Lee, Hau; Hoyt David W. and Holloway, Chuck, “Evolution of the Xbox Supply Chain” * Who are the various stakeholders for Xbox that formed the Microsoft ecosystem while developing the supply chain business strategy for Xbox? * What were the challenges faced by Xbox when it first launched Xbox? * How did this compare to the launch of Xbox 360?
* Did they consider any changes in the supply chain?
Microsoft’s Xbox project was started by a group of gamers in 1999 so that they can also develop a gaming console which threatened the performance of the home PC market. The Xbox project consisted of both internal and external stakeholders who had either a direct or indirect “stake” in the project. These stakeholders include the Microsoft employees (i.e., Xbox project team, Microsoft executives), shareholders, suppliers (e.g., Intel, Nvidia), contract manufacturers (i.e., Flextronics, Wistron Corp, Celestica), game developers, designers (i.e, Astro Studios), distributors, broadband providers, retailers and customers. The stakeholders of the Xbox project can be visualized in terms of their position in Microsoft’s extended supply chain, shown in Figure 1.0 below.
Figure 1.0 Microsoft’s Xbox supply chain
Challenges with Original Xbox
Microsoft encountered many challenges when launching the original Xbox in 2001. To better understand the challenges in the original Xbox, we can adopt the SOSTAC (Situation analysis, Objective Setting, Strategy, Tactics, Actions and Control) approach. Situation Analysis. Microsoft did not have a presence in the gaming console market and was up against strong competitors which already had established markets such as Sony (Playstation) and Nintendo (GameCube). This competitive landscape put them in a position wherein they needed to develop a product that offered features that were comparable to existing products in the marketplace which was perfectly priced to establish themselves in the market. Moreover, Microsoft recognized that it was critical to launch in time for the 2001 holiday season to allow them to have a presence in the marketplace before they became up against the “next-generation product”. Thus, Microsoft’s early challenges came at a price of high production ramp up costs, where they needed to produce 100,000 consoles in a week in order to launch the new Xbox in time for the Christmas. Objective. The short-term objectives of developing the original Xbox was primarily aimed at entering the gaming console market, learning from the experience and paving way for the next generation of products. Strategy. Microsoft adapted a push supply chain strategy using an extended supply chain. They developed their products based on existing game consoles with added features, most of which were built to compete against Sony PS2. In addition to a having features similar to other gaming consoles available in the market, the Xbox had other features such as allowing Xbox to play DVDs, and a built-in modem which in 2002 was used to launch Xbox live. Tactics. Microsoft lacked the competency in building hardware –neither did it have exposure to designing and manufacturing hardware that can be used as a game console nor did it have any experience with the game console market. Hence, Microsoft decided to form strategic partnerships with preferred contract manufacturers who can deliver the products for them because they did not have the time to deal with unproven vendors and risky designs. Actions. Microsoft also took into account the location of manufacturing facilities in their selection of contract manufacturers to allow to take into account the logistics of to shipping products quickly to the US and European markets and decided to find plants in Mexico and Hungary. Logistics is the time-related positioning or resource, or the strategic management of the total supply chain. The supply chain is a sequence...