Controlling Bullwhip Effect in Supply Chain by BANDAI Co: Lessons From the Tamagotchi™ Case

Introduction

This chapter illustrates the typical phenomenon that arises from the supply chain features. Supply chains consist of members at different stages in the supply chain. Therefore, the movements of the supply chain are chaotic. Supply chains often face unexpected results.

BANDAI Co. was founded in 1950 by Naohara Yamashita. From the beginning, BANDAI has been in the business of Dreams and Creation. BANDAI is famous for products featuring popular characters, such as POWER RANGERS™, GUNDAM™, and DIGIMON™. They call themselves the Happy Moment Creator. In the 2020 fiscal year, their global sales were 118.8 billion Japanese yen (US$ 1.1 billion at US$ 1 = 110 yen), and their ordinary profit to sales ratio was 8.8%. BANDAI classifies its products into six divisions: character goods for kids, vending machine products, tabletop and computer game cards, foods and snacks, apparel, and others.

BANDAI introduced Tamagotchi™ to the market on November 23, 1996, in Japan. Tamagotchi™ is a compound word derived from Tamago, egg, and Watch. It was a handheld egg-shaped computer game that was the first simulation game of the digital pet class (Figure 1). This game aims to raise Tamagotchi™ through several distinct phases of its life cycle. The interface is straightforward and involves taking care of the Tamagotchi™ by feeding, providing medical care and attention, and other treatment activities.

Figure 1.

Picture of Tamagotchi™

Source: (BANDAI Co. https://www.bandai.co.jp/corporate/history/)

BANDAI forecast their initial target sales volume for the Tamagotchi™ at 300,000 units by the end of 1996 (the first six weeks of its release) in the domestic market. Tamagotchi™ became so rapidly and widely popular that BANDAI sold about 450,000 units and abruptly ran out of stock. Immediately, BANDAI expanded its manufacturing facilities tremendously and broadened its sales territory worldwide on May 1, 1997. BANDAI won the Ig Nobel Prize for Economics in 1997. Although BANDAI's sales increased sharply in 1997, the operating profit to sales ratio was not sustainable (Figure 2). Furthermore, after the Tamagotchi™ boom, their sales volume declined sharply. BANDAI announced they had 16 billion yen (US$ 123 million at US$ 1 = 130 yen) in after-tax losses between the fiscal year 1998 and 1999.

Figure 2.

Financial performance of BANDAI during 1993-2000

Source: (Annual report of BANDAI Co.)

BANDAI’s damage was so severe that they were hesitant to launch a new Tamagotchi™ product until 2004. It took about five years to recover from the bust. However, BANDAI learned valuable lessons from their misfortune, and they adopted appropriate measures to ensure the success of future product releases. The Tamagotchi™ series has regained its former status as a top product in BANDAI today.

Background

Tamagotchi™ was a typical example of a supply chain member crippled by an exaggerated short-term bullwhip effect. The bullwhip is a short whip used to control cows. The tip moves much faster than the handle because the tip is lighter and more supple than the handle. The bullwhip effect is the exaggerated negative effect within the supply chain, which slight variations in customer demand may cause. The upstream members, such as manufacturers, might experience much more damage than the downstream members from these variations.