Support NeoGAF

[AstroLad]

Nintendo Plays It A Wii Bit Cautious

Even a year after Wii's holiday-season debut, Ian Arcuri is discovering that finding Nintendo Co.'s popular videogame console isn't as easy as playing it.

"I still don't understand how something out that long, which should have a supply chain so mature, could be so hard to find," says Mr. Arcuri, a program manager at a technology company in Cary, N.C. He has been unable to find a Wii for two of his children despite searching for more than a month.

While Nintendo's problem illustrates how tough it is for companies to try to predict demand for a product, even in the second year, it also is emblematic of the Japanese company's native caution. In the past two years, for example, Nintendo has set earnings forecasts so conservative that they achieved them in just nine months.
. . . .
Because Nintendo puts a great deal of focus on cash flow, it tries to keep its inventory as low as possible. Such a strategy is rare among Japanese companies, which have tended to focus on revenue growth and market share.
. . . .
The frustration of U.S. shoppers could become a problem for Nintendo as it seeks to keep up the momentum of a business that has surpassed expectations. Nintendo has twice revised its forecast for the number of Wii consoles it expects to sell in its fiscal year ending March 2008, now predicting sales of 17.5 million units, compared with a forecast of 14 million at the beginning of the year.
. . . .
Already, the persistent shortages have led to speculation by angry consumers that Nintendo was deliberately keeping supplies short to create more hype for the product. Reggie Fils-Aime, the president of Nintendo's U.S. division, denies this, saying Nintendo simply didn't anticipate this level of demand for the Wii this holiday season.

"It really is a missed opportunity if we're not able to satisfy that demand, which is why we're working so hard with retailers," he says.

Supply-chain management experts say missed opportunity may still be better than being stuck with excessive supply. Unsold Wiis could create a negative impression that consumers don't want the product. The consequences are so painful that many companies end up erring on the side of a shortage.

"If you flood the market, it will come back to haunt you," says Christopher Tang, a professor of supply-chain management at the UCLA Anderson School of Management. Nintendo may be missing opportunities by allowing other people to profit from the shortage by charging premiums, but Mr. Tang says that isn't entirely a bad thing because it creates hype. "Psychologically, it's better if the customer is begging for the product," he says.

And more at link: http://online.wsj.com/article/SB119697501146616201.html?mod=hps_us_inside_today

 

[Beer Monkey]

I've been telling a friend for the better part of a year that Nintendo is simply afraid to ramp up production. They don't want to have to write off a bunch of costs if the bubble breaks.

 

[Sho_Nuff82]

Even a year after Wii's holiday-season debut, Ian Arcuri is discovering that finding Nintendo Co.'s popular videogame console isn't as easy as playing it.

"I still don't understand how something out that long, which should have a supply chain so mature, could be so hard to find," says Mr. Arcuri, a program manager at a technology company in Cary, N.C. He has been unable to find a Wii for two of his children despite searching for more than a month.

Hey everyone, he's looking for a Turboman! *points and laughs*

You have to wonder if the shortages will cause any amount of consumer ill-will this season, or if demand will simply spill into the new year, starting the insane cycle anew.

 

[angelfly]

They pump out over a million consoles a month and people still see it as a problem. They can only make so many.

 

[Kintaco]

Now the WSJ is getting into this debate? Tell the editor to read GAF for the explanation to the "shortages."

I've been telling a friend for the better part of a year that Nintendo is simply afraid to ramp up production. They don't want to have to write off a bunch of costs if the bubble breaks.

Not IF but WHEN. The bubble will break sooner rather than later I would imagine. Demand for the system can't continue at this record pace.

 

[JoshuaJSlone]

I've been telling a friend for the better part of a year that Nintendo is simply afraid to ramp up production.

But... for the better part of a year they've been raising production, having nearly doubled it.

 

[Grecco]

17.5 by March? We could be getting into GCN ltd by September? wow.

 

[DeaconKnowledge]

Hey everyone, he's looking for a Turboman! *points and laughs*

You have to wonder if the shortages will cause any amount of consumer ill-will this season, or if demand will simply spill into the new year, starting the insane cycle anew.

This is cliché by now, but I don't see the system alone creating the same type of hype over another full year. It probably needs to be spurred by another big title.

That said, I wouldn't be surprised if the current Wii hype lasts us until Spring at least.

