1. Need answers for the four questions at the end of case.
When Microsoft decided to enter the video game market with Supply problems that might arise
from a breakdomn in globits Xbox gaming coasole it faced a crucial strategic decision: ally
disporsed supply chains-es occurred after September Should it manulacture the Xbex, of
outsource manufacturing 11,2001, and again in 2003 due to the SAFS epidemic-are to a third
party, and if s0, whom? Altheugh Microsoft is pri- also minimized by the co-location. marily
known as a soltwaro ccmpany, it has long had a smal Second, Flextronics' global presonce
ensbles the comibut important hardware business selling computer mice, key- pany to shift
prodection from location to location as cost and boards, and joysticks under the Mierosoft branc
namo. How- demand conditions warrant, something that Microsoft ever, Xbox, was difierent.
This was not a simple computer wantad. Initially, the Xbox was produced in Hungary (for sale
paripheral; it was a fully functional specialized computer, with in Europol and Mexico [for sala
in North America and Asial. multiple componeats, including microprocessors, mamory Within a
veat, howaver, Flextronics shifted production from chips, graphics thips, and an intarnal hard
drhe. Hungary to China, where labor eosts were s fraction of those Microsoft quickly docided
that it lacked the manufactur- in Hengary. In 2003, it also moved Xbox production from Ing and
logistics capabiltass to make the Xbox itself and man- Mexico to China, for the same reason.
Todey, all Xbox producage a global supply chain. After reviowing putential suppliers, tion is in
China. Flextronics can execute production shifs vary it decided to outsource assembly end
signitic ent logistics quickl-the compeny says within three wecks-since all of functions to
Flaxtronics, a Singapore-based contract mane- the relevant manufacturing data are stored in
centralized factusor. Flextronics has giobal sales in excess of $13 billion information systems.
Thus, if China proves to be a suboptimal and more than 100,000 employees. In addition to
Microsoft, location for Xbox production in the future, Flextronics can customers include Dell,
Ericssen Telecom AB. Hewlett- shift production slsewhere. Packard, Siomens AG, Sony-
Ericsson, and Xerox. The com- Third, using Wab-bessd intormation systens, Fiextronies pany
manufactures products for these companies in and Microsoit have the ability to share information
in real 28 countries. Its largest concentration of activities is in China, time with each other,
Microsoft feeds intormation on domand where it has 95,000 employees. conditions to
Flextranics, which enables Flaxtronics to conMicroseft had aiready contracted out the
manufacture of figure its own production schadulas to minimize inventory computet mice to
Flextronics, so it knew something about and closely match supply with demand. In additicn,
Microsoft how the compary operated and was happy with the cost and has access to real-time
irformatica trom Fextronics regardquality of Fluxtronics products. In looking for a supplier, ing
production schedulos, inventory, and product uality. This Microsoft wantad a partner that could

2. manutacture the Xbox is crucially important, hecause Microsoft handlos the overa: at a low cost,
maintain very high product quality, respend management of about 40 strategic suppliers for
Xbox, iacludquickl to shifts in demand, and share dotailed infermation on ing tha manufacturers
of microprocessors, graphics chips. prcducticn sehedules, product quality, and inventory with
hard drives, and flash memory (Flextronics handles the supMicroscit on a real-time basis.
Featronics soemed to fit the ply of cemmodity-like inputs, such as circult boards snd plasbill for
a number of reasons. tic molding). The information exchange between Microsolt First,
Flaxtroaics had heen pursuing an "industrial park" and Foxtronics ensures that production
schedules tetwoes strategy that enaled the ccmpeny to tightly manage its own all of the piayers in
the supply chain are tighty eabidinatod supply chain, reduce the chances of supply disruptions,
and so that isventory is minimized, shortages are avoided, and delowar costs, which could then
be passed on to Microsolt in mand and supply ara bslanced. the form of lower prices for tha
Xbox. Flaxtroaics' industrial Finally. Microsolt trusted Flextronics. Microsalt had park strategy
requires key suppliers to site their factories worked with the compeny for years, and there were
strond next to a Flextronics assembh plant at low-cost lotations persenal relationships between
employees of the two cemnear customers' end markets. Fextronics has large industrial panies.
This helped to cement the business transaction. To parks in Brazil, China, Hungary. Maxico, and
Poland. In add: facilitato joint design, which is Important for seducing manutian to a Flextronics
factory, each park contains the manufac- focturing costs, screa Mictosoft people are lecated at
the turers of printed circuit toards, compenents, cables, plastics, Flextronics U.S. operations
centar in San Jose, Calitornia, and and matal parts aeeded tor assembly of a product such as some
Flextronics people aro loeated at Micresctt's headquar Xocx. The co-location of Pextronics and
its suppliers at an ters in Redmond, Washington. The two companies hat industrial park
minimizes iogistes costs by facilitating just-in- warked together on product obsign before, and
Microsoft time inventory systems and reducing transportation costs. knew that could be
repliceted with the Xbox. Microsolt also
belibved that Flextrcniss cou'd deliver production of Xbox 2. What are the risks associated with
outsourcing to on time, even though assembly of the product was far more Flextronics? Hes
Microsoft mitigated these risks? Do you complex than the assembly of a computer mouse. think
Microsoft would be better off makirg the Xbax itself? Spurcas: J. Carberne, "Outsoureing the
Xbox " Purchosing Aegest, 3. How dees Flextronics' industrial park strategy enable the I5. 2002,
pp. 22-25, H. B. Hayes, "Outsoureing Xobex Masitnsturing," company to respond to national
changes in retstive Phanscoutices Technalogy North Antarica. November 200 , tactor costs? po.
B0-91: Wsathering the Toch Stomi," BushessWoek, Msy 2 , 2005, pp. 24-25, ans Flextronics
10K Report 2023. 4. How important are Wob-based informaticn systems to the reiationship

3. between Microsoft and Fextronics? Case Discussion Otastions What are the economic
advantages of real-time 1. What is the stretegic ackantage to Microsoft of information flows
between Microsoft, Rextronics, and outsourcing XLox production to Flextronics? Fiextronics'
ovm subcoctractars?