--- title: "A Comprehensive Analysis: The Current State and Future Path of Trading Companies" description: "The article analyzes why trading companies are experiencing collective panic, attributing it to a lack of innovation and an inability to adapt to changing market conditions. It argues that the industry's fundamental issues stem from outdated mindsets and operational inefficiencies, and proposes a two-step solution: changing internal management thinking and embracing IT integration for holistic solutions." author: "何建峰" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2017-10-26" language: "en" canonical: "https://xinjignxiao.com/en/articles/a-comprehensive-analysis-the-current-state-and-future-path-of-trading-co-7224525a/" markdown: "https://xinjignxiao.com/en/articles/a-comprehensive-analysis-the-current-state-and-future-path-of-trading-co-7224525a.md" original_source: "https://mp.weixin.qq.com/s/kv3aLAeN-Vd_dVF3WHV3Zw" translation: "https://xinjignxiao.com/zh/articles/%E4%B8%87%E5%AD%97%E9%9B%84%E6%96%87-%E5%95%86%E8%B4%B8%E5%85%AC%E5%8F%B8%E7%8E%B0%E7%8A%B6%E4%B8%8E%E6%9C%AA%E6%9D%A5%E5%87%BA%E8%B7%AF-7224525a.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/a-comprehensive-analysis-the-current-state-and-future-path-of-trading-co-7224525a/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # A Comprehensive Analysis: The Current State and Future Path of Trading Companies > The article analyzes why trading companies are experiencing collective panic, attributing it to a lack of innovation and an inability to adapt to changing market conditions. It argues that the industry's fundamental issues stem from outdated mindsets and operational inefficiencies, and proposes a two-step solution: changing internal management thinking and embracing IT integration for holistic solutions. I: Why Trading Companies Are Experiencing Collective Panic: Hardworking but Lacking in Exploration and Innovation Our era has given us a mission to advance, change, and grow, yet our inherent limitations have constrained our development. For twenty years, we've stuck to our own small patch, content in our comfort zone. Regardless of the fierce competition outside, manufacturers only need a contract to give us three to five years of peace of mind, as this big tree always shields us. This has given us excuses not to venture out, stifling our creativity, courage, and adventurous spirit. Manufacturers have precisely calculated every link in the channel, making profit margins as tasteless as chicken ribs—not worth eating but a pity to discard. **People in trading companies often call themselves model workers, which is well-deserved, but they can never be called a group with pioneering and innovative capabilities.** Regional Protection Hinders Access to Broader Markets In the past twenty years, when business was good and profitable, the inability to expand beyond regional markets left large amounts of capital with nowhere to go, often donated to real estate and finance. Even trading companies that avoided real estate and finance diversified and achieved impressive results in other industries. Of course, some might say that trading companies can grow large, like Huabin Group or COFCO Group. This is a point we'll explore later: different genes determine different levels of achievement. **So, it's not that the times or the market have changed; we all realize we need to change and know the direction, but we are powerless to change ourselves. This is the root cause of the collective panic.** Different Genes Lead to Different Achievements The biggest gene of regional trading companies is their inability to expand beyond their region, leading to a series of problems and a vicious cycle that prevents growth: General managers in trading companies typically earn only 5,000–8,000 yuan, and apart from the boss and his wife, the industry has almost no talent. Talent has become the biggest bottleneck, and talent often has an aggregation effect. In contrast, large trading companies have the opposite dynamic. **So, the first thing we need to do is change our genes, starting from within: streamline our processes, introduce talent, IT systems, modern management thinking, bring in new products, cultivate the local market, and boldly expand to capture larger markets.** Why not start changing ourselves instead of always looking at Ma Yun, Liu Qiangdong, 7-11, or B2B? They are worth learning from but not imitating. I believe some trading companies have already started changing, and they are certainly still doing well and will do even better in the future. They will devour the market share of those still panicking and grow stronger. Manufacturers will continue to need distributors for the next twenty years; no new form can replace them. The difference is whether the distributor is you or someone else. Insufficient Preparation, Yet Sudden Changes Trading has a thousand-year history, and throughout history, the agency system and its forms have not changed significantly. The industry has low barriers, intense competition, and complex products and channels. Without supply chain thinking, internet, and IT intervention, the industry and enterprises cannot upgrade. When a brand is small, it's willing to use provincial distributors. **Why, as it grows, does it want to eliminate provincial distributors and control the channel itself?