An article in the Wall Street Journal (May 30, 2017) titled “Nintendo battles Apple for parts as Switch demand rises”, describes supplier parts NAND flash memory chips, liquid crystal displays and tiny motors used by both companies in their products. Flash memory demand increase have been caused by growth in web services, demand for the iPhone 7, projected demand for the new iPhone and thus put pressure on availability of components to serve Nintendo’s products. Will component price increased force rationing of parts and thus resolve the problem ? Will design changes by OEMs provide relief ? Or this is the result of competitive behavior by the OEMs to edge out the competition for downstream products ? Do you expect upstream manufacturers to add capacity to resolve this issue or stay content with higher prices for the limited capacity ?
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Global Supply Chain Musings 
The lifespan of the Nintendo Switch is long enough to rationalize increasing capacity, but Apple’s products will depend on future design. If Apple wants to use the same parts in future designs as well, then increasing capacity increases the pie for everyone.
I don’t think Nintendo and Apple are trying to edge out competition because adding capacity is always an option for the component manufacturers. If Samsung wants to use the same component for their new product, they will have to include capacity expansion in the supplier contract.
The article highlights quite a few issues. Firstly, if the component prices are increasing, OEM’s will try to replace the same by either changing the design specifications or by developing new suppliers. Both Nintendo & Apple have a matured supply chain and that none of them can take the risk of providing high margins to the component manufacturer’s considering the competition in the market for their product and the margin. Thus the upstream manufacturers should either add the capacity or be ready to have more competitors in the market as the volume is high, many new players will be willing to enter the market and having a support of a company like Nintendo or apple is a high benefactor. Also, higher component prices will lead to higher product price and thus lower sales which can harm both the OEM’s. Secondly, in a competitive market, if the margin for component manufacturers is high, more competitors will enter the market. It’s plain simple economics. This will cause the prices to go down and will also reduce the margins of the existing manufacturers. Thus, we can safely conclude that its better for upstream manufacturers to increase the capacity to resolve the issue.
Yash, I agree with your comments on Nintendo not being able to take the risk to deal with higher component prices. However, don’t you think Apple has a larger risk appetite than Nintendo, given that there is a “crazy” following for Apple products and that demand always seems to be high irrespective of what “innovative” products they launch? I also agree with your point on new players entering the component manufacturing market which would eventually drive prices down.
Peeyush, agree that Apple has a higher appetite than Nintendo, but Nintendo by no means is a small firm, (revenue of 4.5 billion in the last fiscal year) and is one of the largest video game company in the world. Thus, if there is a price war between Nintendo & Apple, I guess the effects will be severe on both of the companies and therefore its better for both of the companies to avoid providing higher margins to the parts manufacturing company. Also, would like you to highlight a perfect and recent example. Till last year, Samsung was the biggest supplier of OLED screen panel for Apple iPhone X. Now, the iPhone maker has made changes in its OLED supply chain, resulting in Samsung losing the position of being the sole supplier for the particular component. In the new iPhone XS and the iPhone XS Max, Apple is also using LG’s OLED screens other than Samsung. So I don’t think that even though Apple has a large appetite, it would like to spend an extra penny out of its pocket.
Great points, Yash. I am in complete agreement with every point you made. New players further fragment markets and that’s never a good thing since the pie gets split. This is further transferred to suppliers engaging in a price war for accounts, especially for names like Apple, Nintendo. Certainly, increasing capacity will resolve the current issue and prevent situations of price wars, new competitors entering the market, etc, which truly no OEM or supplier wants.
Yash, agreed with your point. These companies are not only known for their products but for the efficient way of doing business and running their supply chain too.
The situation is, both, the OEMs and the suppliers need each other. If the current supplier will increase the price, there is a high chance that OEMs will look at other suppliers who very well want to be a part of their supply chains. But on the other hand, the OEMs being recognized for their quality products, will have to go through a long process of bringing the new supplier to that level of quality.
