 300,000 to accommodate ever increasing consumer demands for Apple’s products, and is expected to increase even more before any location shift can occur.

In fairness, both Foxconn and Apple have declined to comment on the FT article, and there may be other forces at play here, but this development is worthy of comment, especially since this author has in the past tried to keep an objective perspective toward Apple.

Consumers and Supply Chain Matters readers know that Apple makes attractive products, and its no secret that Apple charges a premium price for these products.  In the nine months ending in the recent March 2010 quarter, Apple has more than doubled net income, and gross margin has increased over 2 percentage points to 41.2%.  In March, Apple’s very able COO and chief supply chain officer Tim Cook was awarded $22 million in cash and stock compensation for his outstanding leadership.

In light of these stellar financial results and rewards, and in the context of Apple’s very public Supplier Responsibility and Code of Conduct commitments, it seems rather perplexing that Apple is reported as playing hardball in negotiations for added labor increases, especially when direct labor is a minor consideration to overall product cost.

As a community, we have all admired how successful Apple’s supply chain team became in concentrating its negotiation power with just a few contract manufacturers, trading off large volumes for huge amounts of influence and flexibility.  That model may well be reaching a crossroads, as Apple’s success in products takes a toll on these manufacturers, and their workers.  It also raises the question- is it time for Apple to finally step-up and play its role in supplier responsibility and proactive engagement? Playing hardball in supplier negotiations is one thing, playing hardball in the midst of overwhelming profits in quite another. Being rated as the number one supply chain comes with immense global responsibility.

Is it time for Apple to step-up to its own code of conduct?  I vote yes!

How do you vote?

Bob Ferrari