Author’s Note: Over the last few weeks, I have been using this space to write about the lessons I learn from organizations with respect to their supply chain management, but not limited to it. I have also been attempting to convey my learnings as a narrative, and a story of sorts. So, if you want to learn something informative whilst having some entertainment, go ahead and read away! If you want to read my previous blog posts, click here! 😊
Shanmugeshwari, MBA '21
Amrita School of Business, Coimbatore
Once Microsoft was forced to make a difficult decision as to whether it should manufacture a gaming console along with managing a global supply chain or outsource the manufacturing to a third party. They quickly decided that, because they lacked the manufacturing and logistics skills required, it would be in their best interest to outsource the development of this product. After reviewing several possible vendors, Flextronics, a Singapore-based contract manufacturer, agreed to outsource assembly and major logistics functions. Flextronics was a multinational company with many staff and has also partnered with other big corporations such as Xerox and Dell.
Microsoft and Flextronics also had prior business partnerships, and Flextronics was the maker of its mouse (mice?). The rapport and partnership that Microsoft had with Flextronics was a significant factor why Microsoft chose to go with Flextronics. In addition, Microsoft was searching for a partner who could deliver gaming consoles at a reduced price while ensuring high quality and was ready to work with Microsoft on a real-time basis. One of the advantages of Flextronics was its industrial park strategy, which helped to control the supply chain closely, minimize supply delays, and lower costs that were passed on to Microsoft. Second, Flextronics had an international presence and was able to move production from location to location as required to keep costs down.
Flextronics used web-based information systems that allowed Microsoft to provide Flextronics with information on demand conditions. This sharing of information between the two would ensure that the production plans of all the players in the supply chain are well organized, such that inventory is minimum, shortages are avoided and the demand and the supply are regulated.
Microsoft was able to launch the product in record time on 15 November 2001 and posed a tough challenge to market leader Sony's PlayStation 2. X-Box sold a total of 1.5 million units by the end of 2001. Sony fought back by providing deep discounts on the product.
Flextronics moved the supply chain of the Xbox to China, realizing that speed would not be as important for long-term survival as costs would be. The resulting cost savings made it possible for Microsoft to match Sony's discounts and give it a chance to fight. This is a perfect example of agility and adaptability taking turns to make a robust and responsive supply chain.
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