Rather what can be done is, these OEMs helping the current suppliers in increasing their capacity (may be financially or technologically) to reduce the stress on the suppliers solely.
The increased demand for component will inevitably lead to a higher price because there exists a limit of capacity. The competition between Nintendo and Apple will not continue for a long time, because if manufacturer increase the price the profit for this market is higher, other manufacturer will also seek the opportunity to enter this high margin market. Thus, the competition among manufacturers will bring a balance and the price will return to a normal level. One of the best strategy for OEMs is enlarge the capacity to an optimal level and try their best to fulfill the demand of Nintendo and Apple. In this way, OEMs could maintain the coordination of both company and reach a level of economic scale which may also decrease cost to compensate the money spent for enlarging capacity.
Since every party is motivated by making maximum profits, I don’t think this will force rationing of parts and thus resolve the problems. Additionally, this situation is caused by competitive behavior; therefore, the change of design would not provide relief. Furthermore, I expect it will stay with higher prices for the limited capacity. As a result, the company can reach the maximum profits.
I feel that Apple with its iPhone and other companies making mobile phones are better positioned to make deals or negotiate with suppliers than Nintendo due to larger orders. Given that Nintendo has faced this shortage issue earlier with its 3DS and Wii U, although back then the demand for both those products was far lesser than what it is for Switch, it puts Nintendo in a tough spot. As mentioned in the article, Nintendo has already been spending a lot to ship the hardware by air in order to keep the initial sales going. Thus, it does not really have an option to try to pay more to get the required parts. Given Apple’s power and margins, it can easily pay more than Nintendo and still possibly get more sales via its iPhones and accessories. Thus, component price increase will not force rationing of parts. Design changes can only result in higher costs and time consumption for Nintendo that neither has enough margins nor time. I believe Nintendo could be using the “scarcity strategy” and making it look like a legitimate production pipeline issue. It could have been a combination of not anticipating/forecasting the Switch demand after what happened to its predecessor Wii U and thus not producing enough initially. Hence, the upstream manufacturers could enjoy the high prices and earn better margins but if the shortage continues, new players could enter the market if they see a potential. This would eventually drive the prices down and increase the competition within upstream manufacturers. Thus, it is up to the manufacturers to decide whether to add capacity immediately or at a later stage.
I agree with your point that Nintendo has less bargaining power especially because of its lack of consistency with sales and inconsistent presence in the market with respect to Apple, but this is not a case of competitors battling. In this case, it is whether the OEMs have more to gain than to lose by maintaining a lower capacity than the market requires.
Well yes I agree with you on the fact that there is no direct competition between the OEMs but they are certainly competing with each other on obtaining the parts for production. In terms of capacity, both players will be affected but the impact of the effect would certainly be greater for Nintendo than for Apple given the weak position Nintendo is in.
Karim-It is an interesting point that you have raised. The issue of trade-off is not only limited to OEMs, but its suppliers too. There are certain conditions that are important to consider to take a decision: Relationship that suppliers have with OEMs determine, benefit for the individual party or both the parties, ease to enter the market or exit too, supplier power, competitiveness in both downward and upward stream and many more
As an essential component of switch or Nintendo’s products, the alternatives of NAND flash memory chips are limited, which means the component price will increase continuously. Therefore, the component price increased force may not resolve the problem of component shortage. While, the available alternatives may play a more important role in solving this problem. If the OEMs can provide the components with similar characteristics as NAND flash memory chips and higher productivity, the manufactures may turn to those components facing the shortage of the memory chips. With more and more alternatives of memory chips flow into the market, the demand increase problem will be relieved and upstream suppliers will meet more competitive pressure. As a result, the upstream manufactures will add capacity to resolve the issue discussed above.
