Demand Versus Supply

First, the news: 

“Nikon has received an unexpectedly large number of orders for the NIKKOR Z 400mm f/2.8 TC VR S and the NIKKOR Z 800mm f/6.3VR S lenses. To better assist our customers and retailer partners, we will temporarily suspend taking new orders of these two lenses as we work to fulfill our current backorders. We sincerely apologize for any inconvenience this delay may cause customers eagerly awaiting these products. Please know we are doing all we can to deliver these products as soon as possible, and we ask for your understanding and patience in this matter.”

It's unusual in the US that we get this type of message from a camera company, though it is actually very common in Japan (for some reason the Japanese camera companies favor exports over home market sales much of the time). What I see people getting confused about is whether or not the problem is a supply or demand issue, and whether or not the on-going supply chain issues are part of the problem.

Here's my answer: it's both a supply and demand issue, and for lenses probably has nothing to do with the supply chain, as Nikon is its own supply chain for the most critical pieces. 

The exotic lenses—fast aperture, large and unusual element, high-priced telephoto lenses—are never made in high quantities. At various times when I've asked Nikon about production capacity for exotics, the number I get back is somewhere in the 300-500 per month realm for any given lens. (I believe Nikon also launches a little late so they can build up a month or two of extra inventory prior to release.)

The constraints on production are multiple. First, there's really only one production line for the exotics, and it's a hand-assembly line with lots of attention to critical alignment and testing, so finished lenses just don't pop out every minute. Nikon's been maxing that assembly line out for awhile now (introductions of the 800mm f/5.6 TC, 180-400mm f/4 TC, 120-300mm f/2.8, and now 400mm f/2.8 TC and 800mm f/6.3 PF), while still trying to produce the other exotics in small numbers. It's probably also why the 600mm f/4 S (TC?) hasn't yet been announced. 

The second problem is glass. You simply don't create those large and exotic lens elements overnight. Last time I checked, it took as much as a year from first pour to polish to final assembly. So if you didn't start enough glass "baking" initially, you can't simply turn on another "oven" and crank out more overnight. On top of that, the big glass requires some specific creation and polishing equipment, and I don't believe Nikon has expanded their capacity for that as much as they probably should have (but more on that in a bit).

In other words, supply was always going to be limited. 

Which brings us to demand. Which, ironically, is being driven by a camera that Nikon can't produce fast enough, the Z9. Once we early adopters verified just how good the Z9 was and that it (mostly) lived up to the sudden Nikon marketing hype, that basically opened the gates for the herd to move from the DSLR pasture to the mirrorless one. And the cows...uh, excuse me, customers...began following one another through the gates. Including, a little bit surprisingly, the sports/wildlife professionals, all of whom were already using some of the best cameras and glass ever made (DSLR and F-mount). 

I've been constantly surprised at DSLR-pro diehards that, well, died easy ;~). Pretty much every sports pro I know is loving their Z9, even the ones that said they'd never buy something like that. Many are still keeping their D5/D6 (as I am), because there are unique things that it can do better. But more than I thought simply sold off their DSLR gear and went "full mirrorless." (That's now becoming true for Canon pros, as well.) 

And that's put a demand impact on the few exotic Z-mount lenses available. Coupled with the success of the Z9 in the enthusiast market, many of whom have plenty of disposable income to do whatever they want, there was little doubt in my mind that the 400mm f/2.8, 400mm f/4.5, 800mm f/6.3, and any other eventual exotic would simply be sell-outs on day one. And month one. And year one. 

But that brings me to something that doesn't get talked about much on the supply side: capacity. Nikon just spent a couple of years reducing production capacity to put it better in line with long term demands. Nikon has been pretty clear that they believe that the global market demand for all interchangeable lens cameras (ILC) is not going to go through another growth spurt, and that they need to be prepared to be viable and profitable at a far reduced run rate. That run rate is about 700k camera units a year. Even if Nikon were to take market share from others and increase that number, I doubt anyone in Tokyo would have a plan for more than 1m units a year. 

Thus, you don't launch a new plant (or line in an existing plant) to build Z9's because you know it'll be really popular at launch, nor do you build more glass production and hand assembly lens lines because you know each exotic you launch will be popular on day one. Instead, you do your best to balance capacity to demand over a longer period of time, typically a year or two. Same as the auto makers, by the way. 

In tech, it's dangerous to build massive inventory for new products or to boost production capacity in anticipation of "hits." Getting the balance "right" between staying lean and anticipating greater demand is really, really tough. Apple can do it because they are so vertically integrated. They literally get minute-by-minute updates on sales, inventory, and production, and have the mass necessary to change things quickly to keep those aligned (though supply chain issues are hurting them on that with some products at the moment). Nikon can't do that, because not only isn't Nikon vertically integrated down to the retail level, but Nikon's consumer product scale is multiple factors smaller than Apple's. Apple makes over 200m iPhones a year, Nikon 700k cameras. Looking at accessories, we're talking about well over 100m AirPods for Apple, 1.2m lenses for Nikon. It's a matter of scale.

Building out lots more capacity would not be a good idea for Nikon, as they're predicting that the ILC market will shrink and stay at a lower level in the future. 

Thus, there's no easy fix for the high demand for Nikon things in short supply other than time. 

That said, I'm not sure what arbitrarily saying you won't take any more orders achieves. If anything, it disconnects you from the customer demand. You won't know quickly that the customer decided that waiting for a Z9 or 400mm from Nikon was going to take too long, so they ordered a Sony A1 and 400mm instead (the A1 is in stock, while B&H claims the Sony 400mm is 2 to 4-week expected delivery as I write this). Of course, if potential customers did that, the Z9 and 400mm lens supply would ease ;~).

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