About a month ago, someone in my family had to have a Wii Fit.  We already had the Wii console so just needed the Wii fit add on.  I thought OK, I will just check where I can pick one up or maybe order it on-line.  Looking at all the standard places I would normally buy something like a Wii Fit here in the US (Walmart, Best Buy, Target etc.), I found that everywhere I looked it was out of stock, both in the local stores and on-line.  I ended up having to order it at a significant premium price from a distributor who was fortunate or smart enough to accurately speculate on the high demand versus short supply of this product.  Obviously, there was advance information in the market that this product was going to be in short supply.

I do not know what the details are around the supply of this product, whether the forecast was low or manufacturing capacity was just not there, or if it was just a distribution issue, but it got me thinking about what can be done by OEMs to mitigate this type of situation.  The situation being that at some point, the forecasted demand was a lot different than the actual demand.  As I was taught years ago, the first rule of forecast is that they are always wrong.  My conclusion is that since the forecast is always wrong, the solution has to be in quickly responding to the changes or variances between the forecast and the actual demand.

I recommend you read the short white paper “Are Yesterday’s Solutions Conflicting with Today’s Challenges?”, by Charlie Barnhart when he was with Technology Forecasters.  While the paper was written a bit ago, the premise remains very true. In this paper, Charlie describes a response management approach to dealing with change (such as variations between forecasted demand and actual demand) especially in an outsourced manufacturing environment and given shrinking product life cycles and rapidly shifting customer preferences.  Also, some interesting points are raised in the white paper as to why increasing inventory is not a viable solution.  As stated in the paper,

“Response Management provides organizations the ability to rapidly test and score options for responding to change by identifying what’s possible today with today’s resources”.

What are your thoughts?  Do you have any insight into this particular supply issue with the Wii Fit or similar ones?  Do you feel that the response management approach described in the white paper can effectively mitigate forecast errors?

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Tags: Demand planning, Demand-supply balancing, Inventory, Response Management, Supply chain management, Supply management
Posted in Inventory management, Response Management, Sales and operations planning (S&OP)
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