This seems like a classic coordination problem between the buyers and suppliers. Both Nintendo and Apple are innovative companies with a huge market share and the suppliers can not give importance to one over the other. If the component prices are increased, both the companies can not shrink their margins as both the products are in the ramp-up and maturity stage of the product life-cycle. Hence the price increased is passed to the customer which is not an attractive thing to do without affecting the market share. To meet the increased demand, production changes are welcomed as long as they serve the same objective of the specifications given by the buyer without affecting the quality or performance of the end product. Instead of contemplating on the price rise, OEMs can come in coordinating with the buyers and both the parties can work on improving the capacity of OEMs.
This reminds me of an article from 2011 reg. Apple’s supply chain, which I read a few months back. Apple has been strategically reserving supplier capacities ever since the introduction of its iPod line. This way it is better off integrating the supplier’s manufacturing facilities with its supply chain. These prepayment contracts are big enough to finance new supplier facilities, thereby ensuring additional capacities if needed. Nintendo, though not in direct downstream competition with Apple, must identify the structural shifts in demand sometime before it occurs, by capturing the latest data and tracking key patterns. This anticipation move should be helpful in establishing a more responsive supply chain upstream.
Increased component prices in a market with limited capacity would invite new entrants, posing a threat to existing suppliers. Rather, suppliers should leverage this opportunity by increasing their capacities, suited as per the contracts with OEMs. Such supply chain risks must be planned for initially, both by OEMs and its suppliers, and adjust the agility of their supply chain accordingly.
Making design changes and reintroduction, in the consumer electronics industry can be very challenging, due to a short product life cycle. And increased prices, if not mitigated by better production efficiencies and passed on to the consumers, will hit the top line.
It is really interesting to see that some companies which are not in direct competition to each other are competing for some critical components. The smartphone industry increasingly, overlapping different sectors, the resource competition among Apple and Nintendo and similar will be a common phenomenon. The important question is how the strategic procurement decision is made during the planning phase for each industry.
Rationing of parts can be a temporary solution to the new rise in demand, however this will either discourage the rising wave of each company or force the market to bring out other suppliers. Nintendo should observe, whether this is strategic decision of Apple to edge out Nintendo. In this case, increasing the capacity may help cater the small goals but will be of much good in future.
When entering in a direct competition against a company like apple you can face issues like the one previously mentioned. Even if it wasn’t thought off before the shortage occurred, nintendo should’ve overseen that they are using the same parts as this giant Apple. As seen before they’ve faced big issues with there past consoles like the Wii while apple (which is not treated as a competitor in this article) have always requested this parts in large orders.
Apple will have some bargaining power, but regardless of that, nintendo should see how a good coordination with this parts manufacturer can take them closer to a solution and not closer to a stockout because the Nintendo Switch has clearly made an impact in society not just as a mobile console, but also as a house console.
We could expect higher prices with these issues in every situation due to the demand that these parts are having so manufacturer companies could take advantage of it and raise them. OEM for specific products will have power over their buyers but when competition strikes, prices will need to go down. So in this kind of situation I will expect Toshiba to maintain their prices to keep the contracts instead of attracting other companies that could supply this product and enter in the market.
Carlos,
Do you think that Nintendo products like the switch are differentiated enough to command a higher price than Apple products? I guess I’m getting at can they pay a higher price and pass it onto the customer or would this result in losing market share.
I think the increase in price for the switches and other critical components will drive outside manufacturers into this market. I don’t this Apple or Nintendo would vertical integrate this because of how quickly technology changes and their lack of expertise. I could foresee future contracts that possibly limit who else the OEM works with, but it seems currently their are not enough firms to make this type of agreement possible. In the short term, I would expect Apple and Nintendo to pressure the current OEM to increase capacity even if it came at an additional cost to ensure their products can make it to the customer quickly before the next “new” gaming system or phone is released.
I agree that any decision taken will not work in immediate future. It may work in long run. It may help the company to make strategies to deal with such kind of situation- whether to share the cost with supplier or provide additional support to supplier, whether changing the technology is a better option or increasing the capacity There are lots of factors to consider in before deciding on what to do in this situation
From my perspective, the price of the component has to increase in short term since the demand is high and the stock and capacity can’t meet the demand. But in the long-run, simply increasing price won’t solve any problem, higher component price will finally increase the final-product price and the sales will be affected, at last, the benefit of both OEM and Nintendo will be jeopardized. In the long run, I think increase the capacity will be a must, it is an opportunity for the OEM to upgrade their technology and the Nintendo will earn the benefit, consumer base and reputation.
