Sample Essay Draft Xbox v51

8/4/2019 Sample Essay Draft Xbox v51

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Case Questions, EBUSS

Spring

2011

B1, Strategic and tactical tools for e-business

Answer the following questions in relation to Xbox case:

Lee, Hau; Hoyt David W. and Holloway, Chuck, ³Evolution of the Xbox Supply Chain´

y Who are the various stakeholders for Xbox that formed the Microsoft ecosystem while

developing the supply chain business strategy for Xbox?

y What were the challenges faced by Xbox when it first launched Xbox?

y How did this compare to the launch of Xbox 360?

y Did they consider any changes in the supply chain?

Essay:

Xbox Stakeholders

Microsoft¶s Xbox project was started by a group of gamers in 1999 so thatthey can also develop agaming console which threatened the performance of the home PC market. The Xbox projectconsisted of both internal a nd external stakeholderswho hadeither a direct or indirect ³stake´ inthe 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 inMicrosoft¶s

extended supply chain, shown inFigure 1.0 below.

Figure 1.0 Microsoft¶s Xbox supply chain

&RPPHQW>0$@yPC game market

yCompetitors

yBroadband suppliers



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adapted some f orm of technology to manage the relationshi p with var ious intermediar ies.

Control. While the case did not provide enough data to see how Microsoft measured the outcome, it can be inf erred f rom the changes they made to the launch

�

box � � �

that they did

some reviews internally so that they can make the necessary changes.

Unf or tunately, Microsoft had very little time to learn to how to manage the supply network s --³[t]he coordination of all supply activities of an organi ation f rom its supplier s and par tner s to itscustomer s

haff ey, 2� �

2, p.� �

5). While they adopted a push approach to supply chain management, which is typically suggests that the production processes are aimed at cost and efficiency, Microsoft was up against significant challenges that made it difficult to be costeff ective.

n the end, Microsoft s investment in the �

box is higher than the expected sale pr ice of the product -- i.e., the costs f or producing the

�

box hardware were estimated to be at $45�

, when retail pr ice f or the

�

box was only at $2j j

.� �

.k

rofitability was theref ore dependent on dr iving the costs down f or the

�

box console and sales f rom selling games.

Dil l

erencesm

etween Original Xm

ox and Xm

ox 360and n

o pply Chain Changes

n

ituation.When Microsoft launched �

box � � �

, gaming had already become a big par t of the home enter tainment and broadband access was substantially higher .Microsoft alsohad a better under standing of what games were needed in each country because they had already established a presence in the market.

Om

jective.Microsoft s decisions on developing the

�

box � � �

was no longer based on their desire to get into selling hardware and simply off er ing a gaming console, but more on their goal of increasing software sales. So, Microsoft developed the new system in such a way that can be a central par t of home enter tainment thereby incorporating other f eatures such as internet access.

n

trategy.

n launching �

box � � �

, Microsoft planned a global launch, which no other company had done bef ore, so that

�

box � � �

can be made available in all major markets bef ore Sony would have a chance to launch

k

S3.

mplementing a global strategy posed two large r isk s f or Microsoft.

o mitigate this r isk , Microsoft also implemented some r isk management techniques. ³Risk management is intended to identif y potential r isk s in a range of situations and then take actions to minimi e r isk´

haff ey, 2� �

2, p. 5j j

).

t involves several stages which include the identification of r isk s, possi ble solutions, implementing the solutions that target high-impact r isk sand monitor ing them f or the f uture.

ir st, was related to the f act that the �

box required complementary products f or it to be enjoyed and their biggest concern was whether there would be sufficient game titles available at the same time.

hus, Microsoft lined up game developer s who could develop new games.

or this task ,Microsoft had a better appreciation of game types needed in each country based on the or iginal

�

box exper ience, nonetheless ensur ing that the games were ready had var ious timing issues.

he unavailability of games in a par ticular country would mean a decrease of sales of consoles and

would have a significant impact on the profitability of Microsoft.

Second, Microsoft f aced the r isk of success where the supply of gaming consoles would not be sufficient to keep up with demand.

oreseeable, this can manif est itself in diff erent ways but both negatively impacting their ability to acquire new customer s.

his suggests that Microsoft



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recogni| ed the implication of complementary products to allow them to take advantage of the network eff ects.

}

or Microsoft, the wor se case scenar io is f or Microsoft to miss customer expectations and put them at r isk f or losing their customer s. Another scenar io is if their demand calculations were off and end up with an over/under supply of gaming consoles in one area.

