Nintendo Shipping The Switch By Air Shows How Complex Supply Chains Are
The Japanese games giant may have misjudged demand.
In an interview with Wired back in January, Reggie Fils-Aimé, president of Nintendo of America, admitted that Nintendo had been caught off guard by demand of the NES Classic (Nintendo's miniature re-issue of its smash hit 80s gaming console), but assured would-be consumers that supply of the Switch console would be in keeping with demand.
Unfortunately, mere months later and Nintendo has once again been plagued by the same problem, with the Wall Street Journal revealing that Nintendo had to ship consoles by plane rather than boat to meet unexpected demand for the console, incurring up to $45 additional transport cost per unit.
Without an insight into Nintendo's decision making process it's hard to tell why these snags keep occurring; but at the same time, the huge complexity of international supply chains is disguised by the ease by which products from around the world appear on our doorstep, and we usually only perceive it when things don't go to plan.
In this case, Nintendo is suffering from two problems which compound one another: One, difficulty in judging demand for its products in advance, and two,the complications of adjusting production and shipping processes once an increase or decrease in demand has been observed. Though the company has been under criticism for repeating mistakes of the past, these kinds of snags are classic problems for large-scale supply chains, as Brian Higgins, a partner at global consultancy firm KPMG Advisory and US supply chain practice lead, explained to Motherboard in a phone call.
Though KPMG's policy is to not comment specifically on other companies, Higgins offered a general assessment based on his experience with similar operations in the past. From the beginning, he said, a shipping enterprise of the scale of a major console launch will start with a forecast of product demand, which is necessarily a best guess based on prior launches, competitors' market figures and other intelligence about consumer preferences. This forecast will then be passed onto a department dealing with manufacturing and supply chain, but once the launch occurs these figures will inevitably will be off by some degree; the question is then how to adapt once the discrepancy can be observed.
"The big concern is, where is the real bottleneck? The freight mode can be the tip of the iceberg when it comes to production strains. It's easy to go from water to air and get a couple of weeks cut off the lead time... but if there are other systemic issues then costs accumulate very quickly," Higgins said.
In short, though an extra $45 per console might seem costly, expediting delivery of consoles leaving the factory to a retail story is actually a simple fix. But given the number of links needed to produce a console—sourcing raw materials to make the basic components, assembling these into larger units, then combining these into the final item, a process spanning several countries and involving a range of contractors—a hitch occurring earlier in the process can be difficult to resolve.
"[A supply chain problem] could be a breaking point at any one of these steps," said Higgins. "It could be a shortage of a component, a sub-assembly, or lack of assembly capacity—just not enough arms, legs and machine time to get the product through."
Nintendo's current statements only addressed delivery issues, and not much more has been revealed at this stage. But as the Wall Street Journal reported, independent analysts are predicting significantly higher demand for the Switch than Nintendo's initial forecasts, meaning that the Japanese games manufacturer will need to make adjustments at all stages of the chain to capitalize on consumer demand for its product.
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