How Nintendo's forecasting miscues led to 3DS shortages

Dive Brief:

Gaming consoles such as Xbox One S and PlayStation 4 Pro are readily available for consumers to buy, but interested buyers within the U.S. cannot find the Nintendo 3DS XL or regular 3DS without paying higher "grey market" prices, The Verge reported.
The Verge reports that versions of the Nintendo 3DS were out of stock within a 250-mile radius of New York City at Best Buy, and unavailable on Toys"R"Us, Amazon and Wal-Mart's online sites. Polygon reports a similar problem at the tail end of peak season in December.
Although Nintendo management does not anticipate a shortage with its upcoming launch of the new Switch, the company is notorious for problems within its supply chain. Fans reportedly cannot find the months-old NES Classic, either.

Dive Insight:

Forecasting is an inexact science. As a result, supply chain managers are used to frequently adjusting their predictions to better meet supply and demand counts. But Nintendo's example shows the dangers of overcorrection.

While the Nintendo 3DS first launched in 2011, in the year between April 2014 and March 2015, 8.73 million units were sold worldwide (5.99 million in Japan and the U.S. alone). That year also marked the release of the Nintendo 3DS XL, which promised to boost sales, in February 2015.

Based on these figures and expectations, the company forecasted 7.6 million devices would sell the next year. Yet by February 2016, the calculus had changed, and as is expected, the forecast was modified; Nintendo projected 1 million fewer devices would be sold by March for a total of 6.6 million, despite the previous year's 3DS XL launch. 6.45 million units would end up being sold that year in Japan and the U.S. alone.

Eight months later, the company announced its forecast for the next fiscal year: 6 million units would be sold between April 2016 and March 2017 — an extremely conservative estimate, perhaps driven by previous divergences in forecasts. Note, the October forecast is pivotal for any consumer-facing manufacturer as it shows expectations for peak season sales.

In Nintendo's case, the expectations were far undervalued, leading demand to outpace supply, potentially causing the out-of-stock problems identified by the two reports cited earlier. As of January, the company had modified its full-year forecast to sell 7.2 million units by March 2017.

The drastic difference in forecast suggests why, so far off peak season, versions of the Nintendo 3DS may still be out of stock. Even if the company had noticed the difference in November, scaling operations worldwide to adjust for the figures is no simple task; even if the data is available to show where production is most needed. Nintendo's website shows the company has three plants and three offices in Japan, including its headquarters, plus eight overseas facilities. A case study shows the company also operates at least one distribution center in North Bend, WA, where Nintendo North America is based, handling a throughput of 20,000 packages per day. (Nintendo North America did not return a request for comment.)

Of course, the shortages may have been due to various other problems along the supply chain. Safety stocks may have been too low, supplies may have been affected by West Coast congestion post-Hanjin's bankruptcy, retail expectations may have traveled upstream to reflect the low forecasts. By the book, Nintendo's supply chain consistently adjusted based on new data. In fact, demand outpacing supply is a situation many would like to experience, but few enjoy.

Nonetheless, a look back at Nintendo's forecasts over the past years shows either a severe mismatch in data leading to adjustments of roughly a half-million units each half, and, per reports, a lack of agility to correct the mismatch. As gamers look forward to the launch of the Nintendo Switch this March and its subsequent sales, it will be interesting to watch whether Nintendo is better able to align its sales with operations.