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The evolution of XBOX supply chain

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Francesco Villa

on 16 October 2015

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Transcript of The evolution of XBOX supply chain

Alberto Gridelli
Marco Musco
Francesco Villa

The evolution of
supply chain
Already concerned
conditions
Commodities
Costumized parts company
Final product
Mexico
Hungary
China
Graphics Chips
Cpu
LOCAL LAUNCH, DIFFERENT TIME!
17% MARKET SCHARE
6.1 BILLION IN REVENUE
4.4 GENERATED LOSS

Outsourced manufactures
First party games
Third party

Royalty
the transfer in china
Big savings
Longer shipping time
no strategical areas divisions
China labor cost was lower than the European one.

Locating all plants in the same country made quality control less expensive in terms of time and money.
It destroyed the strategical concept of business area.

Made slower the shipping.

Overcharged Flextronics plant, forcing Microsoft to contract also with Wistron

Face to face
leader - main competitor
Attribute
Loyal Players
Availability of games
Know-How
Supplying
Cost
Performance
Results
Learder positioning and profits
Big Losses
Slice of market share
Wide range from PS1
PS1 + PS2 games
Internal process
Many delays
Lower due to optimized process
Basic
Only the most famous
Outsourced
Reliable until 2001 and movement in China
Plants located in countries with an higher labour cost.
Premium - internal hard disk - higher resolution - Online mode
Mexico
Hungary
China
Graphics Chips
Cpu
Global Launch

Outsourced manufactures
First party games
Third party

Royalty
XBOX Live revenues
The new generation
More processing power
More speed
Technical advance
Strategic plan

Decrease costs
New strategy: collaboration in realization of
Cpu and graphics chips
New technologies
Cell Microchip

Blue Ray
Blue Ray or HD-DVD?
"The lesson we learned is you want to control your destiny. With this model, we control the price, we control the margins, we control the design."
Todd Holmdahl
seed the market.
establish it as standard solution.
lower cost.
Manufacturing
Outsourcing strategy & Choice Criteria
Make or Buy?
High cost to develop own know-how.
Great control on processes and costs.

Low starting costs.
No control on processes and costs.


5 months of delay to produce
the necessary stock
for the U.S. launch.

First production cycle
the delay was originated by the misfits of the supplier process (nvidia):
no communication between productive plants and quality checking seattlement.



OUTSOURCED PRODUCTION LEADS TO:
LOWER COST
NO CONTROL ON PROCESS

Finally on the market
11/2001
STARTING PRICE
299$
2002
SONY REACTION
XBOX & PS2
PRICE
199$
NOT AFFORDABLE FOR
MICROSOFT

NEED DRIVING DOWN COSTS

TWO DIFFERENT STAGES OF THE LIFE CYCLE OF PRODUCT

LAUNCH
MATURITY
2002
2003
2004 (E)
0
5
10
15
20
25
Software
Hardware
$ Billion
2002
2003
2004 (E)
2005 (E)
0
5
10
15
20
25
PS2
PS1
Game Cube
XBOX
Manufacturer organizations (Flextronics and Wistron)
Guadalajara
Mexico
Gyárlátogatás
Hungary

China
North America
Europe
Asia
Flextronics park concept
Shipping cost
Information flow

Graphics
Chips
3 Suppliers
China
To increase profits
Microsoft planned to increase profits with three critical aspects:
Development of Internet service:
Subscription fee to
XBOX

Live Gold membership

$50
Selling external accessories:
For instance wireless controller.
$50 or more
Selling games.
1999
strategic situation
Gamers push Microsoft to develop a console

Microsoft management was concerned that console such as PS2 threatened the company’s home business

Need of Know-How
« When Sony cuts price on its PlayStation, the stock price goes up. Every time I cut prices, my stock price goes down. If you don’t understand why it happens, you don’t understand console business. I understand why XBOX is strategical to Microsoft, but I don’t understand why it is strategic to Dell.»
Michael Dell

Shift from a PC based Know-How to a Console concept.

Critical features of console business
Driving costs down.
Increasing of the games sales.
Console Market
Be a New-Enter
The absence of usual players.
No wide range of games availability.
Games developing
First party - Microsoft developed software:
Enlisting & acquisition of developers
High quality internal process
Lifelike playing experience
Third party - Indipendent developed software:
Critical for faster enlargement of availability
Independent developers and free lance gamers
Microsoft checking on quality
Royalties
From the introduction it became a
entrance barrier
that guarantees of quality.
A NEW SOURCE OF REVENUE

New design
Influence of JIT concept
Inventory management & production plan
Maximize production in order to be able to face delivering needs in every moment.
Minimize cost per unit.

Consequences
high inventory cost
XBOX

360

versions
The core system
$299
- Console
- Wired controller
- Cables
- XBOX Live Silver
The premium edition
$399
- Console
- Wireless controller
- Detachable 20 GB Hard Drive
- XBOX Live Headset
- XBOX Live Silver
- Ethernet cable
New strategy
More experience
Know-How acquiring
More aggressive strategy
Global Launch
Analysis based strategy
Different management
of inventory
Microsoft gave up maximum production standards that concern high cost of inventory.
Object: Sell 3 millions of units within 90 days of launch.
Ready for the launch
" We are well on the way to having a successful launch."
Todd Holmdahl
Anticipate Sony
Microsoft released their new console in the end of 2005, in particular:
- 22 November: Canada and U.S.
-2 December: Eurozone.
2005 (E)
Conclusions
First
generation
1994
Second
generation
Third
generation
2006
2000
2013
2005
Current sales
Smartphone influence
Higher customer willing to change
Interrelation between different generations
supply chain
Greater
competition
Thanks for the attention
Alberto Gridelli
Marco Musco
Francesco Villa
The evolution of XBOX supply chain
LOCAL LAUNCH
TRANSFER
IN
CHINA
Compete
with
the leader
" It couldn't fit through the doorway in most japanese homes."
Peter Moore
Full transcript