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XBox Case
MIS 3537
Internet and Supply Chains
Spring 2014
Due Date: April 1, 2014
Refer to the case “Evolution of the XBox Supply Chain”.
Answer the following questions briefly (6-7 lines each):
- Why do companies outsource production? List three ways in which technology can help in this outsourcing?
- List five metrics which companies can use to evaluate the performance of suppliers (contract manufacturers)?
- What supply chain changes did Microsoft make between XBox and XBox 360? What was the motivation for these changes?
- Microsoft planned to use three EMS firms for XBox 360, all manufacturing in China. What are the benefits and pitfalls of this approach?
All groups (expect the group making the presentation) are required to submit a printout of their answers to the instructor at the beginning of the class. Also, be prepared to discuss the case in the class.
1. Companies outsource productions as a means of cost reduction, specifically to reduce labor and overhead costs. They also outsource for more flexibility and to keep focus on its core competency that increases revenue and profit. Some more reasons companies outsource is for the aggregate benefits which include capacity, inventory, transportation, procurement, information and receivables. Technology can help in outsourcing because in the past, strategic sourcing could not be sustained due to lack of compliance, but now strategic sourcing initiatives can be linked to an eProcurement solution. Also, technological advances have led to companies using outsourcing to make their production, customer service, and other processes efficient and inexpensive by farming them out to businesses that have the necessary expertise and can perform them less expensively. Another reason technology has helped in outsourcing is that improvements in telecommunications, collaboration and Internet-based technologies such as videoconferencing, instant messaging, and Internet telephony make communication faster and more widely available for outsourcing providers and their clients.
2. Five metrics which companies can use to evaluate the performance of suppliers:
• Price/Cost of Products – lower production costs are necessary for competitive pricing and to generate margins
• Quality Level of Products – includes delivery of components that meets Microsofts specifictions overall product design and performance of components
• Timeliness of Deliveries
• Responsiveness to Requests -0 ability to provide timely flow of information
• Overall Reliability of Manufacturer – having a reliable supply is critical to replenishing supplies
3. First, the manufacturing of the Xbox 360 happened in China whereas the Xbox was manufactured in Mexico and Hungry, which saved manufacturing costs. Next, the game console was shipped from China to western countries, which was not how they did it for the first Xbox. The design was outsourced to Astro Studios, and the company also changed the vendor companies who were making the chips and graphic card for the console in order to own the design of the chip. These new companies were IDM and ATland. Most importantly, the Xbox 360 was being launched before Sony’s PS3 unlike the previous launch. The company was also very concerned in refining its supply chain to meet expected demand.
4. Microsoft used Flextronics, Wistron, and Celestica. Benefits are minimize costs which includes the cost to reduce labor and material and improvements to supply chain efficiency. Also, Wistron supported xbox rollout in addition countries and provide incremental volume. Some of the pitfalls are not manufacturing enough Xbox’s to meet the customer’s demand. There also may be shipping delays because many of the xbox’s had to be shipped to Asia.
Kathryn Tressa
James Lee
Mason Katelin
Michael O’Connor
Austin Alvermann