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.
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.
Gartner, Inc.