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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 strategy was to capture a market share by selling a technically superior console as well as a large number of video games in order to build up a broad base of Xbox gamers. So as to reach the mentioned goals Microsoft was focusing on short time-to-market, on reliable supply and on advanced technology and quality in order to assure a high level of product availability and customer satisfaction. This corporate and competitive strategy led Microsoft to develop the following supply chain processes and network to design, produce and distribute the initial Xbox: In considering potential manufacturers, the Xbox team first approached computer makers since the Xbox was basically a computer. Negotiations with Dell pointed out that the computer business model was unsuitable for producing game consoles for several reasons. Firstly, console makers usually lost money on each box, but made profits on selling games and software. Secondly, unlike computers, where performance typically increased, but prices stayed relatively constant, consoles maintained constant performance while costs decreased. To cope with these conditions Microsoft selected a contract manufacturer, Flextronics, to build the consoles. Although Flextronics recommended producing

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 strategy was to capture a market share by selling a technically superior console as well as a large number of video games in order to build up a broad base of Xbox gamers. So as to reach the mentioned goals Microsoft was focusing on short time-to-market, on reliable supply and on advanced technology and quality in order to assure a high level of product availability and customer satisfaction. This corporate and competitive strategy led Microsoft to develop the following supply chain processes and network to design, produce and distribute the initial Xbox: In considering potential manufacturers, the Xbox team first approached computer makers since the Xbox was basically a computer. Negotiations with Dell pointed out that the computer business model was unsuitable for producing game consoles for several reasons. Firstly, console makers usually lost money on each box, but made profits on selling games and software. Secondly, unlike computers, where performance typically increased, but prices stayed relatively constant, consoles maintained constant performance while costs decreased. To cope with these conditions Microsoft selected a contract manufacturer, Flextronics, to build the consoles. Although Flextronics recommended producing

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