It depends, how the buyer demands are varying. In case of Apple, the product has small lifespan and has a high volume of demand whereas Nintendo lifespans is more, and demand is less when compared to that of Apple products. In future if Apple seek to demand the same sets of material then obviously there would be tiff given that suppliers are working with same capacity. To be in the market a supplier must increase its capacity since there would other who would try to tap the market because of the growing demand.
Increasing the price would hamper the sales, since somewhere in the supply chain the buyer would want to distribute the cost. Changes in design can also help but it’s important that the co-ordination between buyer and supplier is sustained
The increase in the price of parts can increase the supply capacity of components, but the increase in price will lead to an overall increase in the price of the product line, which will lead to a reduction in consumer demand. This does not solve the fundamental problem, but instead passes the problem of insufficient product supply to consumption. By. Changing the OEM’s design and redesigning the supply chain can change the status quo, but the impact is limited, and for OEMs this will be a small expense, so it is still unknown to solve the problem.
I think upstream manufacturers can increase the capacity to solve the problem, but the manufacturing capacity is limited. How to increase production is a problem, which requires strong technical support. However, if the price is kept high for a limited capacity, the market price will continue to rise, and consumer demand will continue to fall, which may affect the company’s future development. It is not an effective method.
I think that electronic components such as chips and flash memory are update very fast. In the case of Apple and Nintendo competing for raw materials, OEMs can choose to meet the supply needs of both parties in the case of negotiating with both parties for maximum profit. Because the competition for electronic components will not last for a long time, OEDs can use this opportunity to develop their own customers as much as possible. If they can meet the needs of both parties through mass production, it must be a win-win situation. OEDs can make more profits by exploiting economies of scale through mass production, and Apple and Nintendo can also get raw materials at a lower cost. Therefore, upstream manufacturers should add capacity to resolve this issue.
If this situation continues , the surge in price is expected. This demand will encourage other players to come into market, resulting in loss of market share for supplier. Supplier has to fill the demand is to increase in house manufacturing capacity.
Lost sales are not only a loss of profits through sales but also are damage to intangible assets. In this situation, any wrong move might cause supplier to lose either Apple or Nintendo. Both are big companies and can seed fund new players to ensure regular supply of components.
I strongly believe that upstream manufacturers will be able to command higher prices for these components. It’s a supplier’s market here and they don’t have an incentive to add capacity. Given the premium image Apple commands in the market, it shouldn’t have a problem transferring this cost increase to its customers. Therefore, it might not need to consider design changes. Nintendo, on the other hand might find it challenging to increase prices because given the competition it faces, it can’t afford to. So, it might be a good idea for Nintendo to explore cost reduction opportunities in product design, process improvements or supply chaining. Also, Nintendo’s recent gains in market share could possibly help compensate for these cost increases to some extent.
Considering that the web services are growing exponentially, and its growth is sustainable in the future, rationing of parts due to capacity constraints would limit the volume sales of the suppliers, thereby limiting their profits. Since the problem is long-term, an investment in additional capacity would benefit the suppliers, thereby enabling them to generate higher volume sales. An alternative form of technology may be developed to substitute the flash memory, but its reliability and cost could be an issue. The Nintendo switches and iphones have completely different target customers and rivaling against each other will not provide any economic benefits.
I would say that the pressure on Nintendo will not guarantee that the rationing of components will solve the problem. As the supplier will only choose to offer enough components to the client who gives them better benefits if there is no risk sharing agreements signed before.
