Logistics management is not everything

My blog contains posts on how to meet business needs through Logistics Management. However, Logistics is not everything. If not all of the functions in the organization play at the same level, then even the best Logistics will be useless. Many people have seen it themselves.

Including Tomasz Damski, who experienced a history of ups and downs at eMAG. From the rebranding of Agito.pl to Emag.pl and investment in his own Logistics. To the closing of operations on the Polish market.

Tomasz was recruited to eMAG due to his previous experience in managing production and warehouse processes. He started his career at Dell. And he got into e-commerce a few years later.

I met Tomasz after I published a post on LinkedIn at the request of a friend looking for managers for an interim project in Logistics Management.

Several people reached out to me after the publication. I made some new friends and had the chance to have a couple of interesting discussions. You will find a summary of one of them below.

eMAG enters Poland

–Tomasz Damski

eMAG is a company established in 2001. Leader of the e-commerce channel in Romania. According to ecommerceDB, it achieved an 85% – 90% share in the Electronics & Media category in 2019. With net sales of USD 604 million, it dominates the domestic market.

In Poland, eMAG appeared in 2015 by taking over Agito. The idea for this move came from the owner of both companies – the Naspers group. The expansion of eMAG outside its native Romania was aimed at increasing the scale of business and, as a result, improving the level of services provided. 

The additional goal we set ourselves at that time was to create a more attractive offer. Not only did we implement next-day delivery. Over the next year, we also introduced same-day delivery, free returns, delivery into an apartment for large household appliances, online installment systems, and a few less popular services.

At the time of the acquisition of Agito, the company offered Polish customers over 15,000 products in 12 sales categories. By September of the following year, eMAG expanded its portfolio by another 20,000 products, increasing the number of categories to over 50.

In order to be able to handle such an extensive portfolio with such demanding services, the eMAG group invested in us and in Logistics on a scale that can be seen in the video below.

What’s more, we experimented with new technologies. Together with the team from Romania, we used simulations of Logistics processes. Adam wrote about them earlier in this article – Warehouse reorganization – how to create efficient logistics.

Thanks to this, over the course of a year, the Polish subsidiary of eMAG built competences to service over 500,000 orders annually. Everything was carried out based on our own warehouse with an area of 12,000m2.

The plans for the next 5 years included breaking through the sales level of EUR 1 billion and executing over 13 million orders per year. In order to meet these ambitious goals in terms of Logistics, a contract was signed for the construction and rental of another 33,000m2 of warehouse space.

Back at that time, I thought that nothing would stop us. I created a great team and I had the impression that we were ready for anything.

Avon grows in the East

— Adam Sobolewski 

I remember a similar attitude from my period of work at Avon Cosmetics Poland. Avon is a global company. It deals with the production and distribution of cosmetics in the direct sales system.

In Poland, it has been operating since 1992 and producing since 1997. It owns a significant share of the cosmetics market.

Avon’s growth in Central & Eastern Europe (CEE) over the last 20 years was impressive. During this time, Avon entered more than 20 markets. Starting from Poland, through the Czech Republic, Slovakia, Romania, Hungary, and beyond.

At some point, the company’s development was so dynamic that the CEE structures also included Russia, Ukraine, Kazakhstan, and Kyrgyzstan. I had the opportunity to work on all of these markets. Avon had branches literally all over the world.

Logistics management - Avon location distribution
Source: Avon Products Inc. Corporate website

All this was possible thanks to a world-class Supply Chain and efficient Logistics. Back in the early 2000s, Avon had a developed sales and operations planning process that included a structured approach to demand planning.

Avon is my business alma mater. This is the place where I learned the basics of planning for the Supply Chain. I have already written several posts about the importance of the Sales & Operations Planning process:

I won’t repeat myself. Let me just add that at the same time, Avon also had a modern Distribution Center in Garwolin. Operational solutions such as pick-to-light were already used there at that time.

Today, many companies struggle with the implementation of e-commerce. They try to adjust their Logistics to the requirements of this channel. Meanwhile, +/- 20 years ago, Avon serviced half of Europe from Poland and carried out the orders of individual consultants.

Logistics Management at Avon was at the highest level. We dealt with challenges for which many companies still have not found solutions.

