Xiaomi needs to improve its supply chain management

Xiaomi Corp has been struggling to get its act together in relation to supply of its newly-launched flagship Mi 9 smartphones. Unable to get enough devices onto the market, the firm was recently forced to backtrack on its sales plans, prompting accusations of poor planning and inefficiency.

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Customers were angry that stocks of Mi 9 disappeared in less than a minute in online channels in two rounds of pre-sales. The supply shortage, not surprisingly, has prompted several interested buyers to abandon their plans for Xiaomi devices and turn instead to offerings from other brands such as Huawei and vivo.

Xiaomi executives have vowed to put things right but as of now the market is not convinced that the situation would improve quickly. Questions over the Chinese firm’s supply chain management are increasing by the day, and analysts are warning that Xiaomi faces the risk of losing out to rivals at home as well as in overseas markets.

Mi 9 hit the street more than three weeks ago but consumers are still finding it difficult to purchase that device through official channels at the recommended retail price. One can argue that the problem has arisen because of the huge popularity of the new flagship smartphone, yet there is no hiding a deeper issue: Xiaomi’s management failed to correctly assess the market demand for the products, leading to insufficient resources allocation for the production.

Company officials are insisting that the supply shortage is a temporary issue. On Tuesday, Xiaomi’s chief financial officer Shou Zi Chew told investors during an earning conference call that he expects the shipment of Xiaomi 9 and Xiaomi 9 Transparent Edition to exceed one million units by the end of March. Including the smaller screen flagship Mi9 SE, the Mi9 series will have an overall supply of more than 1.5 million units by the end of March, he said.

Earlier, Xiaomi’s top brass, from founder Lei Jun to other senior executives including president Lin Bin, have told fans that the company had prepared sufficient stocks for Mi9 and that the production started as early as January.

If that had really been the case, there is no reason why Xiaomi failed to meet the first wave of demand for Mi 9. As per market chatter, Xiaomi has sold only around 200,000 units of Mi 9 in the past three weeks. That would represent just one-fifth of the company’s end-March target of one million units.

That is in contrast to the situation pertaining to Xiaomi’s new brand Redmi, which unveiled its first new product Redmi Note 7 in January and has sold more than a million units a month after the product launch. The Redmi Note 7 shows Xiaomi is indeed capable of making a million smartphone units in short period of time, yet the company failed to replicate that when it came to Mi9.

If Xiaomi had not stressed that it had prepared sufficient Mi 9 stocks for the debut, fans would perhaps have been in a more forgiving mood. But it turns out that Xiaomi management, including Lei, may have made exaggerated claims during the launch event and gave false hope to users who expected to get the Mi9 phone without waiting for a long time.

One of the key problems Xiaomi is facing is shortage of the Qualcomm Snapdragon 855 processor. The processor has been widely used among Android flagship smartphone models this year, including Mi9, Samsung Galaxy S10 series, Sony Xperia 1, vivo IQOO, Lenovo and some other brands.

Xiaomi has been telling the public that it was the first to deploy Snapdragon 855 processor in mass scale in the industry, even though Lenovo had launched a smartphone running on this chip prior to the launch of Mi 9. While Xiaomi believed it could secure sufficient supply of the 855 processor from Qualcomm, the fact is that other smartphone brands may have secured more of those processors from Qualcomm, than Xiaomi.

That’s the reason why vivo IQOO, which has just launched a smartphone running on the 855 processor with similar hardware specification as the Mi9 and at a similar price, saw a smooth debut with sufficient stock to meet the market demand. Vivo’s new brand Reno, which will be launched next month, said its first smartphone running on the 855 processor will have 2 million units of stock at launch.

Xiaomi, in contrast, could continue to face shortage of the 855 processor as more smartphone models to hit the street in the second quarter, unless Qualcomm ramps up its supply to all smartphone brands.

As Xiaomi has adopted a multi-brand strategy to boost its smartphone business, it will need to take serious approach to revamping its supply chain if the firm is to meet the market demand. Some market watchers say Xiaomi may be lacking in frontline experts who can estimate market situation properly.

Given Xiaomi’s low-margin and high volume business strategy, the company must secure accurate market figures to decide the order size of each model. The firm needs to avoid piling stock, but at the same time make sure there are enough units on offer to satisfy market demand.

Xiaomi must leverage its loyal fans across the nation with big data analytics to predict product shipments accurately. That can help the firm manage its supplies better to ensure stable shipment of new products and boost its market share.

Facing consumer ire over the Mi 9 supply shortage, Xiaomi, it is hoped, has learnt its lesson.

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A columnist in political development in Greater China region, technology and gadgets, media industry, parenting and other interesting topics.

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