Example Of Essay On Microsoft-Outsourcing Xbox Production

- Upon settling on the decision to enter the video game market with its Xbox gaming console, Microsoft had to decide whether to outsource the production of its Xbox. The main reason why Microsoft decided to outsource the production of its Xbox is that it lacked the capacity produce a fully functional specialized computer, with all the components of a conventional computer. Microsoft realized that it lacked the manufacturing and logistics capabilities to make the Xbox itself and manage a global supply chain. Microsoft settled on Flextronics due a number of factors. To start with, Microsoft trusted Flextronics because they had worked with the company in the past and there existed a strong relationship between the employees of the companies. Additionally, Flextronics had wide global presence that enabled it to shift production from location to location leading to economies of scale, something that Microsoft wanted. For example, the Xbox was initially produced in Hungary, but this changed within a year as the production was shifted to China. Microsoft had also contracted out the same company to manufacture some of computer devices and it knew how the company operated.
- Microsoft was looking for a company with a global presence such as Flextronics, which enabled the company to shift production from location to location as cost and demand conditions warrant. Initially, Xbox meant for sale in Europe were produced in Hungary, while those meant for sale in North America and Asia were produced in Mexico. This however changed within a year when Flextronics shifted production from Hungary to China, where labor costs were significantly cheaper than in Hungary. Flextronics currently conducts the production of all Xbox in China and it has the capacity to execute production shifts within a period of three weeks. This is because the company stores all its relevant manufacturing data in centralized information systems. This allowed Microsoft to have trust in Flextronics.
- Some of the risks associated to outsourcing to Flextronics include hidden costs, loss of managerial control, threat to confidentiality and security, quality problems, and bad publicity and ill will. From the case, Microsoft had assumed the risk of giving away its technological knowhow to a third party to produce the Xbox. As with other outsourcing deals, another risk involved is commitment to alliance parties. However, Microsoft and Flextronics already have a strong business relationship because Microsoft had already contracted Flextronics to manufacture computer mice. Companies that settle on outsourcing must give up control over the production process. These include surrendering issues such as quality, timeliness among other to become the responsibility of another company. In doing so, Microsoft decided to outsource the manufacture of Xbox, which it had worked with for a long time. Microsoft mitigated the risk of misuse of information and confidentiality using the long-term relationship between the two companies. Microsoft could not be better of making itself because for some reasons. Microsoft majorly specializes in manufacturing software, although it engage in small hardware business selling keyboards, computer mice, and joysticks. However, Microsoft lacks the capacity to produce Xbox because it is a fully functional specialized computer, with multiple components including memory chips, microprocessor, graphics, and hard drive.
- Flextronics’ “industrial park” strategy requires key suppliers to establish their operations near a Flextronics assembly plant in low-cost locations near the end market. This strategy enabled the company to facilitate just-in-time delivery, and lower cost of transportation, and avoid damages that could occur in a globally disperse supply chain. The “industrial park” strategy enabled Flextronics to efficiently manage its own supply chain, lower cost, and reduce chances of supply chain disruptions, which it could pass to Microsoft through lower prices for the Xbox.