In 2016, B2B e-commerce was very hot, with Alibaba and JD.com entering the market one after another, and achieving some good results in 2016. Platforms everywhere were also developing vigorously. All B2B platforms wanted to improve efficiency by compressing the supply chain and eliminating middlemen. Today, the author will analyze in depth whether FMCG B2B can truly compress the supply chain and eliminate middlemen.
In the original supply chain, the chain from factory to consumer is: Factory → Distributor → Secondary Wholesaler (Wholesale Market) → Retail Store → Consumer.
The supply chain that B2B platforms want to achieve through technology is: Factory → Platform → Retail Store → Consumer. The platform aims to replace distributors, compress out secondary wholesalers, and use online mall transactions and offline intensive logistics to help enterprises achieve channel flattening and efficiency improvement.
Is this logic really valid?
Goods, from factory to consumer, need to solve two levels of problems: one is the physical level - commodity circulation, and the other is the information level - commodity communication.
In a sense, B2B only solves the improvement of commodity circulation efficiency: the platform uses technology to improve the efficiency of logistics, capital flow, and information flow, achieving overall circulation efficiency improvement.
But B2B does not solve the communication efficiency of goods in the channel. Commodity sales are not simply about passing product information to consumers. The efficiency of information transmission cannot change user consumption behavior; what determines user purchase is communication.
In the Internet era, although the efficiency of information transmission has increased, communication costs have not decreased. Fortune 500 companies have not cut advertising and channel promotion budgets because of the Internet.
Communication is about solving the problems of why small stores want to sell and why consumers want to buy.
In the traditional business model, manufacturers solve the communication problems at the channel level through customer relationships, credit sales, returns and exchanges, promotions, pricing, service, advertising, and merchandising. This is one of the core functions of traditional channel distributors.
When platforms cannot help enterprises solve the communication problems between products and channel distributors like channel distributors do, compressing the channel at the information level may be very difficult.
Why is the boundary at natural selling capability?
Because B2B cannot solve the communication problem.
Since B2B cannot compress links at the information level, can it do so at the logistics level?
Let's take an extreme example.
Bottled water is a category that is heavy, low in value, low in profit, and has very high logistics costs. On another level, the order density for bottled water is extremely high, but the average order value is not large, which places extremely high demands on delivery timeliness.
In the traditional distribution channel, manufacturers use a distribution model of off-season production and peak-season distribution. Before New Year's Day, the manufacturer uses the year's largest promotional policy to collect payment from terminals, secondary wholesalers, and distributors, and continuously stocks the channel from January to April: pressing inventory to distributors in January-February, to secondary wholesalers in February-March, and to terminals in March-April. In April-May, they focus on display, merchandising, and freezing.
Through this series of market operations, while completing the distribution of products from factory to terminal at the logistics level, it also helps enterprises solve four major problems:
Solving the problem of idle production lines in the off-season.
Solving the problem of insufficient production capacity in the peak season.
Solving the problem of enterprise capital turnover.
Solving the problem of market competition.
Manufacturers use off-season promotional policies to place goods as far forward as possible into the warehouses of secondary wholesalers closest to retail stores. Although this has more layers and more handling, the order quantity per order between layers is very large, so the cost per unit product is actually already very low.
Because secondary wholesalers are close enough to the point of sale, their last-mile delivery costs are also low enough.
In the logistics cost structure, the costs of handling and last-mile logistics are the highest. How do traditional manufacturers solve these two problems?
They produce continuously in the off-season and use promotional policies to ensure sufficient channel stocking profits. They encourage secondary wholesalers to buy in large quantities, even by the truckload. Goods go directly from the factory to the secondary wholesaler's warehouse, reducing handling times, achieving forward placement, and reducing last-mile logistics distance, thereby reducing costs.
Suppose we compress the intermediate links at this point, eliminate all distributors and secondary wholesalers, and directly use a central warehouse, from factory → central warehouse → terminal.
You will find that the platform cannot solve the factory's off-season and peak-season production and warehousing coordination problems, cannot solve the enterprise's production capital problems, and cannot solve the market competition problems.
Whether from the physical or information level, B2B may find it very difficult to flatten and eliminate middlemen in certain low-value, high-frequency categories.
In today's highly competitive market, any links that could be compressed have already been compressed. Any remaining links at this stage have corresponding value.
So if links cannot be compressed, does B2B have no value or significance?
What exists is reasonable. The above is just an extreme example.
Most categories do not have such stringent supply chain requirements. There are still many categories where links can be replaced and compressed.
Examples include snacks, stationery, paper products, condiments, grain and oil, fresh produce, etc. I won't list them all, but regardless of which category you choose to break through, to achieve replacement and compression, four prerequisites must be met:
Technology-driven, enabling significant improvement in the efficiency of logistics, capital flow, and information flow compared to traditional industries.
Sufficient traffic, reducing logistics costs significantly through warehouse consolidation and flow merging.
Upstream and downstream are sufficiently fragmented, enabling brand output through integration.
Achieve social division of labor.
Only when B2B fundamentally improves the efficiency of the entire chain can comprehensive transaction costs truly decrease, and only then is there a possibility to transform the industry.
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