After the failure that was the Wii U, Nintendo has been experiencing increasing demand off of their new product, Nintendo Switch, which came out in March 2017. They have been able to net $144.8 million in operating profit in the April-June quarter, a huge improvement from last year when they lost $47 million in that same quarter. While this may seem like excellent news, Nintendo has had a difficult time matching the demand of the product, especially with new titles coming out during the past holiday season.
All of this has been due to the aforementioned demand and the supply shortages of multiple components that make the Nintendo Switch – creating an unfortunate production bottleneck. The bottleneck has become such an issue that many people have paid a premium for the item, often paying 1.5 to 2 times the original price through lotteries or auction sites.
As an operating manager, it is important to figure out where the bottleneck is directly to solve the problem, and increase the flow rate of the system in place to match demand. Certain problems in the supply chain, such as receiving the raw materials and putting the components together in the factories, may take more time than Nintendo wants and they should figure out a way to appropriately solve it. As mentioned in class, an hour lost on one part of the bottleneck is an hour lost on the entire system of operations. If Nintendo is losing considerable time receiving components from suppliers, they may not be able to produce enough units for retail.
The articles mentioned their sales units in the April-June quarter were around two million, and the managers at Nintendo think they can sell ten million units during the fiscal year itself. This would put them below the expected financial prediction many analysts had them at (around 15 million), and would be a disappointment for such a high demand product.
The question really is whether or not Nintendo should slow their rollout of the Nintendo Switch to match the bottleneck instead of the demand itself, or continue their process as is. There are concerns on both sides. A slower rollout could mean less sales at first, but a solid understanding of the production line and bottleneck problem. Continuing their current method, in hopes they can meet demand somehow, would guarantee them solid sales and lower inventory costs, but they would not be able to realize their full potential long term. There are pros and cons to each side of the decision.
Nintendo’s financial statement for the fiscal year comes out this March. Hopefully they meet the 10 million unit expectations held by stockholders to meet demand and earnings. Sure, they have netted quite a bit in profit so far, but problems can arise if the bottleneck is not solved fully.
So put yourself in the shoes of the Nintendo operations manager. What do you do in this situation if revenue potential is not realized? Do you slow rollout? Do you continue the current process? Or is there another recommendation that can solve this issue fully?