 

[DrEvil]

One editor upset he can't find a wii, therefore Nintendo am doomed.

Got it.

It's too bad we can't ban newspaper editors for stealth-trolling via their articles.

 

[speedpop]

If someone doesn't paste JJSlone's graph, proving that the Wii is the fastest selling console in history, within the first page then I will cry.

 

[AstroLad]

One editor upset he can't find a wii, therefore Nintendo am doomed.

Got it.

It's too bad we can't ban newspaper editors for stealth-trolling via their articles.

What editor? :lol The "trolling" is from consumers, and the supply-chain experts cited seem to generally support Nintendo's approach.

If you read the article it's pretty much about how Nintendo has a different approach to inventory, comparing it to the Tamagotchi situation. It's not groundbreaking news, but it is pretty interesting writing nevertheless. Of course the shortages are going to create some ill will; something has to cancel out the insane hype, if only slightly.

 

[Fatghost]

This is cliché by now, but I don't see the system alone creating the same type of hype over another full year. It probably needs to be spurred by another big title.

That said, I wouldn't be surprised if the current Wii hype lasts us until Spring at least.

I don't know. Wii is cheap enough and different enough that it can keep going on positive word of mouth and hype for a while. I'd say having abundant supply would hurt the momentum more -the wii does have some major short falls compared directly to the 360 and PS3, and abundant supply might only serve to highlight those shortfalls to the average consumer.

 

[E-phonk]

I don't think they care.

 

[AstroLad]

I don't think they care.

Just to be really really clear, the article isn't an editorial criticism of Nintendo.

 

[speedpop]

I still can't get over those insane leaps and bounds in their stock. I remember suggesting to my girlfriend's father to grab some Nintendo stock quite a few years back but he wasn't too sure at the time.

I'm sure even now when he checks his stocks every morning he sees it up there and shakes his head in disgust.

Just to be really really clear, the article isn't an editorial criticism of Nintendo.

We've derailed the thread! Get set for a bumpy ride woo~~


Personally I don't see customers getting the shits with something like a video console if they can't get it. There are many people out there on their 3rd or 4th Xbox 360 and it hasn't stopped them from not constantly buying the products for it.

 

[SiegfriedFM]

Nice sales diagram. Note how the 3.6 for PS3 is about a fifth the size of the 5.8 for Wii...

 

[Mamesj]

Supply-chain management experts say missed opportunity may still be better than being stuck with excessive supply.

haven't said this in a while--- O RLY?

 

[AstroLad]

Nice sales diagram. Note how the 3.6 for PS3 is about a fifth the size of the 5.8 for Wii...

:lol It's true.

Everyone hates the PS3, what can you say!? I'm quite content with its position as the underdog no one cares about. Makes me feel that much eliter for owning and playing it; and really that's what this is all about.

 

[DeaconKnowledge]

I don't know. Wii is cheap enough and different enough that it can keep going on positive word of mouth and hype for a while. I'd say having abundant supply would hurt the momentum more -the wii does have some major short falls compared directly to the 360 and PS3, and abundant supply might only serve to highlight those shortfalls to the average consumer.

I don't think the 360 or the PS3 are a factor at all quite frankly, especially considering that there is nothing that either system is doing that is at all eating into Wii's monstrous sales.

A shortage of a popular product will always create hype, but eventually Nintendo WILL catch up with demand, and then the software will speak alone for the system. The NES, PS1, and PS2 were the same way.

I'm sure if Nintendo could control it, they'd want Wii hype to stay consistent until third parties catch up with development on the system.

 

[Davidion]

haven't said this in a while--- O RLY?

It's a very sensible position. Unrealized opportunity may be unrealized revenue, but dealing with excessive supply actually subjects the manufacturer to increased costs for its stock including but not limited to storage, returns, depreciation, etc. There's much more to go into on this subject but I agree with that sentiment.

 

[Jirotrom]

Now the WSJ is getting into this debate? Tell the editor to read GAF for the explanation to the "shortages."


Not IF but WHEN. The bubble will break sooner rather than later I would imagine. Demand for the system can't continue at this record pace.

of course it can, people always want what they cant have.

 

[JoshuaJSlone]

Not IF but WHEN. The bubble will break sooner rather than later I would imagine. Demand for the system can't continue at this record pace.

Sure it can. It's a record pace for a system near launch, but PS2 pushed bigger numbers for a few years at its peak.