Tactics. As soon as the or iginal

~

box was launched, Microsoft star ted work ing on the nextgeneration of

~

box and required the new model to have high definition capability, high storage capacity and access to the internet. Unlike the ear lier launch of the

~

box, where Microsoftdelivered a super ior product whose f eatures that came at the expense of cost, Microsoft included cost considerations as par t of their new strategy.

his time, Microsoft also wanted to take advantage of the timing, pr icing and exploiting the relationshi ps with complementary product.

ctions.Microsoft made three changes in its supply chain management to dr ive down costs:

)

change the location of itsmanuf actur ing f acilities;

2) increase the number of

MS supplier s; and

3) chi p contracting.

}

ir st, when launching the or iginal~

box, Microsoft decided to select manuf actur ing f acilities thatwere geographically near the customer s in order to quick ly deliver the products to f acilitate f ast product introduction.

owever , in launching ~

box 360, Microsoft decided to take advantage of a less expensive option by switching the f acility location f rom Mexico and

ungary to

hina.

While this meant an increased r isk in f ulfilling order s in time f or a global launch, the firm wasable to leverage lower labor rates f rom a place where the inf rastructure was already available f or electronic manuf actur ing.

Second, by permitting multi ple

MS supplier s,Microsoft was able to ensure that they had enough manuf acturer s who would be able to f ulfill the order s.

his also provided the ability to negotiate as compared with being dependent on a single supplier at

~

box launch.

his hel ped Microsoftmanage the supplier vender lock -in that they had or iginally and arrest the possi ble increase in switching costs such as search costs, s peciali| ed supplier s, contractual commitment

Shapiro &

Var ian,

8).

hird, Microsoft decided that it was best to take owner shi p of the design of the chi p

which was

previously owned and designed by

vidia and

ntel) and source its par ts f rom the supply chain.

his disintermediation strategy in their supply chain made it possi ble f or Microsoft to be in a better position to control costs over the product

s lif etime. Moreover , this strategy is consistent

with what is usually ref erred to as an outside-in outsourcing activity so that they can build up sk ills internally and manage this area. Microsoft was also able to compress the design cycle by engaging in concurrent design development activities which included a closer link between and manuf actur ing, continuous testing and iterative redesign.

his was a change f rom Microsoft sor iginal

~

box strategy which had significant system and supplier level lock -in eff ects f or Microsoft because

vidia and

ntel owned and designed the chi ps.While the dual sourcing

strategy minimi| ed the r isk s of lock -in at the supplier level, they were still locked-in at the system level where Microsoft had to contend with any enhancements or changes in the design of the

chi ps.

Microsoft also used �

V technologies that was available in the market, while Sony

being a hardware company) decided to bet on

�

lu-R ay to allow it to establish it as the new �

V�

standard f or high-definition.

n hindsight, Microsoft s decision provided them a one-year head star t in third



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generation consoles because Sony¶s

lu-R ay decision caused a significant delay in Sony¶s

S3

launch.

y betting on

lu-R ay, Sony was betting on standards change to increase their competitive advantage.

Control. As discussed previously, the case did not provide enough data to see how Microsoftmeasured control.

Japanese

utomak ers¶

upply Chain

tructures

�

he disintermediation strategy that Microsoft took gives some insight to classic ³make or buy´ arguments that companies make in determining where to source their supplies.

�

n contrast to Microsoft¶s decision to do things themselves, ³Japanese automaker s apparently assume that

quality, delivery, inventor ies, and related costs can be better governed by the purchasing depar tment in a buy situation, than by mak ing it your self.´

�

�

eming, �

�

82, p. 47).

owever , f or them to control the quality they require invar iably have demanding expectations f rom their supplier s.

�

he expectations include:�

� ) exceptional quality requirements;

�

2) reliable just-in-time deliver ;

�

3) exact quantities ± no over - or under -runs; and �

4) continuously improving productivity resulting in long-term cost reductions

�

�

eming,�

�

82, p. 48).�

n return f or the high

investments on the par t of their supplier s, they have production contracts that are usually long-term

�

as long as six year s), and may include requirements f or product design and testing.

or the Japanese automaker s, they have ³arms around relationshi p ́where they embrace the lock -in eff ects with their supplier s instead of ³arms-lengthtransactions´ which rely on the s pot-market.

