Special Feature
Part of a ZDNet Special Feature: Coronavirus: Business and technology in a pandemic

Coronavirus to test supply chain analytics, business demand visibility

Prescriptive analytics and models for the supply chain only go so far when there's the uncertainty of the coronavirus hampering operations.

Supply chain analytics might not be ready for coronavirus outbreak

Businesses with supply chains and manufactured goods are playing a bit of a guessing game as China attempts to ramp up production due to the coronavirus outbreak.

Yes, enterprises have more visibility than ever in their supply chains. Yes, enterprises can move quickly and be predictive. But just-in-time supply chains and analytics just aren't built for unforeseen shocks. And the coronavirus is a bit of a black swan impacting both demand in China and supplies to the rest of the world.

Earnings conference calls from within technology and outside of the industry all highlight the uncertainty. Profit outlooks have been cut, revenue guidance ranges have become wider and projections aren't all that reliable despite cutting-edge technology systems.

The larger question: Can artificial intelligence, machine learning, Internet of things, prescriptive analytics and a bunch of other buzzwords see the future when there aren't precedents? Probably not.

Simply put, the models that are running now have too many variations to tell Wall Street anything concrete about revenue. Apple, like the other companies noting the coronavirus impact, said the primary concern is the health of their workers and partners in China.

Apple said its revenue this quarter wouldn't match its previous estimates but didn't provide a range. Apple has a supply chain issue as well as a demand problem as the coronavirus keeps people inside.

Apple said:

Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated. As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors.

The first is that worldwide iPhone supply will be temporarily constrained...The second is that demand for our products within China has been affected. All of our stores in China and many of our partner stores have been closed.

Walmart International CEO Judith McKenna said the retailer has good visibility in its global sourcing though the coronavirus situation is fluid.

One of the things that we've learned over the last few years through our global sourcing that our merchants have got much closer to the detail of thinking about how the flow of projects come into our business. So they know exactly which orders are in which factories, when they're due to come in and what that looks like. And I think that attention to detail as we go through this, even though it's such a fluid situation, will help us understand better as things become clearer, exactly what the impacts for us would be in the future.

Analog Devices is in a similar situation and holding pattern. CFO Prashanth Mahendra-Rajah said:

Orders trended better throughout the quarter and have overall remained relatively resilient into the second quarter. However, unsurprisingly, we have begun to see weaker demand in China related to the extended Chinese New Year and ongoing business disruption. As such, our outlook assumes that China demand for industrial, automotive and consumer is minimal for all of February before returning to a more normal level in the last 2 months of our second quarter. And we are assuming an impact on our communications business due to the high likelihood of a delay in the 5G rollout. So while forecasting business dynamics in China is very difficult today, our guidance reflects our best estimates.

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Mahendra-Rajah said Analog Devices will see a $70 million hit to revenue in its second quarter and that figure came from essentially assuming no demand in February in China for its industrial, auto and consumer businesses. The company also reckoned that its communications unit would take a hit as 5G deployments are pushed out "just because of the labor challenges that are going on there."

The hope for Analog Devices, Apple, Walmart and others is that demand will pick up and there's enough time in 2020 to make up for a lost February.

But the challenge is gauging how many factory workers return and when. Wedbush tech strategist Brad Gastwirth said it is unclear how demand and supply will be pushed out. "The question rather, in our view, is how quickly will it be possible for normalcy to return and will production mostly just be pushed, or will there be significant demand destruction as consumers, and particularly the Chinese, alter their behavior b/c of the viral outbreak," he said in a research note. 

The only certainty is that buying behavior in China is likely to change due to the coronavirus outbreak. Alibaba CEO Yong Zhang noted:

17 years ago, the e-commerce business experienced tremendous growth after SARS. We believe that adversity will be followed by change in behavior among consumers and enterprises and bring ensuing opportunities. We have observed more and more consumers getting comfortable with taking care of their daily living needs and working requirements through digital means. We are confident in the ongoing digitization of China's economy and society and are ready to see the opportunity to build the foundation for the long-term growth of Alibaba's digital economy.

ZDNET'S MONDAY MORNING OPENER:
The Monday Morning Opener is our opening salvo for the week in tech. Since we run a global site, this editorial publishes on Monday at 8:00am AEST in Sydney, Australia, which is 6:00pm Eastern Time on Sunday in the US. It is written by a member of ZDNet's global editorial board, which is comprised of our lead editors across Asia, Australia, Europe, and North America.