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Securing Supplies is No Game for Nintendo

APICS CEO

Friday June 9, 2017


In today’s competitive tech world, the fight is not only for customers but for parts as well. Last week, The Wall Street Journal outlined how Nintendo is competing with companies that make mobile phones, computer servers and other tech products to get the components it needs for its new Switch gaming machine.

Nintendo’s official sales target for the year is 10 million Switch units; however, it has told suppliers and assemblers that it wants to make nearly 20 million units. “Strong demand suggests it can sell many more — if it can make them,” Takashi Mochizuki writes for The Wall Street Journal. In March, the month of Switch's release, Nintendo sold 2.74 million units.

However, consumers already are having trouble getting their hands on the popular gaming system, and demand is expected to keep climbing as more software companies release games for the platform. This demand scenario will only worsen if Nintendo can’t compete to obtain the necessary component parts to manufacture the units.

“The problem is an industrywide capacity shortage for components used in smartphones, computer servers and other digital devices,” Mochizuki writes. “These include the NAND flash-memory chips that store data, as well as liquid-crystal displays and the tiny motors that enable the Switch’s hand-held controllers to imitate the feel of an ice cube shaking in a glass.”

Toshiba is one major manufacturer of NAND flash memory. On its website, the company highlights its investments in plants and equipment in an effort to better meet demand. However, The Wall Street Journal article quotes a Toshiba spokesperson who says demand continues to be much greater than supply and is expected to remain as such through the year.

Experts suggest that parts manufacturers are more likely to sell to data centers, which use newer and higher-margin components, or smartphone makers, which order in higher numbers. Nintendo could offer to pay more for these components, but then Nintendo would have to raise the price of the gaming system, which currently retails for $299.

Plus, as parts shortages affect production, Nintendo has to pay more for transportation to move parts and products. “Normally, Nintendo could use the late summer months to deliver extra supplies to the U.S. by ship in preparation for the holiday season, but that is more difficult now and Nintendo might again consider air cargo toward the end of the year, people briefed on its thinking said,” Mochizuki writes. He adds that the company already invested in air cargo in March to deliver units to the United States and Europe.

Supply chains for strategic advantage

The Wall Street Journal reports that the Switch’s early success has pushed Nintendo’s share price to its highest point in eight years. Now consider how vital Nintendo’s supply chain management is to the overall success of the Switch. As one aspect of this, think about the first definition of network design as it appears in the APICS Dictionary: “In supply chain management, the design of a supply chain’s sourcing, manufacturing, and distribution facilities and information flows to meet the organization’s strategic goals. These strategic goals can include being efficient, responsive, customer-focused, or some other mix of priorities. The design includes determining the best locations, numbers, sizes, capacities, capabilities, and ownership models of facilities to support these goals.”

More and more, we see how supply chains contribute to companies’ overall strategic goals. Are you and your team ready for the job? APICS certifications help individuals and their employers elevate supply chain excellence, innovation and resilience. For example, the APICS Certified in Logistics, Transportation and Distribution (CLTD) program outlines best practices for network design. Find out more about APICS CLTD and all the APICS certifications at apics.org/credentials-education/credentials.
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  1. Kevin H June 09, 2017, 11:59 AM

    Good read!

    This seems to be  recurring issue for Nintendo as they consistently manage to have massive shortages of product regardless of the item:

    2001-Gamecube

    2006-Wii

    2012-Wii U

    2016-NES Classic

    2017-Switch

    Each one of those consoles suffered massive shortages at (and after) launch and in some cases, "Nes Classic" never caught up with demand before it was cancelled.

    The pressure is tighter this time around due to the materials constraints they're facing now, but I really wonder how much of this is simply an inability to get their forecasting right or simply a part of their marketing (The same theory where you keep people waiting outside of a club as lines must mean it's the cool place to be). I don't see these same type of issues plaguing the supply chains for Microsoft's Xbox One or Sony's PS4.

    Thoughts?

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