Rolling for Initiative is a weekly column by Scott Thorne, PhD, owner of Castle Perilous Games & Books in Carbondale, Illinois and instructor in marketing at Southeast Missouri State University.  This week, Thorne explains the root causes of the games industry's supply chain issues.

For years now, the game industry and every other industry has relied upon JIT (Just In Time) in order to get products on the shelf in a timely manner.  JIT is the concept of setting up a supply chain in such a way that if it runs perfectly, as the last product sells out through the front door of the store, a replacement product arrives through the back door of the store.  Of course, the system has never worked that efficiently; except in the case of Dell Computers, which literally at one time, had tractor trailers full of parts, each trailer stocked to the ceiling with a single component.

This was during an era when Dell built its computers to order. As an order came in from a customer, the needed parts would get pulled off the trailer, assembled and shipped out to the customer.  Since Dell's contract with its suppliers had the suppliers retain ownership of the components until Dell pulled them off the trailer, this supply chain configuration proved incredibly profitable for Dell.  It allowed the company the luxury of placing its inventory costs onto its suppliers until the moment Dell actually needed a part.

Similarly in the game industry, someone must absorb the costs of inventory and each member of the channel wants another member to do so.  Publishers want distributors and retailers to buy as many copies of a release as they can get them to do, thus moving costs of inventory further down the supply chain.  Retailers want distributors and publishers to produce and hold extra copies of a game in inventory, making games available quickly for restock and shifting the costs of inventory up the supply chain.

Distributors, caught in the middle, would prefer that publishers produce extra quantities of a game to have them on hand immediately when the distributor puts in a reorder, and for retailers to take all preordered quantities as soon as possible, in order to move them further along the supply chain, shifting inventory costs to other partners in the channel.  When things work smoothly, the industry has a very finely tuned balancing act.  When things start of break down a bit, as shown by the past year, we have lots of out-of-stocks.

One way to counter this dilemma is to shrink the supply chain.  By moving production closer to the end user, who is, after all, the one who buys the products and makes the whole economic engine run, we shorten the supply chain and reduce out-of-stocks.  Most publishers choose, because of cost efficiencies, to produce their board games in China and Southeast Asia (why that is the preferred location is something I will take up another time). Doing so means they must ship across the Pacific in container ships, as flying them is not cost efficient given the margins most board games have.

Wizards of the Coast, as an example, publishes its Dungeons & Dragons books in the United States.  Since, it has a shorter supply chain, stores have not seen as many of these book out of stock during the past year.  The question for publishers is whether the additional revenue generated by having steadier inventory flow exceed the margin lost by onshoring their production?  Given that the channels of distribution should return to normal in 2022, the disruption may be more than most publishers would willingly undertake.

The opinions expressed in this column are solely those of the writer, and do not necessarily reflect the views of the editorial staff of