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Logistics at the speed of thought (almost)

This article appears in the issue May 2014, [Volume 23, Issue 5]
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Remember the “Beer Game?” In many ways, the Beer Game simulation is as popular today as when it was first introduced at MIT’s Sloan School in the 1960s (different versions are still available through free software downloads). It’s based on a scenario in which a beverage retailer, a distributor and a brewery play supply chain tag while a steady, reliable product named Love’s Beer experiences a spike in popularity, resulting from an appearance in a hit music video.

From beginning to end, the entire simulation spans a period of about six months, which at the time was considered to be a reasonable planning horizon. The object of the game is to maximize sales and profits, regardless of your position in the supply chain. Although there are a few break-even and winning strategies, most players end up flying their “opportunity” straight into the ground, as orders go unmet and inventory levels pile up just as the fad begins to wane.

In the 1990s, in a different corner of the MIT Sloan School, Professor Charles Fine began analyzing the clockspeeds of various industries. Fine defined clockspeed as the rate at which an industry evolves, which consisted of three components: product clockspeed, process clockspeed and organization clockspeed. On one end of the spectrum, you have the decades-long clockspeed of highway construction and jet aircraft, with entertainment and consumer electronics on the other end.

If you’re wearing your KM goggles, you should begin seeing the many intricate connections that make up the complex world of manufacturing and logistics. More importantly, you should also be looking for ways to increase the speed by which a thought becomes an idea that leads to an innovation that becomes a product, which—after working its way through a vast network of transportation, storage, distribution and delivery systems—hopefully results in sales.

Seizing an opportunity

Continuing with our brief history of the supply chain, as we move into the decade following the year 2000, the pace begins to accelerate. In 2003, a beer game-like scenario was being played out across the ocean. Only it wasn’t a simulation. That November, Spain’s Crown Prince Felipe and a television newscaster named Letizia Ortiz announced their engagement. At the press event, which was televised to the world, the princess-to-be wore a white pants suit, rather uncharacteristic for old-world royalty. But it generated a wave of excitement among young female viewers.

Seizing the opportunity, a Spanish fashion company named Zara quickly designed, manufactured, marketed, distributed and sold hundreds of look-alike outfits. In later years, the princess herself could be seen occasionally sporting Zara apparel and accessories, helping to further boost the company’s growing popularity.

The following year, as Madonna was launching her “Re-Invention” tour in Europe, one of Zara’s designers took note of the megastar’s blouse. Within three weeks, Zara had pushed a similar blouse out to its retail outlets. Hundreds were quickly sold, and fans could be seen wearing the blouse at the final concert of the month-long tour.

Now you might be thinking: Producing and selling hundreds of pants suits and blouses at one time doesn’t really amount to much. That’s true, but only if your clockspeed is running in the typical fashion industry cycle of spring, summer, autumn and winter. Zara’s product cycle is as short as one week (the time it takes for the company to cancel a product that isn’t selling) to slightly less than a month. Zara replenishes its product line continually and opportunistically, rather than by a fixed, seasonal calendar. That results in customers visiting its 1,800 stores in major cities around the world three times more often than the industry average.

What fish and fashion have in common

In addition to fashion, the Spanish love fish. They are second only to the Japanese in per capita fish consumption. And like the Japanese, slowing down clockspeed by selling frozen fish doesn’t cut it. Their fish must be fresh.

The West African coast of Namibia is rich in the favorite and often rare varieties of fish the Spanish crave. But fishing is more an art than a science, and the catch of the day can vary widely, both in terms of variety and volume. Here’s how it works, as described by MIT Professor Yossi Sheffi in his book Logistics Clusters (MIT Press, 2012). From net to table, the whole process usually takes from 24 to 48 hours.

As soon as the net is raised from the side of the fishing boat, it’s emptied into the refrigerated cargo hold below. As the boat heads for port, the skipper is already on a satellite phone, forwarding the details of the catch to Spain-based Caladero, a global fish processor and distributor. As soon as the boat skipper hangs up, Caladero immediately begins soliciting advance orders from its vast network of food stores and retail outlets.

The boat arrives in port at Walvis Bay. Because it’s nearly 800 miles to the nearest suitable airport, the catch is quickly loaded onto refrigerated trucks with auxiliary fuel tanks needed to cross the scorching Kalahari Desert through Botswana and on to Johannesburg.

At the airport, the fish are loaded into a refrigerated warehouse, awaiting transfer to a Boeing 747 cargo plane. As you might expect, the process isn’t always straightforward. Because the catch of the day varies in weight and volume, two critical variables in the world of freight, Caladero always keeps an eye open for other companies that might want to hitch a ride on the daily flight.

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