iPhone Global Supply Chain, The Power of the Market Through The Division of Labor

The New York Times talks about supply chain structure of the iPhone and its costs,

``According to the latest teardown report compiled by iSuppli, a market research firm in El Segundo, Calif., the bulk of what Apple pays for the iPhone 4’s parts goes to its chip suppliers, like Samsung and Broadcom, which supply crucial components, like processors and the device’s flash-memory chip.

``In the iPhone 4, more than a dozen integrated circuit chips account for about two-thirds of the cost of producing a single device, according to iSuppli.

``Apple, for instance, pays Samsung about $27 for flash memory and $10.75 to make its (Apple-designed) applications processor; and a German chip maker called Infineon gets $14.05 a phone for chips that send and receive phone calls and data. Most of the electronics cost much less. The gyroscope, new to the iPhone 4, was made by STMicroelectronics, based in Geneva, and added $2.60 to the cost.

``The total bill of materials on a $600 iPhone — the supplies that go into final assembly — is $187.51, according to iSuppli.

However, when I reached the portion when the article mentioned “The world of contract manufacturers is invisible to consumers”, it dawned upon me that the author was dealing with wonders of the division of labor in passing.

Yes indeed, the iPhone is a product of a global division of labor!

And a great illustration of the magic of the division of labor was written by Leonard Read in his classic “I, the Pencil”, where he shows how people from diverse places and distinct cultures work spontaneously and invisibly in harmony to produce what seems like a simple product- the pencil- which you and I use.

The illustrious Milton Friedman does a great job discussing Mr. Read’s classic, below…