Strategic retreat of eMAG

— Tomasz Damski 

Breathtaking sales plans, investment in brand development, and great opinions in the industry did not translate into final success.

One Friday afternoon, the head of the project for Poland called me and informed me that all investment activities had been suspended.

I thought I must have misheard and misunderstood the actual purpose of the conversation. How was this possible? We had been installing shuttles for a week. Pallet racks were supposed to be delivered on Monday. And the project was on hold?

Thus began the two-stage withdrawal of eMag from our country. After a turbulent period of establishing the current status quo, canceling and renegotiating contracts for the new warehouse, came the time for optimization within the company. 

Due to the lower than planned growth rate and rising service costs in the area of its own sales, the group decided to change its strategy.

From now on, further presence in Poland was to be built based on the increase in sales via the marketplace platform. We limited our own sales to a dozen or so categories, which then became the image base for the acquired vendors.

eMAG platform
Source: The End of eMAG. CRN. Accessed: January 2020

The growth prospects for the Logistics team drastically decreased but still existed. Based on retail plans, I recommended renting a warehouse with an area of 2,500m2. The size of the assortment stabilized at the level of 20,000 products.

Taking advantage of the narrow portfolio service, compactness of the space, and involvement of the experienced staff remaining in our ranks we doubled the efficiency.

On average, we carried out 10-15 thousand orders per month to exceed 40 thousand in a season. In the meantime, I watched the success of the marketplace platform, where over 2,000 vendors were offering their products.

Unfortunately, despite the dynamic growth in their number and sales support from their own warehouse, the platform did not defend the brand. At the end of February 2020, eMAG finished operations on the Polish market.

Breathtaking sales plans. Investment in brand development. Logistics Management and its development. Still, in terms of marketing, eMAG did not defend itself.

Avon loses its global importance

–Adam Sobolewski 

After 2010, Avon lost its global importance. Despite the level of competence as well as process and technological preparation in the area of Logistics and Supply Chain. The company, which in the 2000s operated at the level of over USD 11 billion, in 2019 went down to the level of less than USD 5 billion.

Logistics management - Avon global revenue
Source: Data from Statista. Accessed: January 2020.

Logistics Management did not play a role at this point. The problems resulted from increasing image and sales problems in developed markets. Avon gradually lost and withdrew operations from areas where it was unable to run a profitable business.

Two years after I left, Avon withdrew from France. In 2016, it spun off and sold the US, Canada, and Puerto Rico operations to an investment firm, then moved its headquarters to London.

A corporation established in the USA, with more than 100 years of history ceased operations in its home market…

The following years brought only more problems. Avon was withdrawing from subsequent markets. Finally, in 2019, the company was sold to the Brazilian Natura & Co capital group.

What caused this turn of events? Definitely not a lack of production capacity, distribution capabilities, or the competence of the global Supply Chain and Logistics team.

From the perspective of years, while following press reports, I understood that, unfortunately, the company was struggling with the mismatch of the current sales model to the era of social media. Growing competition of the following chains such as:

  • Ulta (in the US)
  • Sephora (US & Europe)
  • Rossman and DM (Europe)

All the above organizations did not shy away from e-commerce. And Avon had the logistical competence for it. Still, it was not used, because the company stuck to the traditional sales model.

As a result, Avon Business Fell Apart, as was summed up in the pages of Fortune.

Logistics is not everything

— Adam Sobolewski 

While still working as a demand planner at Avon Cosmetics, I was not aware of the strategic problems of the corporation.

Similarly, Tomasz starting his adventure as a warehouse manager at eMAG did not know what kind of commercial problems the company was facing.

We both used to be responsible for managing the Logistics or Supply Chain of our organizations. It wasn’t until later that we were to find out that, despite our best efforts, the business as a whole was not going in the right direction.

Logistics is not everything. You can say, quoting the title of a book by a classic author, that Logistics is – Necessary but Not Sufficient. That’s why you have to work on it. But remember, you should never lose sight of the bigger picture as well.

I have already written about how to work on the development of the logistics team on the blog. I may also write about how to adjust the level of the rest of the organization someday.

Next post coming soon.

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