In short time, the higher price will benefit the supplier because this help with the bargain power. However, in long time, it is dangerous for the suppliers if they do not add capacity to resolve the problem. As Apple and Nintendo are companies who emphasize on technology and are not willing to be constrained by the suppliers. They are more likely to switch to other manufactures or change their product strategy.
The increased demand for components will increase the price of end product and thus companies (Nintendo and Apple) have to strategically think of increasing the top line in the short run. There is a huge entry barrier for getting into the production of components mentioned in the article and thus the suppliers out in market will be limited. According to basic economics, the price increases when the demand increases and then the increased price forces the demand to slowdown, but here that’s not the case. The increase in demand is because of the evolution of nature of services provided and the increased consumer base. To cater to the increased consumer base and to earn more profit, existing component manufacturers need to increase their capacity to fulfill the demand and try to maintain the price for matching the demand and supply.
The answer to most of the questions asked in this blog is “It Depends”. All the companies in the supply chain are obviously striving for maximizing their profits and unless there is a coordination or long-term agreement there is a good chance of companies conflicting each other’s interests. The downstream companies can decide on rationing of parts based on the price sensitivity of the market, as the reduced production will inevitably result in greater prices, which may harm company’s profits. Also, the prices of the available substitutes will dictate the decisions of downstream companies. OEM’s have a big role to play in the manufacturing decisions as the downstream companies are focusing more and more on the design and innovation. Upstream manufacturers should make the capacity decision by considering 3 factors- probable change in prices, threat of new entrants and the probable substitutes that will drive down the prices downstream products.
The tech industry changes all the time, there are components needed today might not be needed tomorrow. It is a wise thing to just increase prices. This trade-off should be considered against increasing capacity while taking the decision.Developments in 3D NAND flash is preventing ramping up production NAND flash memory and is becoming more complicated to build.
In this scenario developing new suppliers helps a lot in reducing costs now and in future as well.
Increasing in price would not resolve the problem that demand, or says the whole market, keeps expanding. However, design changes by OEMs will release the intense of the current market memory supplies since It creates a new market and shifts the demand to the new market. Both companies are known as innovation Upstream manufacturers are expected to continuously add capacity to catch up the needs for these two technology companies. Unfortunately, The price might remain high until the suppliers can catch up the shift in the demand.
Apple and Nintendo, though not competitors in their end product market segments, have become competitors because of shared raw materials for their products. The plan of action at present for both the companies would depend upon what is the cost to pursue each alternative. Design changes are usually not feasible in electronics manufacturing because of the costs involved at the production stage. The best idea should be to collaborate with the supplier and increase its capacity to serve the demand. Another alternative could be to find a supplier who is as reliable as the current one. The supplier shouldn’t pursue the strategy of complacency and benefit with the increased prices since this would not be beneficial for the supplier in the long-term and some other commpany may definitely try to put him out of business
If there is a shortage of necessary components then I believe a viable solution would be design changes by OEM’s to accommodate the lack of part availability. If higher prices of components become common place, that could open the door for new suppliers to enter the market and provide components at competitive prices. I do not believe rationing of parts is the best pathway forward, but large players such as Apple or Nintendo could inadvertently squeeze other competitors out of the market with their large bargaining power and ability to commit to lock in with suppliers certain quantity amounts. If design changes are not quickly feasible and new suppliers cannot be easily certified or found, then OEM’s may be left dealing with high prices in the short term.
I don’t think this situation will necessarily lead to rationing, but more so an increase in prices suppliers will charge Apple and Nintendo. The increased demand on these components will reduce the bargaining power for Apple and Nintendo. This in turn should increase the profits among suppliers enticing more companies to begin production of components such as memory chips and liquid crystal displays until economic profits again return to zero. The other option would be for Apple and Nintendo to begin making these components internally, but would most likely be too costly for the companies to develop those capabilities to make it economically viable.
In terms of the supplier’s perspective, increasing the price will help the supplier to increase its profit and supplier’s power. It depends on how much the OEMs relied on the supplier so that the supplier should carefully set the new increased price to prevent its OEMs switching to other suppliers. Adding capacity is another solution for this issue but it also depends on the demand of the parts and the financial condition of the supplier. If the forecast shows that the demand will increase for a long time, the supplier can consider investing for additional capacity.
