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

miz1q2w3e on 26 October 2011
Troll_Whisperer said:

I replied to those people already and they didn't have any more compelling reason to argue about what I say.

What I described in my previous post is very true, I think it is you who doesn't grasp what I am explaining here.

I'll be fine if this is your last post, I don't feel like having an argument online with someone who's getting irritated.

Or maybe, like me, they just thought arguing with you wasn't worth their time



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Serious_frusting on 26 October 2011

Just to make it clear i agree with the OP on this. I was just describing an argument someone would potentially try and use.

I didnt think about sony using their consumer electronics shipments as a way to get the PS3 over to smaller countries. Very good point in deed



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ils411 on 26 October 2011
Troll_Whisperer said:
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.

We dont have to assume anything. Its fact. Not all stores are the same distance from a warehouse. And diferent stores with varying degree of distance from the warehouse will also have varying degree of sales.And my example just showed you how that worked.

As for factors.

1. carying cost - how much it cost a store/warehouse to maintain a certain amount of inentory. Carying cost involves possible sales of other items that could have occupied the space that this specific product is occupying. It also involves cost of money, which is the possible interest that the cost of money that is invested on the product could be earting if it were just diposited into banks. Utility expenses such as lighting, for frozen food it could mean chillers and the likes. Manpower, which can inlclude the number of people and the manhours they render to maintain these items and to ensure that they are stored properly also it can include the number of securtiy guards added to make sure that the products are't stolen.

2. Shipment cost - Shipment cost refers to the cost incured by Sony by shipping ps3s to different regions/countires/stores. Shipment cost can be broken down to the actual cost of shipping it via cargo ship, truck, plane and other delivery methods. It also includes custom tax and trade taxes required by the country/region that it is being shipped to, and for some countires/regions, there is also holding tax, and temporary storage fee, rental of space fees and other fees that customs may feel like charging.

3. Logistics cost - cost incured from warhouses and distribution centers which include truck rentals, manpower cost, storgage cost, holding cost etc etc

Now we then take all these factores into consideration and each store now determines how many they could sell and how many buffer stocks they should maintain. It call comes down to the fact that more stores = more buffer stocks needed = more stocks sticking in the pipeline.

And yes, I know this as fact as this is what is really happening. I have worked for  2 different supermarket chain and one food chain which is why i know this shit. And no, I was not a store manager nor was i some clerk or supervisor. I was actually the jackass wo gets to determine purchase quantity and inventory levels. What does that mean? I get to screw over storemangaers and area managers and go "hey budy, how many you nead? 5? yeah ima gona send you 10! why? coz i fucking said so so deal with it!?

 



ils411 on 26 October 2011
Troll_Whisperer said:
miz1q2w3e said:
Troll_Whisperer said:
miz1q2w3e said:

lolololo @the bolded the way you post sometimes... XD

Anyways, yes the average will remain the same, but average doesn't matter when numbers become small scale, buffer stock will always be disproportionately high in comparison to units sold in this case

daveJ's example was more than enough imo, I can't explain it any simpler for you

A shop won't ask for 200 consoles if it sells 2 per month, it's financial suicide. I may ask for 10. But then, 10 more stores will have 2-3 and will not have asked for stock for months. They're not going to try and keep an amouth of stock that's good for a year constantly.

What you're saying is that all small stores keep a constant stock of several months in case there is a sudden spike in demand. Again, it doesn't work like that. If you sell 2 a month you're not gonna order more every time you have less than 100 consoles in stock.

And BTW, if you run out of consoles, you run out of consoles. It happens in many stores in the West. I don't know why you think that it's going to work different elsewhere, you need units for a certain amount of time.

I don't know why you have a problem with this, but it's very simple. The average demand of the whole market is going to be enough for the same amount of time as in other markets.

Also, sor some reason, you're assuming this doesn't happen in markets where X360 sells, which is simply not true, because there are a lot of remote towns in these two.

As you would say, I can't explain it any simpler for you.

Half of the stuff you just wrote is total BS - I never said any of that

If you have a hypothetical average consumption of 1 unit per day but keep two just in case you have a redundancy then your average is still 1 unit per day. Say their are 1000 shops like this. Average = 1000

Now say another bigger shop averages at 1000 units per day and has the usual 10% buffer. Average = 1000 as well

Senario A: 2000 buffered units
Senario B: 100 buffered units

IRL it's not quite this severe but my point still stands. A high percentage of stock to sales ratio in regions similar to senario A = more stock sitting on shelves

wow, didn't think I'd have to go as basic as that but PLEASE tell me you understand now

That doesn't account for units sold.

In Scenario A there are 2,000 units total stock before the day starts.

In Scenario B there are 1,100 units before the day starts.

Next day, Scenario A will have enough units for the day, having an average of 2,000 in two days.

However, Scenario B will need to order 900 units more, bringing the total to 2,000 in two days.

 

Even if you apply it longer term, its the same. Eventually the average stock will remain the same.

Scenario A decides to get enough stock for 100 days= 100,000 units

Scenario B does the same= 100,000 units.

 

They may have different amounts of stock for different times, but receiving and selling the units at the same rate means the average stock will be the same.

 

And again, that's assuming all stores are small in one market and all are big in the other, which is false.


Dude! no, that just wrong. Your assuming that since in scenario A there is already 1000 units available they wont be requesting for additional deliverys. The thing is that each of the 1000 stores are trying to maitian an inventroy of 2 units. 1 to meet their daily deman and 1 just incase. so if each store sells 1 unit, they are left with 1 unit, which is 1 less than their comfort zone of 2 units. hence, they will order 1 unit each to bring back the inventory level back to two. then scenario A will again have 2000 units

In scenario B, they just dont order or have 900 units shipped to make it a round 1000. remember, they are maintaining a 10% buffer stock. So if they just get 900 units, their total inventory on hand will just be 1000. it is below the 1100 units that they maintain, so they will not just order 900 but 1000 to bring back their stocks to 1100 units.

Thats how it works.

Now lets also project it for 100 days like you did

Scenario A - will have sold 100,000 units but they will always maintain a buffer of 1000 units = 101,000 untis

Scenario B - will have sold 100,000 units buty they will always maintain a buffer of 100 untis = 100,100 units

See. thats how it works.