There was an interesting article, probably the first of many along a similar vein this Christmas period, in the Wall Street Journal about the shortage of products over the Christmas buying season.  For many companies, especially those in consumer electronics, the sales over the Christmas period are often the difference between making a profit or loss.  The best case scenario for these companies is that they will forever be playing “catch-up” with those competitors that have managed to satisfy the Christmas demand and therefore gain a valuable market dominance, because this leads to more 3rd party content creation for the media.  So much of today’s market acceptance of  consumer electronics media is determined by the content available – games, books, video’s, …  All content providers will naturally gravitate to the media that is selling the most, and new content will almost always come out on the top selling media first.  This effect is only compounded by the fact that Christmas sales often account for 40%+ of annual revenue, in some cases accounting for as much as 80% of annual revenue.  And yet, with consumer electronics prices dropping so rapidly and product life cycles being so short, any stock left over after the Christmas rush will probably need to be sold at a loss.  What is surprising is that there are similar stories every Christmas, and always in the consumer electronics space. 

An interesting twist to this tale is that the article in the WSJ concerns a well known consumer electronics manufacturer – Sony – a “clicks-and-mortar” retailer – Amazon – and a “bricks-and-mortar” retailer – Barnes & Noble. B&N probably wouldn’t want to be classified in this manner, but in the spectrum of these 3 companies, this classification is the most appropriate for B&N.  Perhaps it is the position of Amazon in the supply chain that enables them to have the most accurate forecast.  If I take myself as an example of the typical Christmas shopper, always a dangerous assumption, I am far more likely to shop early on-line and shop late in-store.  As a consequence, the on-line retailer, in this case Amazon, will get a early signal of “true” demand, while Sony, with a much smaller on-line presence, will have to rely of getting point-of-sale fdata rom retailers.  Not only will the in-store sales occur later, but there is a delay between the sale occurring and Sony knowing about it.  Because of today’s extended supply chain and capacity constraints, by the time Sony gets a good feel for the true demand it is often too late to respond.  Which leaves us with Barnes & Noble.  As the WSJ article points out, “it’s uncharted waters for Barnes & Noble.”  They don’t have Sony’s manufacturing and supply chain expertise and they don’t have Amazon’s dominance in on-line sales.

Every indication is that the ratio of on-line to in-store sales will continue to increase so I predict that companies like Amazon that have both a strong on-line presence and great expertise in supply chain management will continue to grow at the expense of both the consumer electronics manufacturers and the in-store retailers.  They have in-built advantages in their business model.

What do you think?  Do I sound like the .com bubble crazy?  Or are we seeing the future?

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Tags: Demand management, Demand planning, demand response, Forecasting, Order Fulfillment, Supply chain planning
Posted in Demand management, Supply chain management
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