Wild Ducks Episode 2: How the Sharing Economy Nearly Killed...
Wild Ducks Episode 2: How the Sharing Economy Nearly Killed the Ski Industry Jeffrey O’Brien: Welcome to Wild Ducks, a podcast about innovators using science, technology, and ambition to change the world. Wild Ducks is brought to you by IBM and produced by a small team of journalists. I’m Jeffrey O’Brien. In our first episode, we told the story of a big-thinking scientist at Mars Inc. who’s quietly re-imagining food safety. Today we travel to Austria to a small town called Mittersill -- a picturesque village in the Alps where, by some accounts, the sport of skiing was born. It’s also the setting for another wild duck with some big ideas. He’s aiming to reinvent supply chains… and pretty much every aspect of manufacturing. His name is Eric-Jan Kaak. But before we get to Eric-Jan, let me introduce my colleague, Bernhard Warner. Say hello Bernhard. Bernhard Warner: Hey Jeff… and, hello Wild Duck nation! O’Brien: Bernhard, we saw up close how Eric-Jan is changing the way skis are made. His story offers lessons that go beyond the ski business … and we’ll get to why in a minute. But maybe you should start by giving us some quick back-story. Bernhard: Sure. Eric-Jan is what I’d call: an iconoclast. He’s a Dutchman who commutes between northern Italy and the Austrian Alps. He actually prefers ice skates to skis; Dilbert cartoons to org charts. He’s the CIO of Tecnica Group, one of Europe’s largest sportswear brands. They make: • Moon Boots, Rollerblade, • Tecnica ski boots; • Nordica and Blizzard skis. He’s a big thinker—an avid reader too— on the latest theories about supply chains and corporate organization. February 26 2015 1 Wild Ducks Episode 2: How the Sharing Economy Nearly Killed the Ski Industry O’Brien: And as we saw from spending the day with him at the factory, he’s not afraid to put cutting-edge theories to work. In fact, we left convinced that manufacturers of all sorts should be paying attention to what he’s doing there. Warner: Especially companies seeing their industries disrupted by the so-called sharing economy. But first we should provide some basic knowledge about what goes into making high-end skis. And here’s the gist: It’s a lot more complicated – and less automated-- than you might think. Fifteen hundred raw materials go into Blizzard skis. They’re all molded together and literally cooked into the final product. It’s a bit like baking a layer cake – except with saws, grinders, presses and massive industrial ovens. It really surprised me how long it takes. Listen to Eric-Jan explain the whole process from the factory floor. Warner: how long does it take to make one pair of skis? Eric-Jan Kaak: If we have all the material in house then we can do it in 2-3 weeks, but most of that timing comes down to drying. Because you are using wood core, aluminum, titinale, carbon fiber, plastics, etc, etc. and it’s all glued together. And you need time for everything to dry. Warner: In the old days, that 2-3 week lag time was not a huge problem. Because retailers would place orders for skis as far as nine months in advance. So Blizzard had plenty of wiggle room. But everything changed when people stopped buying skis. O’Brien: When you say it like that, it sounds like a recession story. But that’s not really what we’re talking about here. Warner: No… Well, the global downturn definitely had an effect on Blizzard. But the problem started before that, when more and more skiers began renting their skis. Remember the bad old days, how it seemed like there were only three types of skis? You had short. Long…and longer! February 26 2015 2 Wild Ducks Episode 2: How the Sharing Economy Nearly Killed the Ski Industry Today Blizzard makes 900 models for every type of skier and snow condition. With so much to choose from, why commit to any one model when you can rent a new pair every day? Savvy skiers now show up at the mountain and pick their gear based on the weather – or just whatever strikes their mood. O’Brien: OK, so you’ve got an increased selection. You’ve got picking products based on their mood. It’s starting to sound an awful lot like music, isn’t it? Warner: Or movies. O’Brien: Right. It’s the shift from buying to streaming. Or even renting computing and software through the cloud. We’ve all heard about the sharing economy. You’ve got ride-sharing, housesharing, power-tool sharing. All of this – music, the cloud, tools, skis – they all fit together. And this notion of a “sharing economy”? It’s a misnomer. What we’re really seeing is the rise of a renter’s economy – and there’s a lot of money changing hands. Price Waterhouse Coopers pegs this market at $335 billion within a decade, and it’s going to disrupt all kinds of industries. Warner: Right…. So, think