SEPTEMBER 28, 2012
WILLIAM BRUNS JULIE H. HERTENSTEIN KELVIN LIU
Danshui Plant No. 2
In August 2010, Wentao Chen, manager of Danshui Plant No. 2 in southern China, was anxious. The plant was in the third month of a 12-month contract to assemble the Apple iPhone 4. The contract called for Danshui to assemble 2.4 million iPhones in the period between June 1, 2010, and May 31, 2011, but now in the third month of the contract, production was only 180,000 units per month. Chen called Jianye Ma, the plant controller, to request a summary of monthly operations for August as soon after the end of the month as possible. Danshui was a contract manufacturer that assembled electronic ...view middle of the document...
Because the contract was for a year, an annual budget was established soon after the iPhone contract was signed. This budget was divided by 12 to establish equal monthly budgets to which actual revenues and expenses could be compared. All budgeting and monthly reporting was done in U.S. dollars.
Professor Emeritus William J. Bruns of the Harvard Business School and Associate Professor Julie H. Hertenstein and Assistant Professor Kelvin Liu of Northeastern University prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. Despite occasional references to actual companies, this case is fictitious and any resemblance to actual persons or entities is coincidental. Copyright © 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
913-525 | Danshui Plant No. 2
As the plant manager, Wentao Chen was responsible for control of all costs in his plant. Materials, labor, and overhead were his responsibility. This was done to provide incentive to control all costs whether caused by use waste, damage, theft, or inefficiencies.
The Apple iPhone 4
The iPhone 4 contained more than 100 components manufactured in plants located in Europe, Asia, and the United States. For examples, Samsung supplied flash memories and application processors, and Infineon (a German chip maker) supplied chips that send and receive phone calls and data. A gyroscope, new to the iPhone 4, came from STMicroelectronics, based in Geneva, and a touch-screen module came from Taiwan. Contract manufacturers assembled these parts in assembly line plants that required each worker to focus on one or more tasks in a short period of time as each phone moved along an assembly line toward completion. Estimates of the material cost of each iPhone were around $180, assembly labor around 7% of total cost, and Apple’s profit margins about 60% of the selling price to customers. (See Exhibits 1 and 2 for estimated standard costs and overhead budgets for the Danshui Plant No. 2.) The assembly process at Danshui Plant No. 2 was almost entirely based on handwork by workers. There were about 140 steps in the assembly process for an iPhone 4, and each phone was handled by 325 individuals during the five days required for assembly. Apple released the iPhone 4 on June 24, 2010 and more than 1.7 million units were sold in the first three days it was available. It was the most successful product launch in Apple history. Apple fanatics around the world waited in long...