 

[iidesuyo]

Reports about Wii shortages have been on BBC and The Times, that's more important to keep the hype going than any new game or commercial block. It's similar to the new Fiat 500, it's in the news so often that it would actually hurt the hype if it was suddenly readily available.

And what PR guys say, you can't believe them anyway. For months Fils-Aime was proclaiming that Nintendo sold what they produced, and suddenly for christmas they had hundreds of thousands of extra Wii to ship.

 

[papelnabangka]

Even Sony wasn't capable of making 1.8M consoles a month a year after launch.

 

[Visualante]

When Sony and Microsoft were supply constrained they flew units around the World. Nintendo are still shipping stuff as it's more cost effective.

Spoiler

nice to see that Greenpeace took that into consideration when they gave out their 0/10 rating

 

[Mamesj]

It's a very sensible position. Unrealized opportunity may be unrealized revenue, but dealing with excessive supply actually subjects the manufacturer to increased costs for its stock including but not limited to storage, returns, depreciation, etc. There's much more to go into on this subject but I agree with that sentiment.

It's just such an obvious statement. The guy is essentially saying "it's better to be sold out of stuff than to have too much of it" :lol

 

[Davidion]

And what PR guys say, you can't believe them anyway. For months Fils-Aime was proclaiming that Nintendo sold what they produced, and suddenly for christmas they had hundreds of thousands of extra Wii to ship.

Why in the world is this still being brought up as some kind of legit complaint?

It's just such an obvious statement. The guy is essentially saying "it's better to be sold out of stuff than to have too much of it" :lol

Oh ok, my sarcasm meter is broken...constantly it seems. Sorry, I can't tell around here...:lol

 

[AstroLad]

It's just such an obvious statement. The guy is essentially saying "it's better to be sold out of stuff than to have too much of it" :lol

Not exactly, more like "it might be better to underproduce (and miss out on current demand) than to overproduce (and be stuck with excess supply)." Remember that the article is about Nintendo's conservative supply strategy, and that's certainly not the approach every manufacturer takes (the article cites several counterexamples).

 

[Chairman Yang]

It's a very sensible position. Unrealized opportunity may be unrealized revenue, but dealing with excessive supply actually subjects the manufacturer to increased costs for its stock including but not limited to storage, returns, depreciation, etc. There's much more to go into on this subject but I agree with that sentiment.

Yep. And Nintendo's strategy looks even better when you consider the specific characteristics of the game industry:

* There's little price flexibility for consoles--once you drop the price to, say, get rid of excess inventory, you're not going to be able to raise it again
* Like the other console makers, Nintendo's main profit source isn't the console itself, but the software. Why take big risks on quick/expanded console production when Nintendo can just wait and probably sell similar amounts of software?
* The longer a console maker delays production, the cheaper that production will be, as electronic/computer hardware costs go down with time

 

[ziran]

The problem at the moment is amazing demand and part manufacturers being unable to ramp up their production until a later date, this is limiting Wii production to 1.8 million per month.

In fact, Nintendo is considering pulling some advertising:
http://news.bbc.co.uk/2/hi/business/7132935.stm

Nintendo mulls pulling Wii TV ads

Nintendo is considering pulling UK television advertising for its popular Wii console in the run up to Christmas because it is battling to meet demand.

It said that holding back adverts until to 2008 would be a "responsible" move. It now expects to have sold 17.5 million of the consoles worldwide in the year to March 2008 - up from the 14 million it had earlier forecast. Nintendo is likely to use its advertising slots to promote its handheld DS console, analysts say.

'Act responsibility'

Globally, the firm is able to make about 1.8 million of the Wii consoles every month. But it said that the demand had been "unprecedented and higher than Nintendo could ever have anticipated".

"We are doing everything possible to supply continued levels of stock and meet demand as quickly as possible," the spokesman added. "As we are keen to act responsibly we are potentially looking at moving some advertising on some products into early 2008."

It is understood that because the television commercials do not have a festive flavour, they will be able to be used next year. Demand for the Wii could mean disappointment for those putting it at the top of their Christmas list. High Street retailers are struggling to keep up with demand and websites have been set up to help shoppers find out when stock becomes available.

Last month Sony said that it was taking advantage of Nintendo Wii shortages and a recent price cut of its PlayStation 3 console to double weekly sales of the PlayStation in the US.