�

he Japanese auto manuf acturer s are more likely to engage in ver tical disintegration and outsourcing of processes to a network of supplier s.

or example, in the case of

onda, they engage in strategic alliances with fir st tier supplier s whom they are said to have a strong ³close relationshi p through shared history´

�

hoi &

ong, 2002, p. 478).�

hey are said to have approximately 400 ³core´ supplier s and a number of indirect supplier s which all contr i bute to the

production of 400,000 units of Accord models each year �

hoi &

ong, 2002).Another example isAcura, where the structure of their network is very complex with 76 entities in the supply network

�

i.e.,�

fir st-tier , 20, second-tier , 28 third-tier ,� 7 f our th-tier ,

�

fifth-tier , and �

six-tier) to produce their Acura

/TL center console alone �

hoi &

ong, 2002).

Another example is Toyota, a company that is recogni ed wor ldwide f or adopting lean management pr inci ples in its supply chain. Toyota has var ious stakeholder s that contr i bute to the

success of the supply chain namely:�

omestic Supplier s; Over seas supplier s;

ar ts

enter s;Toyota

lants;�

istr i butor s; K yohans;�

ealer s; R epair Shops;

ar ts Jobber s;

ustomer s.

O

T

C

nalysis of Toyota

To better appreciate how supply chain strategies diff er , we can also adopt the SOSTAC model to explain Toyota¶s strategy.

ituation

nalysis.Toyota is an established car manuf acturer that has been in existence since �

�

37.Toyota off er s a f ull range of models ± f rom mini-vehicles to truck s. Toyota believes that

their long-term success is based on loyal customer s.Toyota manages using the Toyota Way, which is underpinned by two pillar s, continuous improvement and res pect f or people. Toyota believesthat the Toyota Way should be used in interactions because they believe that their success is not

&RPPHQW

³Quality must be measured by the interactio between three par tici pants, as shown in

ig«

¬ ) the product itself

«

2) the user and how huses the product, how he installs it, how he takes care of it

«

example: customer permittedir t to f all in roller bear ing), what he was le

«

as by adver tising) to expect;«

3) instruction

f or use, training of customer and training ofrepairman, service provided f or repair ,availability of par ts. The top ver tex of the tr iangle does not by itself determine quality

¬ 77

W.®

. ̄

eming,¬

ª

82)



Case Questions, EBUSS

Spring

2011

B1, Strategic and tactical tools for e-business

created by individual efforts but rather as a team.

Ob°

ecti± e.Toyota¶s supply chain objective is to establish strong links to its customers, dealers andchannels.

Strategy.Toyota created an efficient network so that it can deliver excellent service to itscustomers. Their close interrelationship between various parts of the chain suggests that theyengage in a pull strategy and their supply chain can be viewed in terms of Figure

²

.0 below.

Figure²

.0 Toyota¶s supply chain

³

actics.

Toyota developed its own Toyota Production System where they introduced variousmanufacturing techni ́ ues such as Justµ Inµ Time,

¶

aizen (continuous improvement).Toyota makes

strategic alliance with its partners and puts an emphasis on longµ term relationships.

Toyota¶s manufacturing processes is also developed so that each plant serves a local market andat least another market across the world. While this tactic can be seen as a logistical decision, it isalso driven by various risk considerations. It is driven by a financial consideration so that it can

hedge exchangeµ rate risks and shift production when exchange rates increase (Chopra·

Sodhi,²

00 ̧

, p. 3 ̧

¹

). It is also driven by capacity considerations so that idle capacity is mitigated byensuring that more than one market are supported by the plants to deal with demandfluctuations(Chopra

·

Sodhi,²

00 ̧

).

Action.

Toyota ensures that both the upstream and downstream supply chains are highly efficient

networks.For its upstream supply chain, Toyota not only engages in activities that ensure thatinformation flows across its suppliers, but also engages in various activities geared toward promoting a shared network identity among its suppliers. More specifically, Toyota creatednetwork µ level processes to ensure that they share a social community, network norms andknowledge (Dyer

·

Nobeoka,²

000, p. 3¹

²

). To implement this, Toyota has established various



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supplier associationsÄ

k yohok ai) since Å

Æ

43 so that they can have ³Ä

Å ) inf ormation exchange

between member companies and Toyota,Ä

2) mutual development and training among member companies, and

Ä

3) socialiÇ ing events´(Dyer &È

obeoka, 2000).´

É

or its downstream supply chain, Toyota is dependent on its dealer s to distr i bute new and used vehicles, as well as servicing f or its profitability. Toyota manages its dealer s with three pr inci ples: (1)Independence of dealer s as outside investor s; (2) Winning jointly; (3)

Ê

ncouraging competition among channels. This approach encourages their dealer s to make independentdecisions and be proactive in mak ing improvements. Toyota hel p the dealer smake decisionstoward investing in areas necessary to improve so that they can be both successf ul.

