Click the image for details 1. Why Trading Companies Are Experiencing Collective Panic Hardworking but lacking in pioneering and innovative spirit Our era has given us a mission to move forward, change, and grow, but our inherent limitations have constrained our development. For twenty years, we've stuck to our own small patch, content in our comfort zone, because no matter how fierce the competition outside, manufacturers only need a contract to give us three to five years of peace of mind. This big tree always shields us, providing excuses not to venture out, stifling our creativity, courage, and adventurous spirit. Manufacturers have precisely calculated the profit margins at every channel level, making them as unappealing as chicken ribs—tasteless but hard to discard. People in trading companies often call themselves model workers, and rightly so, but they can never be called pioneers or innovators. Regional protection prevents access to broader markets In the past twenty years, when business was good and money was being made, the inability to expand beyond regional markets left large amounts of capital with nowhere to go, often being donated to real estate and finance. Even those trading companies that avoided real estate and finance diversified and achieved impressive results in other industries. Of course, some might say trading companies can grow big, citing examples like Huabin Group and COFCO. This is exactly what we'll discuss later: different genes determine different levels of achievement. So, it's not that the times and market have changed; we all realize we need to change and know the direction, but we're powerless to change ourselves. That's 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 of trading companies typically earn only 5,000–8,000 yuan, and apart from the boss and his wife, the industry attracts almost no talent. Talent has become the biggest bottleneck, and talent tends to cluster. 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, bring in talent, IT systems, modern management thinking, introduce new products, cultivate the local market, and boldly expand outward to capture larger markets. Why not start changing ourselves instead of always looking at Ma Yun, Liu Qiangdong, 7-11, or B2B? They're worth learning from but not imitating. I believe some trading companies have already started changing, and they're still doing well and will do even better in the future. They'll eat into 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, but change comes suddenly The trading industry has existed for thousands of years, and historically, the agency system and forms haven't changed much. The industry has low barriers, intense competition, and complex products and channels. Without supply chain thinking, internet, and IT intervention, the industry and companies can't upgrade. When a brand is small, it's willing to work with provincial distributors. Why, as it grows, does it want to eliminate provincial distributors and control the channel itself? Increasing layers and management costs, and adding process complexity to capture the market, goes against market laws and only reduces competitiveness. So manufacturers aren't unwilling to let distributors manage larger markets and more customers; in fact, 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 can't meet manufacturers' expansion needs, forcing manufacturers to do everything themselves. We often see manufacturers drop a city-level distributor and develop one client in each county, only to find these small clients are less effective than one big one, so they come back to negotiate with the city-level distributor and take back all county-level agency rights. After decades of cooperation with brands, if you don't understand their real pain and can't share their burdens, why keep you? 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 retailers give us an easy time? Would they dare cooperate with such a channel? Retailers building their own warehousing and distribution is both capital-intensive and highly complex. Do you think, when they're already struggling with store management, they'd want to take on such a thankless task? It's only because no local supplier can meet their needs that they're forced to do it themselves. Consider two local retail chains: one handles all processes internally; the other outsources logistics and products (assuming the outsourcer's capabilities meet needs) and focuses solely on studying consumer demands. Which would be more competitive? Studying market changes and improving our own capabilities is what we should do. Getting into retail chains or platforms is being irresponsible and disrespecting our hard-earned achievements—it's like playing tricks. 2. 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 demands have also changed dramatically.
  3. Our competitors have changed qualitatively; it's no longer just peer competition:

A: Other trading companies still exist, and competition is fiercer.

B: Online impacts from Alibaba, JD, etc.

C: B2B impacts represented by Lingshoutong and Xin Tonglu, including Zhongshang Huimin, Yi Jiu Pi, etc.

D: The biggest threat is the widespread emergence of terminal chains, which have increased bargaining power, transforming from a weak group into a strong organization. Colleagues often joke that distributors are like Oreos—the cream filling—but while the cookies on both sides keep thickening, the filling remains pitifully thin. This is abnormal and distorted development, and the market's invisible hand has already begun to adjust.