Next year could be another huge year for Nintendo. Maybe ~25 million Wiis and ~30 million DSs. They'll be shipping ~45 million units of hw this fiscal year, that could jump to ~55 million next, which is just incredible!

 

[Culex]

Nintendo sold more consoles this year than the 360 and PS3 combined.

So who thinks they are deceiving us?

 

[AstroLad]

"As we are keen to act responsibly we are potentially looking at moving some advertising on some products into early 2008."

:lol

I suggested this in another thread and some of the more spirited people intimated that it was "trolling."

Nintendo sold more consoles this year than the 360 and PS3 combined.

So who thinks they are deceiving us?

Ian Arcuri, a program manager at a technology company in Cary, N.C., among others.

 

[papelnabangka]

Oh look....

 

[Chittagong]

When you sell 17.5M consoles in a year there is no conservativism whatsoever. Nobody else has done that so early on as far as I understand. Predicting very much beyond what anyone has ever done is just plain crazy.

Also, people need to understand that you don't ramp up or ramp down manufacturing just like that. You need to book it long in advance, especially if you use proprietary components.

Take as an example just Foxconn who probably is putting together Wii's for Nintendo. To increase production, they'll need to get a new facility (i.e. a huge building). Once they have that, they need to design the production line flow inside that very building, and then order the manufacturing equipment - the spinning spray paint stations to make that glossy finish, the stamping stations creating that Wii logo, the drying space for the covers, the engine assembly devices, the flashing stations...

And all that's even before giving a heads up to the company manufacturing that specially sized fan inside that they'll need to create a new batch of fans, or to ATI that they need to warm that Flipper oven again.

It doesn't happen overnight. And if you get it wrong, you have a Foxconn plant full of Chinese people and gear tailored just to put together your specific product - so in case your production exceeds demand, you have two costly options - disassemble the line (expensive) or keep the line empty, still swallowing the capital cost, taking down your ROI overall (also expensive).

 

[AstroLad]

I just want to point out that I think people are conflating the notion that Nintendo traditionally takes a conservative approach w/r/t supply, and that this approach at least initially affected Wii supply with the accusation that Nintendo is deliberately constraining supply. They're two very different things.

 

[Culex]

When you sell 17.5M consoles in a year there is no conservatism whatsoever. Nobody else has done that so early on as far as I understand. Predicting very much beyond what anyone has ever done is just plain crazy.

Also, people need to understand that you don't ramp up or ramp down manufacturing just like that. You need to book it long in advance, especially if you use proprietary components.

Take as an example just Foxconn who probably is putting together Wii's for Nintendo. To increase production, they'll need to get a new facility (i.e. a huge building). Once they have that, they need to design the production line flow inside that very building, and then order the manufacturing equipment - the spinning spray paint stations to make that glossy finish, the stamping stations creating that Wii logo, the drying space for the covers, the engine assembly devices, the flashing stations...

And all that's even before giving a heads up to the company manufacturing that specially sized fan inside that they'll need to create a new batch of fans, or to ATI that they need to warm that Flipper oven again.

It doesn't happen overnight. And if you get it wrong, you have a Foxconn plant full of Chinese people and gear tailored just to put together your specific product - so in case your production exceeds demand, you have two costly options - disassemble the line (expensive) or keep the line empty, still swallowing the capital cost, taking down your ROI overall (also expensive).

I'm not sure how it carries over the console production but the lead time for FABS with video cards is 6 months to a year in advance. That's the plant, employees, and market strategy. You don't just increase and start producing X amount more.

 

[Chittagong]

I'm not sure how it carries over the console production but the lead time for FABS with video cards is 6 months to a year in advance. That's the plant, employees, and market strategy. You don't just increase and start producing X amount more.

Year is probably close to reality in the case of such a different product composition: i.e. with Wii you can't quickly turn that Zune line into an iPod line. No product is quite like Wii - PS2 closest maybe. You can still do minor adjustments during the year leading into ramp up, but then all you need is one f-up in that painting process and your yields are gone and your supply is cut again and you are stuck with a ton of engines creating inventory cost.

 

[ShmarthurShmooner]

'Supply-chain management experts say missed opportunity may still be better than being stuck with excessive supply. Unsold Wiis could create a negative impression that consumers don't want the product. The consequences are so painful that many companies end up erring on the side of a shortage.'

that makes zero sense to me. like manufacturing too much or too little hardware were their only choices.
why didn't they just pile up wiis in us warehouses so they could supply retailers with exactly the amount of hardware that consumers demanded? rent too expensive?

