Daikin Industries Harvard Case Solution & Analysis


Daikin industries are facing issues about the large inventories that are kept in stock as the company anticipated large sales for the summer seasons, but these sales seem unlikely to occur as  the country is witnessing the unseasonable cold. This issue has arisen many concerns about the inventory that is in stock and has made the future uncertain for the company. Due to these issues the president of the company is concerned about the survival of the company in the long run. Another major concern from the issue was the stagnant behavior of the market and with this stagnant behavior the company was facing hard times with increasing its market share on the basis of product differentiation. Lower sales were also not acceptable for the company and with this stagnant behavior, it was also unlikely to occur. These concerns made the president of the company to search for options and during his search the president viewed the option of taking an exit from the industry or to move manufacturing to a country with cheap labor in order to attain cost benefit.

Besides these issues, there were some other issues that were also relevant to these problems. One major concerning factor was catering the demand that was very unpredictable due to high fluctuations. In this scenario, managing supply chain was becoming more difficult and a growing concern for the company. Season play a major role in predicting the demand, but it was also a difficult task as the seasonal fluctuations also presented barriers in predicting the future demand and sales and also the impact of those sales on the company’s profits. The company’s product design see innovation every year and with these changing designs, avoiding a collision between carrying and supplying old and new designs were also very difficult and was also making the task of managing the supply chain more difficult.

The distribution in Japan was done through 21 different sales companies, and besides distribution the companies also guided Daikin about the expected sales forecast. Besides sales forecast, the companies were also helping in identifying the requirements of the retailers and using their experience and knowledge about the local market guiding the company in many other ways. Although these companies were favoring the company in many ways, but due to unpredictable demand, were not in favor of keeping a large inventory in the stock as the companies were afraid of stock-outs. This was the main reason that the company was managing large inventories itself as the company was not getting support from sales distribution companies as explained above.

On the other retailers were also not in favor of keeping high-stocks as they did not have much space in their warehouses also they were only selling the product that was in demand. The retailers sell the most expected items keeping a safety margin due to low storage space and high fluctuations in demand. The Daikin product line was the widest in the industry with over 600 variants, but not every variant was in demand that is why the retailers only preferred the most demanded varieties to sell. The retailers were only accepting orders on weekends, and no order was entertained during the weekend. The retailers had the bargaining power which was creating pressure on the company to keep large inventories and deliver on the demanded date.

With high fluctuations in demand and unpredictable temperature during the summer season, the company was not sure of the demand that will occur in the next season and will it favor the company’s profits or not.

 Secondly, strong restrictions on the delivery dates from the retailers was also a concerning factor for managing the supply chain and improving its effectiveness. But with many variants, creating a demand for each of them and supplying that at the end of the due date was becoming a challenge....................

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