arvato delivers cost savings through supply chain expertise for the world’s largest music content company

“Moving from an in-house to an outsourced distribution solution has realised all the benefits we were seeking and more besides. The transition went without a hitch and arvato made major investments in new warehousing and distribution systems from the word go. We’ve lowered our distribution costs and upgraded our delivery service. It’s fair to say we couldn’t have achieved these improvements without outsourcing to arvato.”

Martyn Saville, Vice President Logistics, Universal Music Group

Partners since 2008

challenge: to sustain a viable distribution business

Universal Music Group (UMG) managed an in-house solution for distributing its own music CDs as well as DVDs and games on behalf of third party publishers throughout the UK. However, changes in UMG’s customer base reduced volumes at UMG’s Milton Keynes distribution centre and the extremely competitive music and entertainment industry made it difficult to replace the volumes.

UMG realised that developing a sustainable distribution business under its own banner was a risk that would demand a significant amount of time and resource. UMG therefore opted to focus on its core competencies of discovering, developing and marketing artists, and to outsource its distribution services to a trusted partner.

The decision to outsource to arvato was based on a number of crucial factors:

• passing on the risks of the distribution business to a partner with strong sector expertise
• drawing on arvato’s global supply chain experience and international network
• benefiting from arvato’s long-term commitment and investment into UMG’s Milton Keynes warehouse
• attracting new music clients, who regarded arvato as an independent distributor, thereby reducing unit costs of distribution

solution:

to deliver a seamless transition

arvato took over UMG’s Milton Keynes site, successfully implemented new technologies and transitioned the staff in just thrto deliveree months. This included taking complete control of distribution and warehousing for over 7 million units or 18,000 SKUs, replacing the existing warehouse management system and managing a highly sensitive TUPE transfer of over 160 employees.

to invest in new technology and infrastructure

To date, arvato has invested in excess of £2 million in the Milton Keynes facility. This included the introduction of arvato’s own warehouse management solution which was linked to UMG’s sales order processing system to improve quality and timeliness of service.

Simultaneously, pick-by-voice technology was implemented to increase the speed and accuracy of order picking and despatch. This involved replacing the existing manual paper-based system in the warehouse: all stock movements were subsequently switched to paperless transactions using radio frequency terminal technology and barcode scanning to significantly increase quality control.

arvato also instigated an online performance measurement tool to track the achievement of pre-defined key performance indicators against challenging targets, as well as other key operational metrics. This gave UMG complete transparency and visibility over stocks and orders at all times.

to train employees and introduce expertise

To ensure the smooth transition and integration of over 160 employees arvato established elected employee representatives, and ran Q&A forums in close cooperation with UMG to address any issues or concerns. The approach resulted in 100% retention of individuals and their in-depth knowledge of the business, as well as helping to maintain a positive culture.

To drive efficiency and productivity, employees were multi-skilled in a range of distribution duties, adding diversity to their day-to-day roles and improving motivation. arvato also initiated an annualised hours system, so that employees could ‘save’ extra hours worked during busy periods and ‘spend’ them at quieter times. This flexibility made UMG’s seasonal peaks and troughs in workload much more manageable and significantly reduced costs for overtime premiums and temporary staff.

A new 20-strong logistics administration team was established to monitor stock movement and identify process improvements. In addition, outsourcing to arvato brought in increased specialist technology support onsite and from across the arvato network, enabling UMG to focus on its core business.

to cut costs and grow the business

arvato lived up to its commitments and subsequently brought two other major music labels’ distribution volumes to Milton Keynes, increasing throughput by 80% and reducing unit costs of distribution by 25%.

The increase in volumes prompted further investment. A mezzanine floor was built to facilitate multi-level order processing, enhanced by an automatic prioritisation system for stock movements. This enabled arvato to process 10% more orders at peak volumes with no increase in staffing levels. The bulk storage area and narrow-aisle truck fleet were overhauled, resulting in 15% efficiency improvements in this area.

to support changes in the industry

The partnership has recently expanded to include e-commerce fulfilment and customer service direct to consumers (D2C). arvato will deliver music and merchandise to consumers internationally and provide product information, returns support and manage order queries via phone and email.

The agreement covers CDs, DVDs, vinyl records, headphones and clothing available on more than 70 artist stores including Lady Gaga, The Rolling Stones, Take That, Justin Bieber and Star in the Hood clothing. It also includes the Beats by Dr. Dre headphones series available on the Beats Official European e-commerce store.

To maximise Universal’s stock across multiple channels and improve turnaround times, arvato seamlessly integrated Universal’s e-commerce order management systems with the existing B2B order management and warehouse management system in arvato’s Milton Keynes facility. Integrated customer service will be managed from one of arvato’s contact centres, located in Liverpool.

successes: reaped rewards of outsourcing

• Achieved 100% of all service level agreements in goods receipt, order processing and returns crediting during the critical transition phase
• Shipped 100% of same day orders during the first Christmas peak season after transition
• Maintained 100% of employee during TUPE transfer and entire operational management team has remained in place three years after transfer
• In year one, increased number of orders processed at one time by over 100%
• Improved order processing accuracy by over 15% and pick performance by more than 20%
• Delivered cost per unit savings of 25%
• To date, arvato has invested over £2 million in new technology and infrastructure at the Milton Keynes site
• Since the start of the relationship, arvato has shipped 150 million units with an average 100% completion rate

services: delivering products and results

• Product distribution
• Warehouse management
• Reverse logistics including refurbishment
• Customer service