Microsoft Outsourcing XBox production at the end of Chapter 16 Case Discussion Questions
1. What was the strategic advantage to Microsoft of outsourcing Xbox production to Flextronics? The strategic advantage that Microsoft has is that it is a primary business that is used to develop software. The company also sells computer hardware and the products represent a much smaller part of the company’s overall revenues. When considering whether to produce the Xbox in house or to outsource, the company chose the latter strategy. Microsoft was able to continue to focus on its core business while allowing another company, Flextronics, which has expertise in managing a global supply chain, to handle production. 2. What were the risks associated with outsourcing to Flextronics? Did Microsoft mitigate these risks? Do you think Microsoft would have been better off making the Xbox itself? : The risk associated with outsourcing to Flextronics is the company makes the decision to outsource; it gives up control over the production process. Risks also included a timeliness, quality, and so on will become the responsibility of another company. Microsoft decided to outsource Xbox production, the company chose to work with Flextronics, which it had a long history with. These factors combined with Flextronics advantages in the global supply chain management area created a strong case for Microsoft’s outsourcing decision. Microsoft would not have been better off making the Xbox itself. 3. How did Flextronics’ industrial park strategy enable the company to respond to national changes in relative factor costs? Under Flextronics’ industrial park strategy, key suppliers were required to establish their operations near a Flextronics assembly plant in low-cost locations near the customer’s end market. This strategy facilitated just-in-time inventory systems and reduced transportation costs, and also avoided the break-downs.
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