Essay on Xbox Supply Chain Case Study

What supply chain changes did Microsoft make between the Xbox and the Xbox 360? What was the motivation for these changes? First Microsoft restructured its supply chain after learning from its experiences with the Xbox. Microsoft Xbox had already established a huge presence in the videogame market, but by the time Xbox 360 was rolled out, it had lost a substantial amount of money. “One analyst estimated that from the time of Xbox launch to the time the new Xbox360 rolled out Microsoft accounted for $6. 1billion is revenues and $4. 4 billion in losses”(Evolution of the Xbox Supply Chain).

With the rollout of the New Xbox360 Microsoft intended to use its existing EMS suppliers, Flextronics and Wistron, for production as both the suppliers were capable of producing more than the original expected capacity. Microsoft also brought the third EMS, Celestica on board to provide for additional production from a new facility and to take advantage of low cost in China. Secondly, Microsoft was criticized for its poor product appearance and in-house design of the Xbox and for this reason Microsoft outsourced the designing of the Xbox360 to Astro Studios in San Francisco, which designed a beautiful small and elegant gaming machine.

Outsourcing and hiring a new company made sense as it would attract more customers to their product which in turn increase sales. Lastly Microsoft wanted to own rights to the newly designed chips that they contracted with chip manufacturers, so they could negotiate with their chosen supplier to reduce cost. This idea was met with resistance from Intel and Nvdia, the original chip manufactures of the original Xbox. IBM agreed to design the processor chip for the Xbox 360, while ATI designed the unique graphic chip.

The motivation for these changes was because Japanese users criticized the Xbox as being ugly and the console being too large. The Xbox’s share in Japan was less that 1% less than its share worldwide (Evolution of the Xbox Supply Chain). Microsoft also wanted to cut their losses, make profits and expand their customer base Worldwide. b. Previous videogame launches had been characterized by initial demand exceeding supply, even though launches had been regional, with many months separating each geographical expansion.

What were the benefits of the global launch planned for the Xbox 360? Microsoft has already cemented its place in the market among gamers with the Xbox. Microsoft learnt from their past mistake they committed five years ago, when they entered the market a year later with a technically superior product than Sony’s Playstation2. During that time Sony had maintained its dominance in the videogame sector but Microsoft had already established it’s self in the market. Microsoft had now turned the tables on Sony.

Microsoft was launching the next generation Xbox360 a year earlier than Sony’s product who had promised its customers that it would come out with a more technically advanced product compared to Microsoft’s. “Microsoft was betting that its ambitious global launch would help it beat Sony in the market place”(Evolution of the Xbox Supply Chain). c. Microsoft planned to use three EMS firms for the Xbox 360, all manufacturing in China. What were the benefits and limitations of this approach? How should Microsoft coordinate the three suppliers?

The benefits for Microsoft using three EMS firms, all manufacturing in China is to save on labor cost. Also since all the three manufactures were based in China, it is easier to handle any production issues from one geographical location. They all work in the same time zone. Communication is much faster and the Microsoft teams could be at any site immediately if there were any problems. If one site went down then the other 2 sites could possible help with picking up the slack until the first one came back up. The limitation I see is the time it takes to ship the products as they are transported by ships to North America, Europe and Japan.

If the manufactures were spread in different parts of the world in order to stay closer to their respective markets, fixing production issues in a timely manner would be time consuming. There is always a possibility of sensitive information being stolen in china as China doesn’t have stringent law in safeguarding intellectual property. From my accounting class I learnt that a company as large as Microsoft could possible us ERP (Enterprise Resource Planning software) that would allow them to connect all three manufacturers to one system and share information instantly.