Xbox Supplychain Case

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Case Introduction In Nov 2001, Microsoft wants to capture market share in the video gaming industry with consoles that had substantial increase in performance for gamers with the launch of Xbox. Analysts had estimated that Microsoft had lost a substantial amount of money in this venture. According to the case, 2 factors became critical to the profitability in the console business – driving costs down and game sales. In the next generation product, Microsoft realizes that the console is now a valuable channel for the players through the Internet, including access to other services and products. Microsoft is looking at the future of gaming with the global community using broadband Internet access. For Xbox360, they need to consolidate their first mover advantage for Network gaming. They need to launch the product globally whilst keeping the costs in the supply chain down. The strategy shifts from having best performance console in the market to low cost, fast mover strategy to get the “Xbox360 gaming experience” quickly to the market to capture market share. Games developers are likely to develop games for the first mover and adapt the games for the rest, which could compromise the gaming experience for the laggards, unless there are new games (like in the case of Wii). Microsoft now intends to launch their new console a year ahead of Sony. What supply chain changes did Microsoft make between the Xbox and Xbox 360? What was the motivation for these changes? To compete for market share against Sony, Microsoft needed, firstly, to lower down production cost. There is a need to restructure its supply chain towards an efficient chain rather than a responsive chain. As a result they decided to concentrate the production in China to enjoy low labor and setup cost. On top of 2 existing manufacturers, Microsoft also contracted a new 3rd EMS,
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