With new products on the way, Apple’s highly respected operations teams may never have faced such complex challenges as it struggles to maintain some production at factories and partners across the world as the coronavirus bites.
Apple’s missed expectations
These teams are world class. Apple is famed for its ability to manage its complex multinational supply chain, but the teams must find themselves deeply challenged by what’s become an ever-moving situation.
Apple recently warned it would miss expectations in the quarter, and the OECD warns the global economy will experience a sharp downturn as the virus proliferates internationally.
Even now, as conflicting reports claim infection rates in China may be slowing, the virus is spreading in other geographies. The cost in human misery is incalculable, but this also generates big problems in any kind of supply chain.
Take today, for example:
- Foxconn (Hon Hai Precision Industry Co.) is now running night shifts at its iPhone factory in Zhengzhou, Henan Province, China.
- But LG Innotek, which makes camera modules for iPhones, has closed one of its manufacturing facilities in South Korea after a worker was found to have contracted the virus.
The enterprise impact is confounded by the complexity those human problems create. You can’t get much business done if no one is working and no one is shopping. What happens to infrastructure and transportation as people get sick and can’t do their jobs? Travel restrictions, quarantine and mandatory shutdowns are all being discussed at the government level.
“Governments need to act immediately to contain the epidemic, support the health care system, protect people, shore up demand and provide a financial lifeline to households and businesses that are most affected,” said the OECD.
When it comes to protection, other than washing your hands while hiding indoors, most people just don’t know what to do.
This makes for a rapidly compounding scenario in which one set of problems quickly creates a new collection of challenges. This kind of unpredictability is a nightmare for any operations team.
Still on course for March?
Speaking last week, Apple CEO Tim Cook seemed resolute when he said he thought production in China was returning to normal – but as new cases are identified in other geographies, his optimism may be short lived.
Apple analyst Ming-Chi Kuo has already rejected this take, warning iPhone production won’t improve until Q2 2020. He observes that some suppliers are running low on inventory of some important components.
Despite all these problems, Apple has been expected to make a swathe of product introductions this month, including the iPhone 9/SE, iPad Pro, 13-inch MacBook Pro, an improved Apple TV model.
The tablet may even include the new trackpad-carrying keyboard so many people are chattering about, but this seems unlikely – yet – even as an ARM-based Mac returns to the conversational flow on the Apple-watching dinner party circuit.
Apple’s ops teams must therefore be grappling with huge challenges. Not only must they figure out which factories in a complex supply chain remain operational, but they must also make contingency plans in case manufacturing stops.
They must organize how to shift products around and make contingency plans in the event logistics collapse. These plans must also factor in what happens if shipments are delayed if cities, transport networks or staff shortages cause problems.
Even while working on this, those teams need to ensure quality control remains high and that any potential design or hardware flaws are identified fast. These and each and every additional challenge must be resolved on a budget.
Major events including Mobile World Congress, the Geneva Motor Show, F8 and the Games Developers Conference have all been cancelled, which means Apple management must surely now be considering cancelling the company’s so-important Worldwide Developer’s Conference (WWDC) this year.
The latter poses a new series of challenges as marketing, developer relations, publicity and other components of Apple’s money-making machine must be adjusted to meet whatever decision the company takes – but it is probably far more resilient than other companies that don’t dedicate the kind of resources it does to its supply chains.
Overblown or over-confident?
Oppenheimer analyst Andrew Uerkwitz agrees: “Our limited checks indicate Apple will prove more resilient than others as firms worldwide navigate changing supply chains and customer demand uncertainty,” he said.
What does Cook think?
“It will take some time, but by and large I think [the impact on industry] is a temporary condition, not a long-term kind of thing,” he said. “You know, Apple is fundamentally strong and that’s how I see it.”
Our products are built everywhere. They are truly global products and so you have several parts that are made in the US that serve the world… So, what will happen to the supply chain as we look back on this? I wouldn’t want to say at this point.”
Things certainly seem complicated.
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