Global Supply Chain Design

Case Study
Evolution of the Xbox Supply Chain

2012

Evolution of the Xbox Supply Chain

1.) What supply chain changes did Microsoft make between the Xbox and the Xbox 360? What was the motivation for these changes? When Microsoft first entered the market with the release of the Xbox in 2001 it was a newcomer in the console business. The company had neither an established brand presence in this area, nor did it have a developed base of games and gamers in the market, such as Sony. Therefore, the primary purpose of introducing the Xbox was to establish Microsoft in the market, to develop a brand presence, gain acceptance among gamers and to prepare the way for future products. Therefore, Microsoft’s
In contrast to the first Xbox, the Xbox 360 was produced entirely within China in order to benefit from low labor cost and to reduce overall manufacturing cost. Once the consoles were produced, they were shipped to North America, Europe and Japan. Additionally, Flextronics and Wistron were involved in the design process to optimize the product design and its production processes. Concerning the critical parts (graphics chip and microprocessor) Microsoft contracted with chip companies so that it owned the design of the chips and would be able to go to any contract chip manufacturer in order to continually reduce costs. As Intel and Nvidia resisted this approach, Microsoft signed up with IBM to design the processor chip and with ATI to design a unique graphics chip for the Xbox 360. Furthermore, Microsoft outsourced the design of the Xbox360 to Astro Studios which developed a small, elegant console. This change was triggered by the fact that the design of the initial Xbox, which was performed in-house, had been criticized by gamers for its unattractive appearance and bulky controller, resulting in decreased sales especially in Japan. In short, Microsoft altered its supply chain from focusing on reliably supply and high service level to cutting costs. The new strategy was supported by moving