Debunking a VGC myth: PS3 needs more stock because it ships to more countries

[Troll_Whisperer]

ils411 said:

Here is a simple example

Product A and Product B both sells 900 units per week.

Product A is sold in 3 stores while product B is sold in 6 stores.

Each store vary in distance from the warehouse or distribution center

Legend:

Near - requires only 14 days of on hand inventory since it is near and can be replenished easily

medium - requires 21 days of on hand inventory and is harder to replenish

Far - requires 28 days of on hand inventory and is very hard or costly to replensih hence more stocks are maintained to lessen total cost

 

Product A
Store	Weekly Sales	Distance from DC	Required Days of Inventory	Required Inventory
1	200	Far	28	800
2	300	Medium	21	900
3	400	Near	14	800
TOTAL	900		63	2500

As you can see, total required inventory for a given week is 2500 units. Now take a look at Product B

 

Product B
Store	Weekly Sales	Distance from DC	Required Days of Inventory	Required Inventory
1	200	Near	14	400
2	180	Near	14	360
3	130	Far	28	520
4	140	Medium	21	420
5	100	Far	28	400
6	150	Medium	21	450
TOTAL	900		126	2550

The required inventory in a given week is 2550 units. 50 more than product A. 50 units isn't a lot but this is just an example. A very simple example. The only factor I considered here is distance from warehouse. There are more factors that can be considered such as delivery cost, holding cost, cost of money etc etc.

Though, I should point out that this is actually true for dry goods. For electronics, not so sure. But hey, its just an example. So yeah, I don't think that its a myth but is actually a real life scenario.

 

The problem is, for this table to be right, you must assume that Sony's extra markets are further away from the warehouse than the main ones, which is not necessarilly true. We don't know how distribution works for these areas (namely Middle East), but it's probably quite good.

Of course there are many factors involved, but without knowing these factors we cannot conclude that Sony must have a bigger stock just because it sells in more countries. Anything else would be speculation, and it may well be wrong. That is all I'm arguing.