big. What would happen if our entire economy turned into a rental economy? What would happen to product design… to supply chains… to sales? The plight of the ski industry gives us a glimpse into that future. When the masses started renting skis, the manufacturers’ demand forecasts -suddenly became as reliable – or unreliable – as long-range weather reports. And that really messed up the industry. Even though the number of skiers didn’t really change, two-thirds of the market for skis disappeared. Poof. A string of big-name ski brands went under. Blizzard’s ownership -- it changed hands three times between 2005 and 2007. February 26 2015 3 Wild Ducks Episode 2: How the Sharing Economy Nearly Killed the Ski Industry O’Brien: That’s about the time that Eric-Jan joined. As he told us, back then Blizzard mostly used gut instinct to decide how many skis to make in a given year. And as a result, at least a quarter of the skis it was making would go unsold. These were five- and six-hundred dollar skis going straight to the mark-down bin. Eric-Jan knew that gut instinct was no longer sustainable. Eric-Jan Kaak: When you have 25% on stock the end of the year and your customers, which are the retail - the big retailers, they know it, they need to just wait until the end of the year and then they come to you and ask for a discount of 50, 60, 70%. And if you don’t give it to them, they just go next door because he has as much skis in stock as you have. Warner: Eric-Jan had his work cut out for him just trying to repair his own supply chain. And then things went from bad to worse. Temperatures started rising. Wall Street tanked. We’re talking climate change and a global financial meltdown. O’Brien: Remember, this is all happening almost 8 years ago -- which makes Blizzard, what? A canary in a coalmine? Warner: tip of the iceberg, maybe? O’Brien: Right. One of those. The point is Blizzard was showing us signs of things to come. Which means there’s gotta be other companies struggling with similar issues today. Warner: I was thinking the same thing. So I called one of IBM’s supply chain experts, Markus Gretschmann, who’s based in Germany, to see whether his clients are feeling the same kind of pain. I just want to play for you a bit of that call. Markus Gretschmann: The sharing economy is definitely affecting all of the manufacturers and the way that they need to look at their customers and look at their demands and also their product development. They have to be more flexible in how and when they need to produce and provide their services. Warner: Markus shared many examples from telecom, the media, and auto parts, too. He explained how the rise of the sharing economy has put incredible pressure on manufacturers to stay on top of customer preferences. February 26 2015 4 Wild Ducks Episode 2: How the Sharing Economy Nearly Killed the Ski Industry But he made another point that I hadn’t considered. When the sharing economy consolidates a market, that makes it even more important for manufacturers to communicate with retailers and distributors, too. Markus Gretschmann: The key challenge in the end is you need to get feedback from those big customers, because if you lose some of them, basically your whole market is breaking down. Warner: Marcus is right. Blizzard’s market **was** breaking down. Just like what’s happening in so many industries today: The power had shifted to the consumers. Further down the supply chain, the ski shops had already changed their business model to survive. They went lean. Little to no inventory. Ordered as late as they could to be current with market trends. O’Brien: Which meant Blizzard needed a new model, too. Nobody in the ski industry was doing anything innovative at scale. So Eric-Jan looked elsewhere for ideas. His team ended up borrowing the blueprint for a lean production system that was actually developed by Porsche. And what do you know? Car makers and ski makers have a lot in common. Eric-Jan Kaak: This was an eye opening moment for a lot of people because when you have people working here since 35-40 years making skis and then the guy from the car industry comes in and they just reduce your cycle time with the same output by 50%, this was like revolutionary. Warner: Blizzard is now considered The first lean ski manufacturer in the world. O’Brien: And as impressive as that is, it’s right about now that Eric-Jan’s story really gets interesting to me. This is when he starts using technology to really put his stamp on the company. Working with IBM Cognos, he added big data and predictive analytics to Porsche’s lean model to remake the operations center. February 26 2015 5 Wild Ducks Episode 2: How the Sharing Economy Nearly Killed the Ski Industry The factory floor went from being the brawn to the brains. It