First, a piece of news:
On August 18, Alibaba Retail Link held the opening ceremony for its first fulfillment center in Yiwu, Zhejiang, marking a new breakthrough in its integrated warehousing and distribution operations, accelerated delivery efficiency, and enhanced capabilities to serve brand owners and small stores.
The Retail Link fulfillment center integrates product resources from brand owners upstream, and downstream selects quality distributors and mail-order distributors by street, empowering small and medium distributors through systems and data to transform into co-distribution service providers within small areas. It uses the lowest cost, highest efficiency, and most transparent full-chain data to connect factory warehouses with small store shelves.
According to Retail Link, the fulfillment center covers a radius of approximately 30 kilometers, mainly targeting small cities. Through fulfillment centers, the industry can save over 80% of warehousing and distribution resource investment, improve product and data flow efficiency by over 200%, and reduce redundant investment and resource consumption in supply chain construction.
Lin Xiaohai, Vice President of Alibaba Group and General Manager of Retail Link, stated that the fulfillment center is a key node in Retail Link's growth and success. Next, Retail Link will deploy fulfillment centers in over 2,000 cities nationwide, effectively complementing regional warehouses. "Currently, Retail Link has deployed over 20 warehousing centers nationwide. Fulfillment centers can complement these regional warehouses well, integrating quality products with tens of thousands of SKUs, and through compatible, rich, professional, intelligent, and warm advantages and technologies, make business easier and small stores more profitable!"
I. Why is Alibaba Retail Link building fulfillment centers? 1. First, explain the concept of a fulfillment center: A fulfillment center, as the name suggests, is the warehousing and logistics facility closest to stores within an enterprise's internal warehousing and logistics system. In Retail Link's warehousing strategy, the entire logistics system is a three-tier logistics system, including regional warehouses, city warehouses, and fulfillment centers. See the diagram below: After brand owners deliver products to regional warehouses, Cainiao Logistics manages them uniformly. When a small store places an order on the platform, the system sorts the products at the central warehouse based on instructions and distributes them to regional city warehouses or third-party distribution centers, and finally, local partners deliver them.
2. Why does Retail Link build fulfillment centers? Initially, Retail Link's warehousing and logistics strategy did not include the concept of fulfillment centers. From a logistics perspective, the more centralized the products, the higher the inventory turnover rate, the fewer the layers, the fewer the handling times, and the lower the cost. For Cainiao Logistics, which places high importance on efficiency, it would be impossible to tolerate the existence of multi-level warehousing and distributed inventory storage, as this goes against logistics efficiency. However, for certain categories such as water and beverages, the delivery radius from city warehouses to retail terminals is too long, and logistics costs remain high. Without fulfillment centers, central warehouses are extremely uneconomical. Comprehensive consideration: some low-value, high-frequency heavy goods must be delivered through localized fulfillment centers. This is the origin of fulfillment centers. It should be noted that Retail Link's three types of warehouses are parallel, not progressive. Different products enter different warehouses based on multiple dimensions such as turnover rate, cost, frequency, and delivery time. For example, some high-margin, high-value, low-frequency products, or new products, may be placed in regional warehouses; some snack foods may be placed in city warehouses; and water and beverages may be placed in fulfillment centers. Of course, this is not fixed; products are fluid and move in advance based on Cainiao Logistics' big data support.
3. What are the advantages of fulfillment centers?
The author previously mentioned the concept of fulfillment centers in an earlier article, based on the perspective of product supply chain organization and delivery speed. See the diagram below:
Currently, all single-model platforms in China have some structural defects in warehousing and operational model design.
As mentioned above, self-operated platforms have limited SKU numbers but fast delivery and good service. A-category products can be listed, but they cannot meet the long-tail needs of small stores. However, if the self-operated model introduces a platform model, allowing third-party merchants to join, i.e., self-operated + platform model, the product mix problem can be well solved from a model perspective.
In terms of warehousing and distribution, fulfillment centers handle high-frequency, frontline, seasonal, and high-turnover products, while central warehouses handle long-tail, low-frequency, and seasonal products. Through the combination of central warehouses and fulfillment centers, an effective combination of high turnover and long-tail products is achieved, thus balancing overall warehousing costs and turnover efficiency.
From a model perspective combined with warehousing and distribution, central warehouses do platform matching to maximize product richness, while fulfillment centers do self-operated operations to ensure A-category products are listed through self-operated procurement.
In terms of timeliness and price ratio, fulfillment centers are close enough to ensure timely delivery of high-frequency products to small stores. Although central warehouses have longer delivery cycles than fulfillment centers, they can compensate for longer delivery cycles through price advantages.
Summary: Retail Link's fulfillment center model completely fills the logistics gap. Through the three-tier warehousing combination, it perfectly solves the balance requirements between turnover rate, delivery time, and cost for different products. It can be said that Retail Link has made up for its logistics shortcomings. If the fulfillment center model is fully established and logistics is no longer a weakness, Retail Link's platform advantages will immediately emerge. Its brand influence, technical capabilities, supply chain organization capabilities, and financial capabilities, combined with overall supply chain efficiency, will completely reshape China's FMCG distribution channel model!
Regarding Retail Link's warehouse construction, Chen Yong, Deputy General Manager of Operations at Xingliyuan Commodity Circulation Services (Shenzhen) Co., Ltd., believes:
From Retail Link's warehouse construction in various places to the emergence of fulfillment centers, it is not only a progress in model but also represents growth in several aspects:
Product absorption capability: Whether self-operated or integrated, Retail Link is increasingly incorporating products into its controllable supply chain channels;
Coverage area: Regardless of how fierce the battlefield is, Retail Link's regional coverage is expanding, and its position in various local battles is becoming more prominent;
Partner participation: With the continuous evolution of Retail Link's market policies, its partners have significantly increased.
