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:
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Moon Boots, Rollerblade,
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Tecnica ski boots;
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Nordica and Blizzard skis.
He’s a big thinker—an avid reader too— on the latest theories about supply
chains and corporate organization.
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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!
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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.
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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.
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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.
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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.
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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
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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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