Why Logistics Matters

Von Floercke. Why did they fail in the end, besides various governance and compliance issues that ultimately led to law suits? Let’s ignore any personal issues, I don’t know any of the involved people so I cannot gleam any insights from that. Also, a lot of people already did that. Instead I want to use the, in my opinion totally avoidable, failure to discuss why logistics and supply chain management really do matter.

Before I start, let me summarize Von Floercke and the things that went wrong. Von Floercke used to be a poster-boy example for successful “Die Höhle der Löwen” start-ups. Starting with men’s shirts and accessories, they acquired a producer of high-quality men’s accessories, got into retail chains and launched flag-ship stores. Last year’s idea to push sales volumes was to include spirits and caviar, promoting them on various platforms and through coupon deals. Making a long story short, demand exceeded assumptions, customers didn’t get their orders and all that went on long enough that fraud investigations were started. There is a lot to learn here, but I want to focus on the supply chain and logistics aspects. So, let’s get right to it!

Demand planning

That, right here, was the first point of failure. Huge demand is great, but it can haunt you if you are not prepared for it. So, what exactly went wrong? Demand was simply to strong, that is basically it. Underestimating demand is not catastrophic, handling it the wrong way is. In order to discuss that issue in more depth, we must answer the question first what underestimating demand really means. And it is not the mere fact that demand turns out higher than your forecast. Once this happens, surely a deep dive is in order and a whole bunch of problems will arise from it. None of which need to be catastrophic. Once demand exceeds not just the forecast but available supply, things can easily turn catastrophic so.

In order to avoid that, product launches must be closely monitored. Supply must be planned with a certain buffer, volume and time wise. Customer experience matters, disappointing customers already during the launch is the last thing that should happen. One simple way is to simply limit launch orders with guaranteed availability and create a backorder or waiting list. Having accounted for that already before the launch makes life a lot easier, for you and your suppliers. And since we are considering physical goods, we come back to supply planning. Which means to talk to suppliers, discuss scenarios and prepare them for launch day.

But what do you do when every contingency plan and monitoring activity fails? Be open about it. Communicate it. And solve the problem, fast. Customers want reliable information, and once a new product launch hits rock bottom, as Von Floerckes spirit business did, supply chain management and logistics can save your day by providing that information. And more importantly by formulating, implement and execute recovery plans.

Logistics planning

Goods must reach customers. And as the famous R’s of logistics state, they have to reach customers at

  • The right time
  • The right place
  • The right quantity
  • The right quality
  • The right costs

With

  • The right information

Let’s assume that the logistics in question get customers and product right. There you have it, the 8 R’s. Now, what can be learned from Von Floercke? We need to pick the R’s we know went wrong first, I’d argue the easiest one to solve, and that also surely went wrong, is already the first one, the right time.

Customers were waiting for weeks. Weeks are a lot of time when delivery times are measured in hours. Being fast brings us back to demand planning, as logistics align with demand and prepare the network and external partners accordingly. This preparation also makes it easier to recover in case anything goes wrong. Trying to figure it out after the fact ends the way we know it did with Von Floercke. Good logistics planning avoids that, makes it easier to recover and, at the very least, provide reliable information about any of the above R’s fast. Because even when anything else went wrong, customers deserve reliable information.

How can logistics and supply chain turn disaster into success? The easiest way is to avoid disaster in the first place. The second-best thing is to recover quickly. Imagine Von Floercke recovered quickly, minimized the impact by limiting sales and getting goods to customers, including those on any backorder lists, quickly. Would Von Floercke still be around? Bigger? There is no way to tell from the distance, what can be said so is, that the mere delivery of spirits wouldn’t have played a role in case Von Floercke might have failed. And seeing from that perspective, every Euro spend on Supply Chain management and logistics is certainly worth it.

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