Evolution of the Xbox Supply Chain
Microsoft made several adjustments to their supply chain between the introduction of the Xbox and the Xbox 360. One of the first changes was adding a third EMS supplier, Celestica, in addition to Flextronics and Wistron. Celestica was added to increase capacity and meet predicted demand which was expected to be much higher for the Xbox 360 than it had been for the original Xbox. Also, in addition to Microsoft’s current engineering team, they attempted to further integrate their supply chain by working closely with employees from Flextronics and Wistron during the design process to optimize production of the Xbox 360. Microsoft also contracted with chip manufacturers so that they would own the rights to the designs of the critical Xbox 360 chips. This change would allow Microsoft to switch among different chip manufacturers to continually lower their costs. Intel and Nvidia were not on board with this idea so Microsoft decided to contract with IBM to design the processor chip (formerly done by Intel) and with ATI to design the graphics chip (formerly done by Nvidia). Production and manufacturing, which was initially done in Mexico, Hungary, and China, was consolidated strictly to China in order to reduce production costs through cheap labor. Finally, Microsoft outsourced the design of the Xbox 360 to Astro Studios to develop a “small, elegant machine” in response to the criticism it received from the original Xbox design. By launching globally, Microsoft faced many benefits, as well as, risks. One benefit from this strategy is increased support for the Xbox Live. The global launch increased the awareness for Xbox Live and allowed gamers from around the world to interact with each other faster and on a larger scale than if they had done separate geographic launches. Microsoft had the opportunity to beat Sony to the market worldwide and, therefore, establish themselves in the global market nearly a year ahead of Sony’s...
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