Shrinath Badrinarayanan

sbadrina

Case 1: Xbox 360
The decision to enter a highly competitive video game market presented huge demand and supply challenges to
Microsoft, and from a design and manufacturing perspective, their motivations and decision to evolve their supply chain for a global launch of Xbox 360 was more beneficial than risky, even though there are a few caveats. One of the key strategic decisions that supported their evolving supply chain was establishing a market presence with the original Xbox console, and then to introduce the Xbox 360 a year before Sony would release their next generation console. To achieve this, Microsoft, which originally was not able to reduce costs on their processing and graphics chips, and overall manufacturing costs with product design, changed its strategy and contracted with chip companies to produce the Xbox 360 chips, but owned the designs of these chips, ultimately reducing costs and providing Microsoft an increased leverage with the suppliers. Not only would this give Microsoft an increased control, but also helped Microsoft achieve increased flexibility in its global supply chain, thereby allowing it to ship the products to global locations for an early launch, ultimately beating Sony's launch of their upcoming product.
The second major advantage in Microsoft's evolving supply chain strategy was the synergistic confluence in bringing their manufacturers Flextronics and Wistron into optimizing their design production for the Xbox 360.
The distribution of their hardware across industrial park facilities in China and Taiwan was not only strategized in terms of lowering costs, but also to bring their products close to their target market in Japan, where Microsoft yearned to capture more market share with the new Xbox 360. Here, though, there is the risk of minor shipment delays, but owing to the flexibilities offered by the supply chain, the chances of delays were very negligible.
As the authors of the case noted, the initial Xbox was not doing very well in Japan owing to its “big” and
“unattractive” nature. Microsoft also made a smart decision in outsourcing the design decisions to Astro Studios, which developed a “small, elegant machine”. If Japan's market, which is most likely an indicator of innovation, stability and consumer-friendliness in electronics products, becomes a success for the Xbox 360, then the analysts predicted that it could be a game-changer in the Xbox 360's market in Asia. At least in Japan, the Xbox
360 performed better, selling 1.5 million units (1 million more than the original Xbox). So this was a decision that worked in Microsoft's favor.
In addition, their decision to bring in IBM and ATI to design the processor and graphics chips, enabled them to complete their chip production by the end of 2004, well ahead of their global launch of Xbox 360. If Microsoft had gone with Intel and Nvidia as they did for their first generation Xbox consoles, there was the inherent risk of
Intel/Nvidia not able to produce the chips on time, as they usually produce chips, contracting from many clients, in addition to their resisting Microsoft's efforts to own the designs. Ultimately, this supply chain decision helped speed up the production process, in time for the global launch.
In conclusion, Microsoft's evolving supply chain strategy enabled more sales and a greater market share for
Microsoft , although initially they ran the risk and difficulty of forecasting the demand in certain regions. In my opinion, this supply chain strategy had more benefits outweighing the risks in Microsoft's global launch of Xbox
360.
Additional references: https://en.wikipedia.org/wiki/Xbox_360_sales