New manufacturing and new consumption, at both ends, have evolved highly and even been completely reshaped over the past few years. New manufacturing emerged from technological advancement; new consumption emerged from internet empowerment. However, the transformation of the "channel" in between has rarely been mentioned for a long time. But for the FMCG industry, due to low value and high turnover characteristics, the channel is a very important part of business operations. Often, the efficiency of the channel determines the efficiency of business operations. In business operations, we can see that today, the degree of digitalization in communication is very high. Many companies have placed most of their communication budgets on digital media that can be directly measured and evaluated.
However, the channel, especially at the distribution level, has hardly seen major upgrades or iterations. This is due to both the complexity of the business environment involved in distribution and the company's own historical reasons.
Overall, the digitalization of traditional offline distribution channels has been slow.
In the past, the market environment was homogeneous, and business models were singular. Completing informatization and then effective organizational management was enough to achieve business expansion.
But now, China's market environment is undergoing earth-shaking changes, especially at the consumer front. In fact, the market has evolved from a single-dimensional, single-demand super-large market to gradually diversifying into multiple demands.
Facing diverse and changing consumer demands, the traditional single business model can no longer support future business development. To efficiently match the diverse and multi-dimensional market environment, the first step is to transform the distribution channel. Based on this, I believe every FMCG company must think about the digitalization of distribution channels, especially leading FMCG manufacturers. After completing basic market coverage and distribution, how to reshape, iterate, and optimize on this basis is a strategic topic that must be considered.
-01- Internal and external disconnection, and internal incompatibility, are the core symptoms
Today, let's talk about the digital revolution in FMCG channels. Many companies have started varying degrees of exploration and attempts; some are just planning, while more companies do not yet have a relatively complete approach.
The core of digital transformation in traditional offline distribution channels is to pursue maximum efficiency and cost optimization across the entire supply chain.
The key point here is: to ensure a balance between cost and efficiency at a single point, while also considering the division of labor, connection, and transaction efficiency among all members of the entire chain. This is the ultimate goal of traditional offline distribution channels: to find the best balance point for efficiency based on one's own business and category characteristics.
To renovate on the old city, you must understand the symptoms of the old city. What are they?
I think the core is two levels: First, internal and external disconnection; second, internal incompatibility.
First, internal and external disconnection is mainly manifested in downstream distributor partners. Looking at China's overall commercial circulation field, the informatization level of distributors is insufficient.
A large number of distributors use very low-level financial and warehousing informatization because their business models are relatively simple. Because business is simple, the motivation for informatization upgrades is insufficient.
Of course, some distributors have limited sales scale; once informatization is completed, they cannot bear the high compliance costs. On top of insufficient motivation, there is also the cost resistance of compliance operations, so most distributors will not proactively pursue informatization.
This is a disaster for FMCG companies. If companies cannot connect with distributors, they naturally cannot effectively see distributor inventory, and distributors do not know retail terminal inventory. The lack and pollution of data in the channel chain cannot provide effective decision support for the rapidly changing market environment.
Second, internal incompatibility is mainly manifested in insufficient information compatibility between business departments. A company might use Yonyou for finance, SAP for ERP, Oracle for databases, and Field 365 for SFA; such situations are everywhere.
These disconnections are partly the result of historical development and years of accumulation. On the other hand, they are also caused by internal interest relationships and the game between companies and partners.
These are the symptoms of the old city. Of course, solving these problems is not enough. Since digitalization is a strategic topic, future trends must be fully considered. Do not design a business digitalization strategy with a patch-the-holes mentality.
-02- Do not design channel digitalization with a patch-the-holes mentality
Therefore, channel digital transformation must not only address the old city symptoms but also plan for the future from the present. A digital strategy is not just about completing informatization upgrades, unification, and networking within the existing business framework.
It requires a comprehensive consideration of external consumer demands and market environment, the company's growth strategy, internal organizational structure, and partners' business models.
Taking external consumer demands and market environment as an example, companies must consider the future extensibility of their brand business. For instance, in the beer category, short-shelf-life and instant delivery will become mainstream. Under the background of diversified consumption, diversified product satisfaction is also an important factor.
Today, transaction scenarios have become extremely fragmented, and the number of transaction channels available to consumers has greatly increased. This forces companies to maintain a presence in all information that can reach consumers.
With massive and diverse internet information, consumer attention is diluted, and the boundary between corporate communication and sales is gradually blurring. This means companies must continuously interact and transact with users frequently during the communication process.
KOL live-streaming sales and e-commerce promotion days generate massive wave orders, bringing huge challenges and pressure to FMCG companies' supply chain management.
Offline, a large number of goods go through multiple turnovers, ending up in distributor warehouses and retail terminal shelves. Online business surges, but offline inventory cannot support online sales. A new set of handling and turnover logic incurs significant costs.
Returning to the topic of channel digitalization, the ideal state is that regardless of whether consumption occurs online or offline, the nearest goods satisfy the nearest consumption. The core lever is the various scenarios under the free combination of cognition, transaction, and delivery. Different scenarios can be supported by one effective supply chain organization system, rather than multiple supply chain systems.
-03- What are the basic requirements for an efficient supply chain system?
In my view, once the overall digital business logic is clear, there are three key strategies, which are also basic requirements, that must be addressed.
First, separation of logistics and business flow
In the past, logistics came first, then business flow; they were basically integrated. But now, often business flow comes first, then logistics, especially online.
The separation of logistics and business flow mainly refers to the separation of distributor logistics from business flow. Making logistics third-party and independent can directly bring two benefits:
- The merger of 2B and 2C logistics, route scheduling, greatly saves the logistics cost of 2C e-commerce at the end and improves delivery efficiency;
- The transparency of business flow within the channel greatly increases. Companies can understand and control inventory quantity and dynamics in the supply chain in real time, significantly improving production planning and order fulfillment rates.
Only the separation of business flow and logistics can fundamentally solve the efficiency problems of production, scheduling, and distribution.
Second, data authenticity and effective transactions
The starting point of data authenticity is online orders. The starting point of online orders is effective transactions.
By informatizing terminal outlets, using tools as carriers, and making transactions occur within the tools to achieve effective transactions, online orders can be realized. Finally, a one-stop B2B transaction system from company distribution to sub-distribution to small shops can be completed.
Of course, O2O business with small shops as carriers, whether community group buying or Meituan and Ele.me, can achieve connection and integration, realizing B2B2b2C and connecting the consumer end. Such data is more valuable.
Third, internal and external connectivity, and internal compatibility
Data connectivity not only serves production, scheduling, and distribution. Data brings process visibility, and then enables visual management from process to workflow.
People in management—departments, distributors, middle and grassroots managers, salespeople—can achieve maximum communication and execution efficiency in the process.
Finally, returning to the business operation level, the market is always changing rapidly. This change is not an overall market shift, but rather the complexity and independence of each region's business form and retail environment. How to deal with this "one place, one market"? I think the most appropriate way is, based on business digitalization, let the soldiers who hear the gunfire make decisions for the local market!
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