he release of any new computer gaming system carries with it a huge number of logistical challennges 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 retailerrs 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 unpredictaabilit 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 consool in 2001. The two reunited to plot logistiic 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 complexiit of the task called for lengthy, detailed planning. In fact, DHL and Microsoft started more than a year before launch. Informatiio 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 manufactturin stage. From there, product could be tracked electronically all the way to destinaation 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 managge 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 factorrie 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 A Year to Launch Date: Microsoft Plots Global Rollout of Xbox 360 The company debuts its long-awaited gaming system on three continents in less than three weeks. Here’s how it handled the logistics challenge. SPECIAL REPORT: COMPLEXITY MASTERS T1 REPRINTED WITH PERMISSION FROM GLOBAL LOGISTICS & SUPPLY CHAIN STRATEGIES March 2006was DHL, however, that took physical possesssio and controlled all movements out of Hong Kong, including the booking of commercial airlift for getting consoles and accessories to destinations worldwide. Dual-Mode Strategy DHL drew on its contracts with ocean carrieer to supplement the initial air shipments and keep product flowing long after the launch date. Tight data links with manufacturrer allowed DHL to build in a three-week lead time for containerized ocean shipmeent 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 competeenc of ours. In most markets, we are among the top three players in the ocean freight business.” One positive side-effect of the dualmood 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 Seatttl 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 coordinaate with customs clearance to keep produuc 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 “distributtio turnkey vendors,” or DTVs. But the task also involved some “virtual transactioons, 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 Americca Railroads have come under criticism in recent years for severe delays and capacity constraints, but DHL and Microsoft sidesteeppe the problem by shipping on dedicaate 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. Shipmeent with a longer length of haul were subject to greater deviations in transit time, says Best. And some air moves were hampeere by bad weather. But nothing occurred that wasn’t anticipated, or couldn’ be offset through adjustments in service level or mode. DHL worked with numerous independeen partners to keep goods moving from Asia to end users. In all, says Best, Microsoft employed more than 20 supply chain partneer to support the Xbox 360 launch. But when it came to information systems, DHL played the leading role. Its event-managemeen system linked the shipper with supplierrs 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 informatiio hosting and reporting.” Xbox 360 gaming consoles continue to flow through the pipeline opened up by Microsoft in partnership with DHL and otherrs 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 followwin 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. “Cost is always an issue, but customer satisfacctio is the goal.” — Bill Best of Microsoft DHL,www.dhl.com Resource Link 2 REPRINTED WITH PERMISSION FROM GLOBAL LOGISTICS & SUPPLY CHAIN STRATEGIES