Why doesn’t product stay on the shelves when it is demand?

119This problem has been illustrated in the past with shortages of Teletubbies in the UK, Teenage Mutant Ninja Turtles worldwide. The most difficult products to keep in stock are toys associated with TV programming or Film releases.

Usually toys associated with TV programming are manufactured under licence in developing countries where production is cheaper than domestically. The manufacturing process can’t easily and quickly be scaled up without huge investments in tooling and licences.

At this point the product is not on sale and no one knows what the demand will be. Variables will include TV airtime, if the product is related to a TV programme, advertising and promotional activity, success of the Film at the Box Office, and of course the popularity of the product with the purchasing public, or their children.

Timing is important too. If the programming is due to launch say in September, the schedule would look like this:

  • orders will need to be placed in April at the latest, to allow for purchase of raw materials (say 4 weeks)
  • production (say 4 weeks),
  • shipment from the country of manufacture (Say 6 weeks),
  • distribution from the port to the retailer (say 1 week).

So lead time of about 15 weeks.

If firm orders are collated and placed at the end of April, then deliveries will begin to the retailer at the end of August, just in time for the programming to air, or the Film release, at the beginning of September

Until this point no one has an idea what demand will be. As sales begin, retailers will quickly adjust their estimates and may soon want to double (or halve) their estimate and place a large repeat order for immediate delivery, or defer planned deliveries.

In the meantime the manufacturer has probably placed the balance of the retailer’s orders into production, Remember they only committed to about 35% of their estimate. So the crunch point is did the manufacturer place the balance of everyone’s estimate into production? Or did they decide to play it a bit tight until they saw some sales figures. In any event they are unlikely to have shipped the entire estimates, and will have some product still in production.

They would be taking the risk of the price of the inventory, with no firm orders and no sales history. Even if they did place all the production, if one retailer suddenly wants to multiply their estimate by a factor of 3, 5 or 10, they all will. If one wants to cancel or defer deliveries, they all will.

The manufacturer almost certainly can’t step up production to a new rate. They will have problems with raw materials, factory capacity, and availability of tooling to run a second production line. It may be difficult to book shipments closer to the holiday season.

And, once the scheduled programming stops, which may be after a twelve week run, will the programming be rescheduled? Will the demand hold up or will product that arrives in December or January be surplus to requirements? If demand for a product like that dies, you can’t give the stock away. There are some landfill sites with this type of product buried in them!!

So it is not surprising that retailers struggle to “have the right product, in the right place, at the right time, at the right price “.As you have seen, it is easier said than done to manage stock.

Loom Band Craze

Another recent popular product which was a flash craze was Loom Bands.

The loom bands demand is a different story, and this neatly illustrates the solution. A loom band is essentially a rubber band.

The original product was the Rainbow Loom, voted Toy of the Year at the New York Toy Fair In February 2014. It was a craft kit, for children to make their own bracelets, hair accessories and even sandals .The kit basically consisted of hundreds of brightly coloured rubber bands, developed in Detroit and manufactured in China.

But although the original kit was branded, unscrupulous companies soon began to copy the idea, offering unbranded or own brand versions. Additionally the product is quick to manufacture, and light enough to air freight rather than ship by sea.

So in this case demand was satisfied and the market was saturated, because the barriers to entry were so low.

Comments

Why doesn’t product stay on the shelves when it is demand? — 39 Comments

  1. This presentation is a true reflection of what is happening especially in the third world countries. It is so sad that some upcoming business people cannot grasp the presented graph. All production is just guess work no matter how small or big the business is. I enjoyed the contrast between the two examples.

  2. The Lesson is very interesting,my tutor you will be blessed, and please tell me when did i get the diploma certificate.

  3. when the demand is high and the supply is low..the product off course will diminish at the market /shelves

  4. Stock get onto the shelves eg. when the product is the right goods for the consumption of the people at that giving time . “have the right product, in the right place, at the right time, at the right price “.As you have seen, it is easier said than done to manage stock.

  5. Good & informative lesson. Kindly let me & other participants of this course, know how much remaining lessons? When all the participants would get their completion certificate. waiting for a kind reply please.

  6. A good idea would rather stock unprocessed reusable raw materials, should an order be cancelled, storage space are what would be considered tough there is also the risk that the raw materials may outdate.
    Good lecture. Thanks!

  7. Very educative pieces, we are glad you are moving us further one marketing education.

  8. best lesson , i great you my teacher ,contunue to make a good programm lake this is wonderfull