Speaking of OEMs, this issue is competitive behavior among them. One solution for the vulnerable OEM is to change its design to avoid the conflict. Even if the change might cause additional cost for the OEM, the company might be able to gain the sustainable supply of the parts.
Component price increased force rationing of parts will not solve the problem fundamentally. If suppliers not meet the demand and increase the price of components, I don’t think Nintendo and Apple will have rat race with each other. Instead, they will try to find new suppliers which has lower price to meet their demand, because i think both Nintendo and Apple would not willing to sacrifice their demand only as result of the limited capacity of current suppliers. So it’s a good opportunity for new entrants to come into the market. In order to success in long terms, current suppliers should find ways to increase their capacity. For example, training workers to increase efficiencies, buying more machines,or improving technologies.
I do not believe that rationing of parts will turn out to be the solution to the shortage of supply. Companies such as Nintendo and Apple are primarily motivated to maximize their individual profits, and with the increased demand for the products described in the article, the rationing of parts from the current suppliers would not be satisfactory. Rather, I believe that there will be more suppliers who will enter this market to meet the increasing demand. Design changes by OEMs are also unlikely to serve as relief because these changes will require additional costs to be incurred, and judging by the article, Nintendo is not in the financial situation where they can afford to lower their margins any further. These design changes are just the result of competitive behavior by the OEMs. Additionally, in the short-term, I believe that upstream manufacturers will continue to stick with charging higher prices. However, as demand for these products continues to increase and new customers enter the market, these upstream manufacturers will be forced to add capacity.
The supplier will not solve the shortage by increasing the price because firstly, increasing the price too high would make the apple and nintendo choose other suppliers, secondly, increase the price a little would not change the demand of the customers because the electrical product they sell are already pretty expensive. Only chaging the price seems too rational and simple for the solution. There are many other things can do like sourcing other products from other manufactures,
This is an interesting question. I think in most situations the suppliers will figure out how grow its capacity to try and meet the demand as that is what will maximize there profits, however with technology evolving so fast it might not be in there best interest to make large capital investment. due to this I would suggest that apple or Nintendo commit to longer term contracts with guaranteed volumes. This will give the suppling firms more security and flexibility to make investments in order to meet the specified demand. This will also allow the buying firm to make sure they can get there hands on the necessary components. If I were in apple or Nintendo’s shoes I would be looking to find other potential suppliers to meet there demand.
Technology/ Electronics industry is evolving fast. Apple and Nintendo target different segments, yet usage of the common component created a sudden rise in demand for that component which led to an increase in price. It will be end customer who has to bear the increased cost which might lead to lower sales for both companies. As stated, the demand for the critical component is already high and the availability is less, either the suppliers must increase its capacity or have tie-ups with regional suppliers or it’s highly possible that new suppliers will jump in and offer competitive pricing, thus ensuring a reduction in price.
Change in design might be a solution but again it’s a time consuming and requires huge investments in R&D.
I don’t see rationing of parts as a viable solution, because the OEM is a commodity and there will always be another player to provide a comparable product to satisfy demand. Apple is famous for wanting to get the lowest parts for every component in the iPhone, as every company affects its retail price, which always receives press every time they release a phone. If the price of a component rises, may have no choice but to pay for it for the current phone release, but you can be assured they will be seeking an alternative for future releases. Look at the current issues Apple is having with Qualcomm. It is dropping the Qualcomm modems for the next iPhone release for Intel. It is unwise to upset a manufacturer with such massive buying power.