** By adding layers and management costs, and increasing process complexity to capture the market, this goes against market laws and reduces competitiveness. So manufacturers don't necessarily want to prevent distributors from managing larger markets and more customers. Logically, fewer distributors and a flatter channel should mean simpler management and lower costs for brands. For example, Coca-Cola only needs to manage COFCO in China. The root cause is that distributors' capabilities are limited and cannot meet manufacturers' expansion needs, forcing them to do everything themselves. We often see manufacturers eliminate a prefecture-level distributor and develop a customer in each county, only to find these small customers are less effective than one big one, so they come back to negotiate with the prefecture-level distributor and revoke all county-level agencies. **After cooperating with brands for decades, we don't know their true pain points. If we can't share their burdens, why keep us?** Conversely, with changing consumer demands and the rise of retail chains, we should actively explore retail chain needs, change ourselves, and meet our customers' changing demands, rather than constantly thinking about competing with them. As midstream channel players, if we're always thinking about eliminating downstream retailers, will they give us a good time? Would they dare cooperate with such a channel? Retailers building their own warehousing and distribution is both asset-heavy and highly complex. Do you think they'd willingly take on such a thankless task when they're already struggling with store management? It's only because no local supplier can meet their needs that they do it themselves. Consider two local retail chains: one handles all processes internally; the other outsources logistics and goods (provided the outsourcer can meet needs) and focuses solely on studying consumer needs. Which would be more competitive? **Studying market changes and improving our own capabilities is what we should do. Doing retail chains or platforms is being irresponsible. It disrespects our hard-earned achievements and is like playing hooligan.** II: Why Our Business Environment Has Changed: 1. Consumer habits have undergone major shifts; this is a cliché, so I won't elaborate. 2. With changing consumption habits, terminal procurement needs have also changed dramatically. 3. Our competitors have changed qualitatively; it's no longer just competition among peers: * A: Other trading companies still exist and compete more fiercely. * B: Online impacts from Alibaba, JD, etc. * C: B2B impacts represented by Lingshoutong and Xintonglu, including Zhanghe, Yijiupi, etc. * D: The biggest threat and impact is the widespread emergence of terminal chains, increasing their bargaining power; they've transformed from a weak group to a strong organization. Colleagues often joke that distributors are like Oreos—sandwich cookies—but both cookies are getting thicker while the cream in the middle remains pitifully thin. This is abnormal and distorted development, and the invisible hand of the market has begun to adjust. **Looking at the above four areas, except for A, which is our own, the other three are things we can't touch or afford to touch. At least so far, no one has successfully transformed from the trading field, but they have become mountains standing before us.** III: Are Trading Companies Suitable for Transformation? **1. Upstream Manufacturing:** Difficulty index ☆☆☆☆. It's an industry even harder and more complex than trading. Without a craftsman's spirit and a factory owner's complex, it's not recommended. **2. Downstream Retail:** Difficulty index ☆☆☆☆. It's an industry where you can only sharpen a blunt knife in ten years, with no profit for a decade. Direct stores are hard to manage, franchise stores are hard to control, and outsiders can't find profit points. Convenience store chains are a long cultivation; you must stay true to your original intention and forge ahead to succeed. **3. B2B Platforms:** Difficulty index ☆☆☆☆☆. If the above are hard, why one more star? Is it harder? No, it's because after years of B2B prevalence, most trading companies still don't understand what B2B is for, yet they rush in and sacrifice countless. B2B's essence is connection, a tool to solve information asymmetry and dispersion. But everyone treats it as a magic weapon for orders and the only lifeline for change. For a regional distributor, there's no information asymmetry between your products and customers in the local market. Your salespeople and distribution system already occupy over 80% of the market. **The so-called asymmetry is about the big picture**, like the asymmetry between Sichuan and Northeast, not between the east side of town and the west side. **Moreover, if you put Master Kong black tea on a B2B platform, it definitely won't beat local distributors, especially since platforms can't solve offline display and new product promotion communication.** From another angle, if B2B can become a sharp blade in distributors' hands, it can be utilized. **4. Third-Party Warehousing and Logistics:** Difficulty index ☆☆☆. It's the only field that isn't too far from our expertise, has relatively low barriers, and is easiest to see hope in, yet it hasn't brought hope. I think the main reasons are immature timing and insufficient professionalism in third-party logistics among trading companies, leading to temporary downturn. There are countless other transformation methods, but transformation essentially means: this industry isn't working, I'm out, I admit I'm a loser in this industry, and I've completely failed. But I want to clarify: I support transformation. The so-called failure only means admitting failure in this industry, not that the person is a failure. Leaving this industry might lead to great success elsewhere. Let's not talk about transformation; let's talk about upgrading: **This is written only for trading companies that still believe in the industry, stay true to their original intention, and forge ahead. Changing the industry requires countless enterprises with a craftsman's spirit to accomplish together.