walkitout (walkitout) wrote,
walkitout
walkitout

The Bull-whip Effect

I've been trying to get an answer to a question I've had for a little while: when someone is making a new product that they expect to sell many of, they must line up contracts with suppliers, right? But if the product bombs, what happens with those contracts? I don't know. I can't even figure out how to research it, other than go take classes at a B-school, I suppose. In the meantime, however, I stumbled across The Bull-whip effect, when I did a google search I would never, ever, ever do if I knew how to find the answer I really wanted: what happens to supply chain when canceling product.

But don't bother with that search, just read this:

http://en.wikipedia.org/wiki/Bullwhip_effect

Customers buy crap. Retailers sell it, and then order more. The people who sell to the retailers (wholesalers or manufacturers) then figure out how much they have to buy to sell it to the retailers. Each stage tends to degrade the original signal (customer buying crap), so the solution is to somehow get the customer signal up the supply chain _other than_ through the order process (since the order process is subject to all kinds of wild variations that result from batching, taking advantage of price promotions and sales critters cramming the channel to meet a quota, to name a few).

So while I have made zero progress on the what-happens-to-unused-but-contractually-locked-down-supply-when-it-isn't-ever-delivered, I _have_ found yet another reason why hybrid enterprises like Amazon and Apple (which have very detailed customer data, but are themselves whole-saler like and/or manufacturer like) manage to get really big successes without alternating with nightmarish inventory overhang on their bombs. Yes, yes, I know. Short supply chain good. Duh moment. But I had not understood this particular aspect of it at all.

ETA:

While I'm talking about Apple and supply chain, this is interesting:

http://www.businessweek.com/news/2011-09-26/apple-cutting-ipad-supply-chain-orders-25-jpmorgan-says.html

That was from two days before the Amazon announcement. iPad resupply has been reduced by Apple, perhaps for the first time.

ETA:

Oh, look! Here's an answer.

http://www.informationweek.com/byte/news/galleries/personal-tech/tablets/231601801

BYTE did a teardown of the Touchpad and included a little summary of the history of the device.

"Then HP threw us for a loop. It and its countless retailers and online stores started selling the $400 plus tablet at fire sale prices starting at $99. And it sold like crazy. Digitimes reports HP sold out of its 800,000 to 1 million devices in the channel.

But wait, there's more--literally. The same sources at Digitimes, in Taiwan, say HP is planning to use up remaining components and build between 100,000 and 200,000 more TouchPads. For a dead product, the HP TouchPad is getting quite the install base. HP should rename it The Zombie."

Guess that answers the specific question of what HP and their suppliers did with the contractually obligated components. Or at least some of them.

ETAYA:

There's a bunch of stuff in here about a plant set up by Quanta and RIM to build the Playbook having done layoffs and maybe now winding down the plant entirely due to lack of actual demand.

http://www.zdnet.com/blog/btl/maybe-rim-should-kill-the-playbook/59420

The author was _very_ frustrated with the Playbook and, trying to retrieve some value from it, was just trying to:

"And my only goal here is to download a game or two and hand the PlayBook to my 4-year-old. And the PlayBook is supposed to be for business."

$600 device. For a 4-year-old to plays games on.

The next person who expresses confusion that these things are for _work_ and not for small children to play on, I'm going to point to the wikipedia article about the Commodore 64, with special emphasis on the $595 price tag. In 1983. CPI inflator sez ... over $1300 in today's dollars.
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