In November 2005, Microsoft prepared for the launch of its second gaming console; the Xbox 360. A global release was scheduled beginning in North America on November 22, followed by Europe on December 2 and Japan December 10. This was 4 years after Microsoft debut of its first Xbox. IN 2005 the video game market was valued at 27 billion dollars. Yet most of the market share belonged to Sony with its PlayStation 2 (PS2). The reason behind Sony have such a force in the market was because the PlayStation 2 was an already established brand. Furthermore the PS2 was out in the market for one year before the Xbox 360.
The development of the Xbox project began in 1999 when a group of Microsoft saw a potential threat to Microsoft's personal computer business from Sony and its console. Developing a high performance console, with considerably lower sales price would successfully hedge that risk. Flextrionics a potential contract manufacturer provided cost estimates and advice long before negotiations began. One the biggest issues is that computers and consoles work under very different business models. The computer market needs to always update the internal components of computers to be faster and better. Whilst consoles are sold initially as a loss leader; later when hardware prices are lower their margins will expand. This practice was seen clearly with Sony with its PS2; its initial sales price was 300 and lowered to 99 dollars. In the process to cut cost Microsoft's Xbox would have 1000 components but only 45 of them would be critical. Meaning that there cost were high or because they have limited supplier power. During the launch of the Xbox, Microsoft urged for to not have all manufacturing done in Asia; to lower and risk of running low in inventory.
1. What supply chain changes did Microsoft make between the Xbox and Xbox 360. What was the motivation for these changes?
The first generation XBox 360 was designed in-house. It received...