** Problems Within Ourselves In terms of scale, sales from 20 million to 300 million cover over 98% of regional trading companies nationwide. Note the word "regional," which is the ceiling I mentioned earlier—an indisputable fact. To break through the ceiling, we must first break regional barriers and our own shackles. Often, people in the trading circle's first reaction is that manufacturers don't allow cross-region sales, so they can't expand. Those with such thoughts usually find it hard to exceed 100 million in sales. Those who break 100 million and reach 300 million have mostly already expanded or are in a good regional market with deep product lines and strong local influence. But no matter how you look at it, they've hit a dead end: in small places, 100 million is the cap; in big places, 300 million makes you the boss. **How to break the deadlock? First ask yourself a few questions:** 1. If given 20,000 products, 100,000 customers, and a 500-person team, can you manage? If not, why? 2. Is your inventory accurate? 3. Can orders be delivered on time? 4. Is your finance chaotic? 5. Is internal communication smooth? What methods and tools do you rely on? 6. Can data be recorded and analyzed? Is performance evaluation targeted? 7. Is the team's quality high or low? 8. If the boss leaves for a month, can the company operate normally? 9. Can procurement and business activities be executed as planned? 10. Are departmental responsibilities clear? 11. How is execution? 12. Can you open branches, set up offices, or establish forward warehouses? Asking more questions is almost pointless. None of the terms associated with a regular army can be applied to our trading companies. But if we don't solve these problems, where will hope come from? I see many companies learning to hold morning meetings and shout slogans. I ask: how many companies have solved the above problems by shouting slogans? If you don't want to get sick, you can't just rely on sugar-coated pills. You need to grab your own hair, lift yourself off the comfortable sofa, get on the track, and like an excellent athlete, strengthen every muscle and blood vessel. Any enterprise boils down to three things: develop a good product, sell it in a reasonable way. We can't just talk nonsense. How to achieve this? The dry goods are below: **Solution Examples (limited content, cannot elaborate fully):** Take the **finance department** of a trading company as an example: The heaviest workload is the daily settlement with drivers and clearing documents, taking up over 60% of working time. Solutions: 1. If we can ensure that before the driver returns, finance already knows the amount to be collected, the warehouse knows the returns, and the driver knows in advance how much to pay finance and how much to return to the warehouse. 2. Receivables, partial payments, and cash handover reports are received by finance in advance. 3. Inventory accuracy is 99.9%, and orders are rarely cancelled. 4. For vehicle sales, orders are placed on-site, and all data is automatically transmitted back to the warehouse, with real-time control of money, goods, and documents. 5. Delivery cost settlement strategies are pre-entered into the system, with daily summaries and automatic monthly aggregation. Then their handover efficiency will multiply several times, as you can predict. This not only reflects improved efficiency but also the planning (each department knows what to do next because they've received planned orders and reports in advance) and collaboration among the three departments. A small change can completely transform the company's way of thinking. Continuing with this mindset, let's look at another link: the **sales department**. The **sales department** is the pride of a trading company. Every trading boss is a marketing master and good at the market. Since adopting the visit-order system, they feel business problems are basically solved. **Little do they know that the problems facing sales are not about a difficult market but more about internal difficulties caused by the company itself.** I'm on the front lines, but a bunch of things are holding me back, like inaccurate inventory (linked to the warehouse), low order fulfillment rates (linked to procurement), inconsistent delivery times (linked to logistics), and delayed expense reimbursements promised to customers (linked to finance). With these problems hanging over our heads, how can we focus on business? Customers won't trust the salesperson's abilities, and the company can't build a reputation. Solutions: 1. Inventory accuracy needs to reach over 99.9%. 2. Delivery should adopt a contract system. 3. Expense signing should be electronic, with automatic order generation in the verification system. The executing department automatically receives corresponding information. If not completed or stuck at a node, the system will keep reminding until completion. 4. Product batch information should be queryable at any time. Take the **procurement department** as an example: Bosses always emphasize lowering safety stock, while sales complain about high stockout rates. Procurement is the sandwich cookie in a trading company. Should we lower inventory for cost or raise it for sales? In the end, all decisions follow the market. But if we follow the market, why is the stockout rate still so severe? Sometimes a single order can have a stockout rate as high as 50%. Am I making this up? Bosses know best. The root cause is inaccurate inventory; there's no data to provide procurement with a reasonable plan, making the procurement plan useless. If inventory is inaccurate, you'd blame the warehouse, but the warehouse is helpless because no trading company has accurate inventory management; in fact, the larger the company, the messier the inventory. Solutions: 1. Inventory accuracy above 99.9%. 