End customer volume: The current Retail Link is not only expanding its coverage to the first-tier camp but also increasingly influential in local markets.
The growth in these aspects collectively represents the emergence of scale. And the scale effect of B2B is even more needed than that of 2C.
Retail Link's fulfillment center has landed, but Retail Link still cannot be sure of victory:
On one hand, the coordination effect between fulfillment centers and various partners still needs to be tested, including coverage radius and the coordination between fulfillment centers and regional warehouses, which are new topics in the new stage.
On the other hand, the market is still cruel. Its goal of fulfillment centers in over 2,000 cities is similar to JD.com's million convenience stores, and its progress needs further attention.
Additionally, Alibaba Retail Link's DNA lies in e-commerce, which is both an advantage and a weakness. Its subsequent development speed depends on its learning and growth speed in offline logistics and supply chain capabilities and channel integration capabilities.
II. What does the integration of Retail Link's logistics system mean? In Retail Link's communication, Retail Link does not aim to eliminate distributors but to "empower" small and medium distributors through systems and data. As a distributor, you can choose to join the Retail Link platform and hand over products to Retail Link for distribution, or you can cooperate with Retail Link to become a co-distribution service provider in a small local area. The core idea of this empowerment is to use the lowest cost, highest efficiency, and most transparent full-chain link to connect factory warehouses with small store shelves. This means that whether brand owners or distributors cooperate with Retail Link, they will need to "restructure" their original business models. Most functions that distributors originally carried can be replaced by Retail Link in "better" and "more efficient" ways, helping small and medium brand owners and distributors complete product distribution functions. For those small and medium brands (Taobao brands) that originally had no offline channels, in addition to distributors, there will be more channel models to choose from in the future. Moreover, because there is no offline inventory conflict, they can completely rely on B2B platforms like Alibaba and JD.com for distribution, without needing to rebuild channels themselves.
III. With all domestic B2B commerce flowing downward, how much market opportunity remains? According to incomplete statistics from New Distribution, in cities above third-tier, there are generally no fewer than 10 B2B platforms per city, and they all have different distribution strategies in business models. At this stage, the B2B platforms with self-operated models have the greatest impact on distributors. From a market segmentation perspective, provincial capitals have a greater impact on secondary wholesalers. In southern cities like Guangzhou and Shenzhen, secondary wholesalers are almost completely driven out by B2B platforms! In third-tier cities, there is a combination of giant platforms and local platforms penetrating the market, and this is just beginning. Undoubtedly, the space for distributors to expand in the future is shrinking. The rise of B2B is actually a positive for brand owners because with more precise and efficient distribution models, they can produce products that better meet market demand and satisfy personalized user requirements, without worrying about distribution efficiency and channel costs for niche products. However, for distributors, this is something to weigh. At this stage, the impact of self-operated platforms and cooperation with matching platforms cannot fundamentally threaten the existing survival of distributors. But in the future, as more and more brand owners cooperate with e-commerce platforms like Retail Link, the good products available to distributors will become fewer and fewer. Moreover, as B2B platforms have more and more franchised stores, distributors will find that in the future there will be fewer stores to serve and fewer good products to sell. B2B's penetration speed into the industry is too fast. During New Distribution's market research in Jinan, we found that B2B coverage has reached an astonishing 78%! In some areas of Guangzhou city, B2B penetration of retail stores has also reached over 60%! Although many distributors still do not feel it at this stage, it is believed that once penetration reaches a critical point, the B2B explosion will be a matter of time.
IV. Facing future uncertainty, how should distributors break through and transform? China's FMCG industry is currently undergoing structural changes. Changes in consumers have left all manufacturers at a loss. The huge existing market cannot be abandoned by any brand owner with a scale exceeding one billion, and distributors are still the best channel for brand owners to distribute products at this stage. Therefore, doing the current business well is the first thing to ensure. While doing the current business well, distributors should also consider future transformation and change. But how to change in the future is something no one can accurately predict. However, the general direction will not change. The author believes that the overall direction in the future must be: technology-driven + specialization (modularization) division of labor. What role will distributors play in the future overall social division of labor? Warehousing and logistics? Or focus on market services? Retail? Or truly embrace the Internet? In October, New Distribution will hold the 3rd (CFIC) China FMCG + Internet Conference in Chongqing. At this conference, we will invite industry experts to discuss where distributors should go in the face of the rise of FMCG B2B and how to build a new ecosystem for China's FMCG channels. At this conference, New Distribution will invite 1,000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions to discuss:
How the FMCG industry can leverage B2B to achieve new growth opportunities
How to build the new supply chain behind new retail
How same-city logistics can help B2B achieve leapfrog development Highlights of this conference: The industry's first "2017 China FMCG B2B Industry Competitiveness White Paper"
B2B and investor project closed-door matchmaking meeting
Conference site + exhibition center, dual internet technology exhibitions
Alibaba, Etern, Best Store Plus, GLP, Unilever, Hdware, and other well-known enterprise leaders from various fields will give on-site speeches and share pioneering views. October 17-18, 2017 Chongqing Convention and Exhibition Center Registration is now open. Long press the QR code below or click "Read Original" to register. Early bird tickets before September 15 enjoy a 30% discount! Add friend with note "Conference Registration" -END-