With millions of fans awaiting the release of the Madden videogame each August, game-maker Electronic Arts has invested in a state-of-the-art logistics system to ensure it doesn't drop the ball.
John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.
It's become an annual rite of summer, along with backyard barbecues, pennant fever and trips to the seashore. In fact, the annual release of the Madden NFL videogame every August has even spawned its own unofficial holiday—the "Madden sick day," taken by gaming devotees anxious to snatch up the new release the day it hits the stores.
This year marked the biggest Madden launch ever. The game's manufacturer, Electronic Arts, shipped 1.35 million units to retailers nationwide on Aug. 10.
But for the logistics team at Electronic Arts, the annual release is no day at the beach. A fumble anywhere in the supply chain could leave the company with thousands of unhappy customers—not just loyal gamers but also the retailers that sell Madden 05. Videogame prices typically drop a few months after the initial release. That means Electronic Arts has to go the extra mile—or should we say, the extra yard—to get Madden on the retailers' shelves right away.
"Missing an order and not getting something out to a customer would be huge, especially with a title like Madden," says Dave Niemann, director of supply chain systems at Electronic Arts, which has sold more than 37 million copies of Madden since 1989. "Madden was the best-selling football videogame last year, so having a successful launch for week one was pretty significant. But obviously, the distribution challenges of shipping 1.3 million units were pretty huge."
If volume alone weren't enough of a challenge, there's also the ultra-tight schedule.When it comes to a big release like Madden 05 (as well as releases like the new Harry Potter game), EA has a crucial three- to four-day window to download orders from its enterprise resource planning (ERP) system and then pick, pack and stage them in its DC. Complicating that is the company's commitment to releasing orders simultaneously to retailers. "We strive very hard to achieve a level playing field in terms of releasing our product and getting it out the door to our customers," says Niemann.
Fourth and long
It wasn't so long ago that just getting those orders out on time was a touch-and-go proposition. EA's logistics processes were bogged down by a manual system that taxed the company's ability to deliver its products on time. The old system printed pick tickets and batch-uploaded the order history twice a day. When the picker completed the picks, the order was sent to shipping for re-packing, manifesting and shipment.
Since a limited amount of transportation planning was done on the front end, operators had to carry out routing and customer-compliant labeling tasks after the order was packed and awaiting shipment. "We were operating in a vacuum," Niemann says. You could say EA was running its offense without a playbook.
That's when the company decided to trade in its homegrown warehouse management software for an integrated logistics solution from Irista, a division of HK Systems. Included as part of the update project was the installation of A-frame picking systems, in-line scales for carton validation and radio-frequency (RF) bar-code scanning technology.
The new WMS solution provided Electronic Arts with supply chain visibility for the first time. And the company saw results right away. Labor costs plummeted at Electronic Arts' 250,000-square-foot distribution center in Louisville, Ky. Throughput improved by approximately one-third, and EA saw an immediate drop in shipping costs. The elimination of nine steps in the fulfillment process resulted in new efficencies and allowed Electronic Arts to reduce order cycles by 24 hours.
Achieving those winning results was not easy. Like football teams that log endless hours of practice on the field before a big game, Niemann and his team logged endless hours preparing for the conversion to the new software and picking equipment. The most important issue was making sure the system would function under EA's highly seasonal business plan. The company ramps up twice a year—in August for the release of Madden and again in the fall for the crucial holiday selling season.
In preparation for the big event, Niemann's team ran through the playbook countless times to assure everything would go smoothly. They also spent hours putting together a contingency plan in case the system failed.With the install scheduled for July 2001, just weeks before the annual release of Madden, there was no room for error.
As the first step, EA's cross-functional team, with representatives from finance, IT, operations and training, met with the Irista project team to map out existing business process requirements with the proposed WMS solution. For practical reasons, the team focused on maintaining the existing operational methodology and process flows while requiring only minimal software modifications and facility design changes.
Later on, the team designed a tiered approach to acclimate warehouse workers to the new equipment and systems. Needed modifications to the conveyor system to accommodate the in-line scales and installation of the A-frames and pallet racks were completed prior to the system's going live, allowing associates to familiarize themselves with new locations and layouts. A dedicated training facilitator worked with Irista to develop a comprehensive training curriculum designed to help operators accustomed to working with a manual paper pick-ticket process learn to follow on-screen instructions.
The finance team got involved to verify inventory reporting and the integrity of the data to be shared between the new WMS and the company's Oracle ERP database. "It was very painful going through all those layers, and the challenge of the whole thing was involving the finance people," says Niemann. "But in the end, it was well worth it. The system go-live was so smooth that we had to request more orders to keep the operators busy.We have optimized our physical distribution to the level where I'm not sure if there is a lot of room for improvement."
Illegal procedure
Although there's no guarantee that the folks in finance would agree with that assessment (when are CFOs ever satisfied?), they certainly can't complain about a multimillion dollar reduction in chargeback costs. EA ships goods not only to distribution centers, but also directly to stores for customers like Wal-Mart. Before its new system went live, EA had no way to track orders. When a customer called to complain that an order wasn't packaged correctly, the company threw up its hands and paid the penalty.