2. Automatic safety stock alerts. 3. Procurement plans automatically generated based on inventory and sales data, with human intervention for forecasting. 4. Various reports including turnover rate reports, per-product profit reports, and input parameters for product complexity calculations, push/elimination automatic calculations, new product sales statistics, inventory batch distribution, and product arrival time tables. 5. Automate tedious tasks with one click, freeing time and energy for core work like sourcing and organizing. Now let's look at **warehousing and logistics**: **Receiving:** Turning A into B, or 100 pieces into 100 boxes, is common in trading companies. As long as the amount matches, it passes finance review, and everything proceeds. IT companies, to meet this need, came up with a bad idea: supporting negative inventory orders. The boss thinks, as long as we can sell, why bother with details. **Picking:** People wander the warehouse with orders, grabbing anything that looks like the product, not caring about new or old dates. If they can't find it, they cancel the order. No one is held accountable for stockout rates, and there's no assessment for inventory surpluses or shortages. Over time, the warehouse becomes chaotic, inefficient, and trapped in a vicious cycle. **Logistics:** Without delivery data, reasonable assessments are impossible, and motivation is very low. Every morning, there's haggling with supervisors over routes and tasks, and they can't leave before 10:30. When handing over to customers, customers don't trust the delivery personnel's accuracy, demanding to count every bag and package on the spot. A single handover can take 10 minutes to half an hour. After delivery, if goods are missing, they ask the warehouse; if there are extras, whether to return them depends on the person's character. Returned goods are just dumped in the warehouse, and everyone tries to muddle through. Handover with warehouse and finance is time-consuming and laborious. Solutions: Barcode scanning management, location management, batch management, label management, picking strategy management, regional route management, delivery management, inventory counting strategy management, returns management, staff performance management, data transmission management; you need a suitable WMS. If we struggle with regular, pre-packaged, ambient, long-shelf-life products, how can we face categories like short-shelf-life, fresh, cold chain, and processed goods that require higher operator quality? The industry's essence will never change. Taobao can't change the essence of manufacturing; it can't make products more refined. Ele.me can't change the essence of dining; it won't make chefs more skilled. They only change how participants engage. All changes are variations on the same theme. **Having said all this, these are hard problems, but no one is to blame; everyone has done their best. Trading company bosses are model workers, and employees are dedicated. The first requirement in trading company job postings is the ability to endure hardship.** At this point, bosses ask, "So if I get a good software system, will it solve all problems?" I tell you, no. Take SAP, a globally renowned ERP software company, for example. Quotes often range from millions to tens of millions, with exorbitant prices and sky-high maintenance costs. Domestic software companies offer affordable prices, from a few hundred to tens of thousands, all claiming to be ERP. Before purchase, technicians tell you it has all features, but customers don't understand their own pain points and needs. Using it not only fails to reduce complexity but makes it more complicated. The software industry and the physical industry come together—one willing to sell, the other willing to buy. There are also good software options priced at 300,000–500,000. Others use them smoothly, and you go to learn and visit, thinking that buying it will let you do the same. But you forget that without changing your own company's soil, the orange becomes a tangerine when transplanted. Trading companies have reached today's point: **we don't lack products or markets; we're better than some and worse than others. To truly change and take a step forward, we need to take two steps.** If we don't complete these two steps, no matter how big we get, we won't become a respected enterprise: **First, change our thinking and improve management to prepare for the next change. Understand the importance of supply chain thinking in enterprise management, understand what planning and collaboration mean. It's not that the market is too cruel; it's that we are not strong enough.** Don't always look at the winners in gambling or only see the failures in work. **Second, IT intervention is essential to achieve integrated solutions. You can also form alliances with IT companies, relying on each other: you become their research subject, and they provide continuous technical support.