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The release of any new computer gaming system carries with it a huge number of logistical challenges. But for the launch of its long-awaited Xbox 360, Microsoft Corp. seemed determined to make things even more difficult than usual.
For the first time ever, Microsoft plotted the near-simultaneous rollout of Xbox 360 on three continents: Nov. 22 in the U.S., Dec. 2 in Europe and Dec. 10 in Japan. All product would flow from factories in South China to distribution centers close to retailers. Microsoft would rely on air, ocean, rail, truck and barge to get the job done.
Tight coordination of all supply chain partners would be required. But first, Microsoft needed to get around some potential stumbling blocks. It was all too aware of disruptions that had plagued the U.S. transportation system in recent years. Congestion at ports and inland points, a lockout of West Coast dockworkers, service snags all along the line: a whole series of failures had brought a new level of unpredictability to global supply chains. The recurrence of any one could wreak havoc with Microsoft's best-laid plans.
The company sought an expert logistics provider to help it navigate the hazards. It didn't have to look far. DHL had been a Microsoft service partner for 15 years; it was involved in the rollout of the first Xbox console in 2001. The two reunited to plot logistics strategy for Xbox 360.
Job one was creating enough flexibility so that product flow wouldn't be halted by glitches in the supply chain. The complexity of the task called for lengthy, detailed planning. In fact, DHL and Microsoft started more than a year before launch. Information systems were an area of intense focus. Factories in China would be required to relay electronic data interchange (EDI) messages which provided both partners with crucial status information at the manufacturing stage. From there, product could be tracked electronically all the way to destination. Advance ship notices alerted the DCs about incoming shipments, giving them time to pre-plan capacity. DHL kept back-up copies of all transmissions to avoid data loss in the event of a systems failure.
DHL was in the loop every step of the way-far earlier, in fact, than might be expected of a typical logistics provider. According to Bill Best, senior logistics manager of Microsoft, DHL entered the process some 25 days prior to physical movements. It became the first record of shipment, allowing the partners to position containers and plan both ocean and air capacity.
The goods moved by barge from the factories to Hong Kong, at which point Microsoft took nominal ownership. The shipper had chartered Boeing 747 freighters for transit to its main distribution centers in Memphis, Tenn., and Duren, Germany, about 37 miles from Cologne. It was DHL, however, that took physical possession and controlled all movements out of Hong Kong, including the booking of commercial airlift for getting consoles and accessories to destinations worldwide.
DHL drew on its contracts with ocean carriers to supplement the initial air shipments and keep product flowing long after the launch date. Tight data links with manufacturers allowed DHL to build in a three-week lead time for containerized ocean shipments to the U.S., and 14 weeks to Europe, according to Rick Bingle, Microsoft's senior manager of global supply chain.
With its roots in air express, DHL might seem an unlikely candidate for arranging transportation by sea. Eric Vargas, senior vice president of program management and implementation, disagrees. "We've done a lot of ocean," he says. "It's a core competency of ours. In most markets, we are among the top three players in the ocean freight business."
One positive side-effect of the dual-mode strategy was lower transportation expense overall, since ocean is far cheaper than air. But that wasn't the reason for the split. "Cost is always an issue," says Best. "However, our ultimate goal was to satisfy the demands of our customers."
DHL handled customs clearance in Seattle for U.S. shipments, and in Cologne for those entering Europe. That task, too, required extensive preparation. Microsoft may be a "known shipper" in the eyes of U.S. Customs, but any new product tends to catch the eye of inspectors. The company worked closely with the agency to avoid surprises that might result in clearance delays, says Bingle.
The booking of high-security trucks, both in the U.S. and Europe, was coordinated with customs clearance to keep product from sitting idle between its release and movement inland. Once again, flexibility was the hallmark of Microsoft's distribution strategy. Most shipments went to the major distribution centers, where they were processed by one of the company's "distribution turnkey vendors," or DTVs. But the task also involved some "virtual transactions," in which product was moved directly into a cross-docking operation in Camarillo, Calif., for more rapid distribution locally, Bingle says.
Due to shorter travel distances and some restrictions on the diversion of shipments, Microsoft had fewer opportunities to increase velocity in Europe. Nevertheless, the company deployed multiple options for getting product to buyers. Air shipments went directly into Cologne for distribution to nearby retailers, while sea freight moved through the Port of Ridderkerk, just south of Amsterdam, or by barge to inland points.
In Europe, DHL made maximum use of belly space on passenger planes by creating smaller pallets that could fit comfortably into the lower deck. Upon landing, it rebuilt the pallets to hold additional product between the destination airport and final delivery point.
The Rail Alternative
Rail played an important role in North America. Railroads have come under criticism in recent years for severe delays and capacity constraints, but DHL and Microsoft sidestepped the problem by shipping on dedicated stack trains moving directly from Los Angeles to Memphis, via the Burlington Northern Santa Fe. The service cut traditional intermodal transit times by several days and "further enhanced our success," says Bingle.
For all their expectations of disaster, Microsoft and DHL experienced no major obstacles in shipping the Xbox 360. Shipments with a longer length of haul were subject to greater deviations in transit time, says Best. And some air moves were hampered by bad weather. But nothing occurred that wasn't anticipated, or couldn't be offset through adjustments in service level or mode.
DHL worked with numerous independent partners to keep goods moving from Asia to end users. In all, says Best, Microsoft employed more than 20 supply chain partners to support the Xbox 360 launch. But when it came to information systems, DHL played the leading role. Its event-management system linked the shipper with suppliers, contract manufacturers, carriers and other logistics entities for a real-time view of inventory in transit. DHL, says Bingle, was "the overriding data manager of information hosting and reporting."
Xbox 360 gaming consoles continue to flow through the pipeline opened up by Microsoft in partnership with DHL and others. This year, the product will appear in additional markets, including Australia, Colombia, Hong Kong, Korea, Mexico, New Zealand, Singapore and Taiwan. Microsoft executives have projected sales of up to 3 million units in the first 90 days following launch.
There were reports of some shortages in stores in the days leading up to Christmas, but Bingle claims the logistics aspect of the launch program was a success. "We're very happy with the results," he says.
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