Now, when a retailer claims a shipment didn't arrive on time or that the quantity was incorrect, EA can come back with data not only on who picked the product and when, but also with the weight of the box and the time it was loaded on the trailer at the dock. "Having that data is a pretty powerful tool when a proof of delivery is in question," says Niemann. The ability to harvest the data from the supply chain systems has pretty much eliminated costly chargebacks, he reports.
The software in place at the DC also allows EA to drill down deep when it comes to performance stats. For example, EA is able to determine who its most efficient pickers are, whether structured labor is in the right place at the right time, and if inventory is stored in the best location to drive the most efficient picking.
"We derive a lot of benefit from going back and analyzing historical data in our distribution center," says Niemann. "We're able to drill down to see how many seconds it takes for a particular person to complete a pick and move on to the next box. It all comes down to the bigger picture —we're always trying to decrease labor costs and increase productivity."
So far, that's proved to be a winning combination.
EA hopes to score big with RFID
Unlike many manufacturers, Electronic Arts has the option of remaining above the RFID fray. Because it's not a Top 100 supplier for either Wal-Mart or Target, it's exempt from RFID mandates both retailers imposed on their biggest suppliers last year. So why is the videogame maker moving full-speed ahead on the radio-frequency technology front?
For one thing, the company realizes that it won't be able to remain on the sidelines forever. The day will almost certainly come when it, too, will be required to use RFID tags to identify the products it ships to retailers. But more to the point, it's convinced that RFID could bring its operations to a whole new level.
That's not to say EA is unaware of the potential stumbling blocks. Like most manufacturers, Electronic Arts would like to see standards issues resolved before investing in RFID technology. And it's hoping tag prices will fall and read rates will rise in the interim. "Those challenges considered, we're pretty excited about the potential for what RFID could bring to EA," says Dave Niemann, EA's director of supply chain systems.
EA believes that at some point it will be drawn into the game. And because of the high value attached to videogames, it will probably end up tagging individual items, not pallets or cases. Though it would require a considerable investment, RFID would give EA increased visibility of its goods as they move through the supply chain, leading to better order validation as well as increased internal security. In addition, RFID tags could accomplish the same function as the weigh-in-motion scales currently used in the company's DC.
Another benefit? Better communication. "We're looking into what kind of benefits we can build into our supply chain and how we can transfer the information to our technology chain and process that information," says Niemann. He reports that the company expects to share the information not only across the supply chain, but with all divisions of EA and with suppliers and business partners as well.
Jeremy Van Puffelen grew up in a family-owned contract warehousing business and is now president of that firm, Prism Logistics. As a third-party logistics service provider (3PL), Prism operates a network of more than 2 million square feet of warehouse space in Northern California, serving clients in the consumer packaged goods (CPG), food and beverage, retail, and manufacturing sectors.
During his 21 years working at the family firm, Van Puffelen has taken on many of the jobs that are part of running a warehousing business, including custodial functions, operations, facilities management, business development, customer service, executive leadership, and team building. Since 2021, he has also served on the board of directors of the International Warehouse Logistics Association (IWLA), a trade organization for contract warehousing and logistics service providers.
Q: How would you describe the current state of the contract warehouse industry?
A: I think the current state of the industry is strong. For those that have been focused on building good client relationships over the years, I think it’s a really exciting time. Coming out of all the challenges of the past few years, I think there’s a lot of opportunity for growth and deeper partnerships. It’s fun to see the automation and AI (artificial intelligence) integration starting to evolve [in a way that’s] similar to what we saw with WMS (warehouse management systems) in the early 2000s.
Q: You are now president of your family firm. Is it an advantage having grown up in the business as opposed to working elsewhere?
A: I definitely believe it was an advantage growing up in the business. Whether it’s working with family or someone else in the industry, there’s always an advantage when you have mentors[to guide] you. I’ve been blessed to have several mentors, some in the industry, others just in life, and I’m thankful that they were willing to mentor me and that I was willing to listen to them.
Q: What are the biggest challenges currently facing 3PLs, and how are you addressing them?
A: Labor and legislation are both tough right now. The two seem to have a lot to do with each other, and it can make it tough to find and retain people. So I think we’ll see more and more automation of processes industrywide.
Q: Third-party service providers often must handle a wide variety of products for a lot of different clients. Does this variety make it difficult to invest in automation and other new technologies?
A: It can make things more difficult when looking at certain automation, but it’s in the “difficult” that a lot of opportunities lie. It would be tough to find a single solution that fits every client’s needs, but there are always opportunities to improve in certain areas. It just takes a bit of vision and commitment, and a willingness to invest in your own long-term success.
Q: As a 3PL, what do you look for when selecting the clients you work with?
A: Quality relationships that will last a long time. When both parties are happy and working together in the same direction, everyone wins.
Q: You’ve been a board member of the International Warehouse Logistics Association since 2021. Why is your involvement with this organization important to you?
A: I think it’s important to understand what’s happening in the industry. IWLA is a great resource for staying up to date and getting a solid education when it comes to the latest logistics trends. I also think it’s important to give back and pass along what we’ve learned to those just getting started in the business. As important as it is to have a mentor, it’s just as important to mentor and help others.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modelling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”