Toyota embraced lean manuf actur ing techniques to keep costs down.È

ot only do they apply these pr inci ples in their manuf actur ing of car s, but they also apply this in other areas of their supply chain.

É

or example, they use k yohans to allow their dealer s to maintain a low level of par ts supply. The use of an intermediary to have a central control of par ts allows the network some flexi bility so that par ts do not sit idly at dealer s at the same time allow Toyota to move the par ts to dealer s that need them. Kyohans can order supplies of stock s once a day, and suppliesthem to the dealer s 3-4 times a day. In case the stock is unavailable,k yohans can put in an emergency stock request which can be f ulfilled by a domestic distr i butor within half a day to a day or an international distr i butor in under 5 days.

Toyota also promotes continuous improvement through a concept they ref er to as k aizen. This process allows them to improve their operations through innovation, organiÇ ational learning and standardiÇ ation of processes.

É

or example, a mandatory bi-annual ins pections of car s f or registration at the service f acilities usually takes 2-3 hour s. The length of time it took was largely dependent on sk ills and exper iences of the service technician in charge of the ins pection.After applying k aizen pr inci ples, Toyota was able to streamline and standardiÇ e the ins pection processso that ins pections would only take 45 minutes.

Control.Toyota conducts per f ormance measurements at predetermined timef rames.Ë

or instance they do annual reviews wherein they apply some rank ing and rating mechanism to evaluate their dealer s. The dealer s are measured in terms of sales volume of new and used car s, after -service sales service, customer satisf action, number of showrooms, number of service center s, number of staff, and profitability.

Discussion

There are var ious approaches to managing the supply chain of a firm. The decision to adopt one over another is highly depended on the long-term strategic goals of the corporation.

Ë

rom the Microsoft¶s

Ì

box case, we can see that sometimes firm make costly decisions in the process of launching a product to gain f oothold in the market place. It is then ultimately up to the firm to learn f orm the process and as an organiÍ ation learn f rom the exper ience and make the necessary changes. Microsoft adopted two distinct approaches in managing their supply chain based on their shor t- and long-term objectives. In the launching

Ì

box, they were highly dependent on the

exper tise of their supplier s so that they can launch the Ì

box in time f or the 2001 holiday sales.This enabled the firm to learn f rom their exper ience so that they can come up with a new strategy to launch the next generation gaming console. Microsoft¶s disintermediation strategy appear s to minimiÍ e lock -in eff ects with supplier s so that they can take advantage of s pot-markets and



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ultimately lower their costs.

Interestingly, in the case of Toyota, they took a very diff erent approach f rom Microsoft even when their objective was also to minimiØ e production costs. Instead of relying on s pot-markets,

they embraced lock -in and invested in long-term relationshi ps with its supplier s. This approach allowed them to make continuous improvements across multi ple supplier s by shar ing knowledge and inf ormation among the upstream and downstream processes. The increased inf ormation flows across the network was made possi ble by the use of var ious e-supply and e-demand applications.

Ù

rom the Toyota case, it can also be seen that a highly integrated supply chain thatshares inf ormation, exper tise across the firm can take advantage of minimiØ ed costs and profitability. It can also be gleaned f rom this case the impor tance of trust and res pect because the member s of the supply chain has access to cr itical inf ormation that can be detr imental to the other par tner s if oppor tunistic behavior ar ises.

Chaff ey, D. (2002). E -business and E -commerce Management: Strategy, Implementation

and Practice. Ú ssex: Û ear son Ú

ducation Limited.Choi, T. Y., &

Ü ong, Y. (2002). Unveiling the structure of supply network s: case studies

in Ü onda Acura, and Daimler Chrysler . Journal of Operations Management, 20,

469-493.Chopra, S., & Sodhi, M. S. (2004). Managing Risk To Avoid Supply-Chain

Ý reakdown.

MIT Sloan Management Review(Fall 2004), 53-61.Deming, W.

Ú . (1982). Out of the crisis: Quality Productivity and Competitive Position.

Cambr idge: Cambr idge Univer sity Û ress.

Dyer , J. Ü ., &Þ

obeoka, K. (2000). Creating and Manageing a Ü igh-Û er f ormance

K nowledge-Shar ing Þ

etwork : The Toyota Case. Strategic Management Journal,

21, 345-367.Shapiro, C., & Var ian,

Ü . (1998).

Þ

etwork and positive f eedback -Ü ow to exploit

Þ

etwork eff ects. In Ü

.Ý

. S.Û ress (Ed.), Information rules ± A strategic guide to

the networ k economy. (pp. 1-56).

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