** Both are indispensable. It's time to calm down, learn, think, and change, because our opportunity has come. A few days ago, I read Teacher Zhao Bo's dealer industry survey report: 80% of trading companies plan to transform. This is great news, and I agree with the report. Reasons: * 1. Upstream, manufacturing is also reshuffling; 80% of small enterprises will disappear, naturally dragging down 80% of small distributors. * 2. In the market, 80% of distributors are mom-and-pop shops. It's best they exit early; the remaining 20% can live better, sell more, earn higher profits, and invest more in product development, market investment, and internal process improvement. * 3. If a city can truly have only 20 distributors left, and companies grow, then third-party logistics, B2B platforms, and IT-integrated solutions all become useful. * 4. Once third-party logistics rises, B2B platforms play their tool role, and internal IT process integration is completed, distributors will immediately enter a virtuous cycle. From any angle, we'll not only do better in our original markets—going from struggling with a few hundred SKUs to easily handling tens of thousands—but also derive many new profit points. 4.1. For example, if my company has 99.9% inventory accuracy and high warehousing and logistics efficiency, we can take on social logistics, turning logistics from a cost center into a profit center. 4.2. If B2B platforms are used well, we can consign others' products, increasing aggregation effects. 4.3. With improved internal management, we can extend agency scope to fresh, cold chain, cooked food, short-shelf-life, and processed goods, capturing higher-end categories. 4.4. Expand beyond the local region to the whole country or even globally, developing larger markets. * 5. As enterprises and the industry improve, supply chain finance will emerge as needed. Capital will no longer be a bottleneck hindering development. Borrowing is hard only for small enterprises. Many large manufacturers already have their own finance companies, just waiting for your agency to ask for money. Auto loans are an example of an industry maturing. Third-party logistics companies will also be willing to act as guarantors and supervise goods pledges for finance companies. Supply chain finance cannot avoid third-party logistics participation because only third-party logistics, standing in a neutral position, can provide accurate data and control the flow of goods and funds. * 6. Everyone worries about retail chains disintermediating the middle and customizing products directly from manufacturers. But this only applies to a small portion of products. With millions of SKUs in society, retailers will never become the main distributors; they can't even manage their own patch. Moreover, many products require local processing and sales. Even the largest retailers' main suppliers are still distributors. This is entirely two different fields—midstream and downstream. If possible, it's recommended not to cross boundaries, as you might lose your core competitiveness. Instead, think about whether distributors and retail chains can achieve win-win cooperation. Retail chains control their core advantageous categories and purchase regular categories directly from local distributors, who deliver directly to stores, taking on warehousing and delivery functions. This reduces the logistics burden on retail chains, and distributors gain traffic and profits. These are all worth exploring. When discussing change, many enterprises fall into a misconception, hoping for an immediate, quick-fix solution. For example, they think that once they implement ERP, their process management problems will be solved. Here, I want to say: **Enterprise processes rely 30% on the ERP system and 70% on the enterprise's own understanding of processes.** Look at B2B: they think that with a platform, sales will skyrocket, and integrating sales and forcing manufacturers is a piece of cake. But in reality, platform success requires massive product resources, strong service support, online traffic generation, brand influence, terminal management control, big data analysis, IT technology, etc. **Wanting to do B2B is not your fault; not being able to due to limited strength is not B2B's fault either. You need to find a change method that suits you.** This transformation is destined to belong only to a few victors. The 80% planning to transform should hurry, because time is running out in other industries. The remaining 20% who stay should focus on self-improvement, conserve strength, and watch the changes. Opportunity favors those who are prepared and know how to persevere. At this moment, somewhere in the world, some enterprises have already completed changes and are ready for challenges. More are in the midst of positive transformation. Next year, they will become models for us to learn from. We won't have to sit in meeting rooms and talk; we'll see their existence, feel their charm, and they'll lead the industry direction. Shenzhen Chengpu Henghe Information Technology Co., Ltd. will uphold the mission of creating integrated solutions for customers, not only from a technical level but more from an ideological level, with a craftsman's spirit, based on enterprises, to change the industry. Editor's PS: Chengpu Software CEO He Jianfeng will attend the 2017 (3rd) FMCG + Internet Conference held by New Distribution in Chongqing on November 8-9 as a keynote speaker, where he will share more pioneering insights. Interested friends should not miss this conference. **The 2017 (3rd) FMCG + Internet Conference** will be held in Chongqing in November 2017. The conference will closely focus on the theme "New Forces, New Ecology," inviting **1,000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions** to jointly explore a new chapter of cross-border integration! Click the links below to review the highlights of the first and second FMCG + Internet conferences: [2016 "FMCG + Internet" Summit Forum]() -END- --- ## Copyright and AI use This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL. Contact: zhaobo258@gmail.com · +86 158 5481 7671