Demand Forcast

For the exclusive use of H. Bailey, 2015.

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REV: APRIL 22, 2013

DEISHIN LEE TUNAY I. TUNCA

Konys, Inc.

In April 2012, Judy Taso, vice-president of supply chain management at Konys, Inc., reflected back on a stressful year. Konys was an original equipment manufacturer that produced mobile communication devices that had very short product life cycles. After developing capabilities as a contract manufacturer for several years, Konys started designing its own devices for the lower end of the mobile market. The demand characteristics of its products were similar to that of a fashion item, making demand forecasting very difficult. Forecasting inaccuracies then made sourcing raw material very challenging. Konys sold its products to retailers who could choose whether to brand the devices. The sales of a Konys product followed a typical product cycle - an initial ramp up, followed by a steep increase in sales, then sales tapered off as the product approached the end of its life cycle. The MC mobile phone was one of Konys' most popular and enduring products. However, every 12 months, a new version of the MC was released. Exhibit 1 shows the typical quarterly sales pattern reflected in sales of MC versions 15-18 and Exhibit 2 shows quarterly sales for the previous 19 versions of the MC. Konys typically timed its product releases for the third quarter of the calendar year, allowing it to capitalize on the holiday season. Although the general trajectory of demand for a new product was consistent, it was still difficult to predict demand for a given quarter. This made it very challenging to source the right quantity of parts. In particular, parts that were expensive and uncommon were difficult to procure. An example of this kind of part was the liquid crystal display (LCD) module. This module was supplied by Paravan Systems, who had supplied Konys with this part for the last 10 versions of the MC mobile phone. Last year, an unanticipated surge in demand...