Dive Brief:

• Nintendo's July sales figures suggest the company is addressing a critical shortage of its new console — the Nintendo Switch — which has frustrated fans since March, The Wall Street Journal reports. 
• The company sold roughly 524,000 consoles in Japan upon the console's release but quickly ran out of supply. The shortage led Nintendo to sell just 492,102 consoles over the next three months in its home region. Sales figures later recovered when the company sold roughly 294,000 devices in July.
• Scarcity led sellers to include to large markups, demand pre-orders or offer bundle deals for the product to take advantage of demand, according to the Journal. Nintendo's supply chain staff are preparing to produce up to 18 million units to meet demand, and are addressing problems with parts, among other constraints.  

Dive Insight:

Nintendo's story presents a classic S&OP problem where a lack of historical data for new products makes it difficult to forecast production. Then, when a shortage is revealed, the company must find ways to ramp up production on a short notice.

It's not the first time Nintendo has faced this problem. The company's 3DS XL consoles faced similar shortages in February — two years after the product's launch — due to a series of forecasting miscues. In fact, Nintendo is notorious for its console shortages, with some reports suggesting scarcity is a tactic to keep prices up and interest high while the company releases high-appeal games.

However, a mass shortage such as the one faced by Nintendo would place any company in an untenable position. After all, supply chains require full collaboration from suppliers and include set lead times for transportation to retail outlets. Over the last few months, The Wall Street Journal has reported Nintendo faces heavy competition for its part suppliers' capacity (Toshiba also supplies Apple, which is releasing a new iPhone), and chose to accept the high cost of expedited transport for its products in order to address the shortage.

The latest report shows Nintendo has not fully corrected its supply problem yet. While July was the second-best month of sales, it is still far below the units sold upon release. However, sales figures suggest the company found a way to double its production capacity to move from an average of 128,000 units sold in May and June, to the 294,000 sold in July.  August figures will test whether the fixes were sustainable and replicable for markets outside Japan, and whether Nintendo can get back on track to sell at least 10 million units in a year, which requires 833,000 units be sold globally each month.