Upstream manufactures should add capacity to satisfy the demand for both Nintendo and Apple as well as other OEMs if they have the resources. Without the immediate resources for additional capacity the only option left for the upstream manufacturers would be to increase prices since the demand exceeds supply. There is a tendency that the OEMs would transfer the price increase to the end users and this may cause a negative market reaction. The upstream manufacturers should however, look at the increase in demand as an opportunity to increase the pie for the entire supply chain and look towards investing in increasing their capacity. The OEMs would need to provide accurate forecasts and commit to long term contracts with the upstream manufacturers, so they are sure of recouping their investments in increasing their capacity.
For Nintendo and Apple, the increase of demand will definitely cause the higher price of at first. However, as market is somewhere can be automatically balanced, more manufactures will emerge and cause the price down. What’s more, electronic devices are fast-developing merchandises which would change as the people’s different flavor in result giving upstream more pressure. A good business eco-system is good for the full supply chain which is hard to reach in real business. In this aspect, upstream should corporate with downstream such as signing contract or making policy, which is in final increase the total profit pie.
Increased price can lead to momentary gains for the supplier but it can affect the supplier-buyer relation in the long run (The OEMs may resort to different designs or suppliers if the prices quoted by the supplier are no longer economically viable). Manufacturing capacity can be added if the demand for these items is going to be the same or higher.
For future products, both OEMs can work with suppliers in advance to help them build capacity. They are competitors here, in case of supplies but not in the end-product market. So, coordination for supplies won’t negatively affect their market share, hence, a good option. New designs can be expensive. The decision depends on the loss from supplies shortage and the cost of redesigning.
OEMs making changes in the design might look like a better option from the hindsight. But, it depends on the success of the products coming with a varied design. If the tweaked design is successful, it would be a masterstroke from OEMs’ viewpoint; else, they might have to go back to the previous design which will now incur them more cost.
Demand for the iPhones is consistently high as new iPhones are constantly introduced in the market because of developments in technology. If they are content with increasing prices for limited capacity, there will come a time in the future when there will be a drastic decrease in demand for the components with the above-mentioned parts. So, the OEM staying content with higher prices is not a good solution in the long run. Instead, they should increase their existing manufacturing capabilities. Rationing of parts might solve this problem until manufacturing facilities increase their capacities or find a solution to check the increasing prices of the component parts.
As the article states, here we see that demand is greater than supply. Another point to note is that the article mentions that this is an industry-wide problem rather than company-specific problem. With manufacturing schedules placed for iPhone 7 and iPhone 8 appears to be affecting the schedules of Nintendo’s switch. In this scenario, the outcome would favor the company with greater bargaining power. With Apple’s growth and competitive positioning, they are more likely to have a greater bargaining power than Nintendo. In addition, smartphone makers place larger orders for parts increasing the bargaining position. Unlike mentioned in one of the comments, I do not feel this is a ‘scarcity strategy’ by the supplier rather an inaccuracy in demand forecast on the NAND Flash drives, LCD etc.
In the short term, there will be rationing of part on the parts of suppliers. But, as Apple and Data Center makers are bigger players, they will corner most of the supplies. Thus in the short run, Nintendo’s cost will definitely go up. In the medium to long term, it can look at backward integration to secure its supplies. Further, it should look to increase its supplier base to have more options. However, the article does not talk about the reasons for inability of the suppliers to increase production.
In theory, design changes might solve a problem to some extent but the article does not discuss as to how, so it remains unclear.
Puneet,
Do you think backward integrating in a short-life cycle ever-changing market like technology parts is a good idea for Nintendo? Or do you think trying to increase the supplier base or guarantee volumes with contracts is a better approach?
In this scenario, the manufacturer’s should think about increasing their capacity so they can meet the demand in the long run. This will increase the revenue for all in the supply chain which is a win-win situation. However, the capacity cannot be increased immediately and there would be an increase in prices. This might force Apple and Nintendo to invest in redesigning OEM’s. Rationing of parts might be a temporary solution, but this will not be able to mitigate the increased demand of this parts in the long term. Since Apple and Nintendo both are big players in the market, they can help the supplier upstream to build capacity which will be beneficial for all. These companies can also look for alternate suppliers if available in the market.