Why Is Predicting Consumer Demand So Hard?

The undeniable truth about supply chain planning for the holiday season is that it is a process that seeks clarity when unpredictability is the only thing companies can count on. There are a number of reasons for this.

First is that consumers' tastes can change overnight—especially with toys, consumer electronics and apparel. “The product cycles are so short; what’s cool today isn’t what’s going to be cool tomorrow,” says Dave Haskins, CTO of Kinaxis, a vendor that offers on-demand response management for supply chains. As an example, he points out that more and more, the consumer electronics category resembles the capricious fashion industry. Talking about his daughter’s recent cell phone purchase, he notes: “She’s buying a cell phone for reasons of fashion and not function. The consumer today is unbelievably fickle.”

This year, one area analysts will be watching is the high-def showdown between the Blu-ray Disc and HD DVD standards. Sales of players embedded with either standard could determine the eventual winner in the battle for the next DVD format.

Another challenge is that sometimes one Christmas gift grabs more worldwide attention than any marketing or operations manager could have ever predicted in even his wildest dreams. The resulting mass hysteria feeds on itself (remember the late '90s Furby craze?) and becomes wonderful fodder for holiday news. It also leads the general public to think that “someone made a mistake,” says Tomlin, even though the situation was too difficult to foresee.

Unexpected Demand, Problem Suppliers

While it may seem like a nice problem to have, it’s a frustrating situation for manufacturers trying to keep up inventory and retailers trying to keep their shelves stocked. “In that situation, there’s not an awful lot companies can do,” says Tomlin.

Nintendo estimated that it would need to ship 14 million Wiis in 2007, but due to growing demand, the forecast changed to more than 17 million, the BBC reported, prompting a spokeswoman to declare that global demand spikes were impossible to anticipate. She added: "Nintendo is now in a position in which seasonality demand trends are being broken, therefore the demand for Wii hardware is constant throughout the whole year globally. Due to this phenomenon it is possible that the demand for Wii hardware may outstrip supply.”

That’s the demand side causing a game maker and its retail customers holiday headaches. The supplier side of the equation can also wreak havoc.

Just consider what happens when a supplier discovers lead paint in its products. Tomlin calls this type of event a disturbance, and it can test even the most robust supply chain and partner relationships. “This event introduces another uncertainty,” he says, because if products now need to be inspected, that will elongate the lead time for getting safe products on the shelves and will also hurt a company’s reputation at time when consumers don’t need any doubts.