became a smarter system that could anticipate demand, give new insight into order flow and it had a real-time view of supplies and inventory. He also started pulling external data -- like weather and commodities prices. Suddenly supply started matching demand, and the company was saving millions. Warner: It’s even bigger than that. The whole culture of the company began to change. With the analytics tools, employees went from being task-takers to troubleshooters and experimenters. They began looking at the data and suggesting ways to increase productivity. The new lean Blizzard has cut its production cycle from months to weeks. Product defects and inventory overruns? They are nowhere near the problem they once were. Put it all together and the company is doing something unheard of in the industry: made-to-order skis. Eric Jan Kaak: I came here in the summer of 2007. And the end of the year we had an inventory and there were 80,000 pairs of skis in the inventory at the end of the year. 80,000. Eight. Zero. It took us four years to sell out those 80,000 pairs. O’Brien: And those are sold for dimes on the dollar. Eric Jan Kaak: Right, right. Because they’re - I mean they’re in your balance sheet but they get devaluated every year so at the end they’re just zero value on your balance sheet and just sell them for whatever. Who wants to have them? Warner: And last year? Eric-Jan Kaak: We were more or less empty. Warner: So you achieved more or less made to order for the ski business? Eric-Jan Kaak: Which everybody said cannot be done. February 26 2015 6 Wild Ducks Episode 2: How the Sharing Economy Nearly Killed the Ski Industry O’Brien: That would make for a great ending – but not for a wild duck. Remember, our wild ducks are always exploring. And Eric-Jan is no exception. These days he’s looking for the next threat and opportunity. It might come from 3D printing. It’s not hard to imagine the ski boot business going away in an age of home manufacturing. Tecnica Group makes a million boots a year, and suddenly that business seems in peril. Unless…maybe the company focuses on intellectual property and lets consumers print their boots at home — with no worries about warehouses or inventory or distribution. These are the kinds of disruptions Eric-Jan is planning for. Eric-Jan Kaak: I don’t know where the world is going. I don’t know the future of manufacturing; I don’t know the future of our products. Maybe in one year somebody comes with a new ski on the market and everybody will say it’s revolutionary. What I know is if you are in a traditional organization it will take you months and years and years to react. I want to have an organization that is very quick to react to things and is very open to things that are happening on the outside. Warner: Eric-Jan made this point repeatedly. He couldn’t claim any special insight into where things are headed. But that’s the point of building an agile organization. It’s better at dealing with uncertainty. Eric-Jan Kaak: The first thing is make everything visible. Make everything, all data are available to everybody so everybody has the same knowledge, so everybody can respond to these in the same way. If you give all the data to everybody and everybody can make sensible decisions with it. O’Brien: It’s not just an agile organization he’s talking about. It’s an empowered organization. Under Eric-Jan’s watch, Blizzard has become a company with the tools, the team, and the processes all in place, ready to respond to the next great disruption whenever and wherever it arrives. Put another way, you might say he’s got his ducks in a row. February 26 2015 7 Wild Ducks Episode 2: How the Sharing Economy Nearly Killed the Ski Industry And that wraps up this episode of Wild Ducks. You can read a Q&A with Eric-Jan at ibm.com/wildducks, where you’ll also find photos of an up-close look of the making of Blizzard skis. I’m Jeffrey O’Brien Warner: And I’m Bernhard Warner. We’d like to thank Eric-Jan Kaak for his hospitality and enthusiasm in the reporting of this story. O’Brien: And as always, thank you for listening. If you like what we’re doing, do us a favor. Subscribe. Tell a friend or colleague. And give us a rating wherever you get your podcasts. We’ll be back in March from another corner of the world with yet another big thinker. Watch our twitter feed in the meantime. We’re at the handle @IBMWildDucks. Until the next episode, enjoy the rest of the ski season. And while you’re zipping down those slopes, remember today’s wild duck. The mild-mannered CIO who may have single-handedly saved the ski industry. Think about it. Without him, we all might be sledding. Warner: heh, or worse, snowboarding. O’Brien: You had to sneak that in there, didn’t you? 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