 

[widgetraf]

that makes zero sense to me. like manufacturing too much or too little hardware were their only choices.
why didn't they just pile up wiis in us warehouses so they could supply retailers with exactly the amount of hardware that consumers demanded? rent too expensive?

Yes.

It's always better to have a shortage than a surplus. Beta and Alpha errors, sir.

 

[Davidion]

that makes zero sense to me. like manufacturing too much or too little hardware were their only choices.
why didn't they just pile up wiis in us warehouses so they could supply retailers with exactly the amount of hardware that consumers demanded? rent too expensive?

Can't tell if this is sarcasm...

 

[Chittagong]

that makes zero sense to me. like manufacturing too much or too little hardware were their only choices.
why didn't they just pile up wiis in us warehouses so they could supply retailers with exactly the amount of hardware that consumers demanded? rent too expensive?

ECONOMICS DO YOU SPEAK IT

Spoiler

yes it's more expensive

 

[AlphaTwo00]

Wasn't there a point in Gamecube's Lifetime that Nintendo overproduced, and had to stop making them to get rid of excess surplus? I'm sure they still have that fresh in their minds.

 

[Culex]

Wasn't there a point in Gamecube's Lifetime that Nintendo overproduced, and had to stop making them to get rid of excess surplus? I'm sure they still have that fresh in their minds.

I think they stopped producing consoles in 2004 and never made another one again.

 

[Kestastrophe]

I wonder what Nintendo's incentive for focusing on cash flow as opposed to earnings or market share is? I haven't looked at their financial statements, but the only reason I could see this is if they had alot of outstanding debt.

 

[ShmarthurShmooner]

Yes.

It's always better to have a shortage than a surplus. Beta and Alpha errors, sir.

so it's better to not sell a couple hundred thousand wiis (with software attached) more now, than to have them sit at a warehouse for a few weeks (and then gradually sell)?

serious question, i'm no good with economics.

 

[levious]

so it's better to not sell a couple hundred thousand wiis (with software attached) more now, than to have them sit at a warehouse for a few weeks (and then gradually sell)?

serious question, i'm no good with economics.

commercial storage of retail products, usually at or around ports, is very expensive and not something you'd want to have to do long term. In the US at least.

 

[Davidion]

so it's better to not sell a couple hundred thousand wiis (with software attached) more now, than to have them sit at a warehouse for a few weeks (and then gradually sell)?

serious question, i'm no good with economics.

For starters, the assumption that you make is a: rent is relatively cheap (it's not) and b: that they'll sell fast enough. The more stock that sits in their warehouse, the less room they have for other inventory and by proxy, the more money they sink into each of those units by devoting rented space to store them. So now, instead of just not realizing that revenue, you have stock that you paid for and is costing you more and more money as the day goes on. At best, it leads to decreased profit per unit, at worse it leads to losses on units sold.

Compound that with the fact that their sales forecast for the wii is much lower than actual market demand and the turnaround time for mustering additional manufacturing capacity is considerable, and you end up with the "shortages" that you're seeing right now, even not taking into regard their conservative approach to manufacturing.

 

[andthebeatgoeson]

"If you flood the market, it will come back to haunt you," says Christopher Tang

You mean, like the 360, PS3 and the PSP? Naw, I wouldn't have believed it. :snicker

There really isn't a lot of reasons the 360 isn't the number one console in North America. It has the games. WTF? I'll wager price, stubbornness, faulty hardware and the desperation of flooding 10 million down the pipe all play a factor. What the general consumer feels is irrelevant. Even when the 360 was uncontested, it never had the hype or feel of a number 1 system. Maybe it's the odor of Sega all over MS.

 

[JoshuaJSlone]

so it's better to not sell a couple hundred thousand wiis (with software attached) more now, than to have them sit at a warehouse for a few weeks (and then gradually sell)?

serious question, i'm no good with economics.

If you're building too many and stockpiling hundreds of thousands when demand is high, what do you do when demand turns less-high and you're stockpiling a million a month?

 

[ShmarthurShmooner]

If you're building too many and stockpiling hundreds of thousands when demand is high, what do you do when demand turns less-high and you're stockpiling a million a month?

can't they just decrease manufacturing then?