Looking at these four major 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 transitioned from the trading field, but they've become mountains standing before us. 3. Are Trading Companies Suitable for Transformation? 1. Upstream manufacturing: Difficulty index ☆☆☆☆. It's a more difficult and complex industry 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 aspiration and forge ahead to achieve success. 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 popularity, most trading companies still don't understand what B2B is for, yet they rush in and sacrifice themselves. B2B's essence is connection, a tool to solve information asymmetry and fragmentation. 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 cover over 80% of the market. Solving the so-called asymmetry is about the macro environment—the asymmetry between Sichuan and Northeast, not between the east side of town and the commercial city. Moreover, if you put Master Kong black tea on a B2B platform, it definitely won't beat local distributors, especially since the platform 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 ☆☆☆. This is 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 reason is that the timing isn't mature, and trading companies lack professionalism in third-party logistics, leading to temporary downturn. I'll omit N other transformation methods. Transformation, in plain terms, means this industry isn't working out, I'm done, I admit I'm a loser in this industry, and I've completely failed. But I want to clarify that 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 in another. We're not talking about transformation, but upgrading: This is written only for trading companies that still believe in the industry, stay true to their original aspiration, and forge ahead. Changing the industry requires countless companies with a craftsman's spirit to work together. Problems we face ourselves In terms of scale, sales from 20 million to 300 million cover almost 98% of regional trading companies nationwide. Note the word "regional"—this is the ceiling I mentioned in point one, 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 through to 100 million and reach 300 million have mostly already expanded outward 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 ceiling: in small places, 100 million is the cap; in big places, 300 million makes you the leader. 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 it? If not, why? 2: Is your inventory accurate? 3: Can orders be delivered on time? 4: Is your finance in chaos? 5: Is internal communication smooth? What methods and tools do you rely on? 6: Can data be recorded and analyzed, or is performance appraisal aimless? 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 operations be executed according to plan? 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 professional army can be applied to our trading companies. But if we don't solve these problems, where will our hope come from? I see many companies learning to hold morning meetings and shout slogans. I'd ask: how many companies have solved the above problems by shouting slogans? To avoid getting 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 a good athlete, strengthen every muscle and blood vessel. Any company, in essence, is about three things: develop a good product, sell it in a reasonable way. We can't just talk nonsense; how to achieve this? Here's the practical stuff: Solution Example (limited content, can't elaborate fully): Take the finance department of a trading company: The biggest workload is the daily settlement with drivers for collections and clearing documents, taking up over 60% of working time. Solution: 1: If the finance department knows the amount to be collected before the driver returns, the warehouse knows about returns, and the driver knows in advance how much to pay finance and how much to return to the warehouse; 2: Receivables, partial collections, 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 you can predict how many times their handover efficiency will increase. This not only shows efficiency improvement but also demonstrates 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 company boss is a marketing master and good at market development. Since adopting order-taking systems, they feel business problems are basically solved. But little do they know that the problems sales faces aren't about a difficult market but more about internal difficulties created by the company itself. I'm on the front lines, but a bunch of things are holding me back, like inaccurate inventory (linked to 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 issues 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. Solution: 1: Inventory accuracy needs to be above 99.9%; 2: Delivery adopts a contract system; 3: Expenses are signed electronically, and the verification system automatically generates orders; executing departments automatically receive corresponding information. If not completed or stuck at a node, the system will keep reminding until completion; 4: Product batches can be queried 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 in a trading company. Is it to reduce inventory for cost or increase inventory 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 a formality. 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 bigger the company, the messier the inventory. Solution:

  1. Inventory accuracy above 99.9%;
  2. Automatic safety stock alerts;
  3. Procurement plans are automatically generated based on inventory and sales data, with human judgment intervention;
  4. Various reports include: turnover rate report; single-product profit report; input parameters for product complexity calculation, push, and automatic elimination; new product sales statistics; inventory batch distribution table; product arrival time table, etc.;
  5. Automate tedious tasks with one click, freeing up time and energy for core work like sourcing and organization; Now let's look at warehousing and logistics: Receiving: Recording A as B, or 100 pieces as 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 demand, came up with a bad idea: supporting negative inventory orders. The boss thinks, as long as we can sell, why bother with details? Picking: Walking around the warehouse with an order, grabbing anything that looks like the item, not caring about new or old dates. If you can't find it, you cancel the order. No one is held accountable for order 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: Delivery data can't be tracked, so reasonable assessments are impossible, and motivation is very low. Every morning, there's haggling with supervisors over route planning and task assignment, and they can't leave until 10:30. When handing over to customers, customers don't trust the accuracy of delivery personnel, demanding each bag and box be counted on the spot. A single handover can take 10 minutes fast, 30 minutes slow. After delivery, if goods are missing from the truck, 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 get by. Handovers with warehouse and finance are time-consuming and laborious. Solution: 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-based billing management; data transmission management; you need a WMS that suits your needs. If managing regular, pre-packaged, ambient, long-shelf-life products is already challenging, how do you 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 in the game. All changes are variations on the same theme. Having said all this, these are hard truths, but no one is to blame; everyone has tried 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 will ask, "So if I get a good software system, will it solve all my problems?" I'll tell you, no. Take SAP, a globally renowned ERP software company, for example. Quotes often run into millions or tens of millions, with exorbitant prices and sky-high maintenance costs. Domestic software companies offer more affordable prices, from a few hundred to tens of thousands of yuan, 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 worse. The software industry and the physical industry come together—one willing to sell, the other willing to buy. There are also decent software options priced at 300,000–500,000 yuan. Others use them smoothly, and you go to learn and visit, thinking buying it will make you just as good. But you forget that without changing your own company's soil, the orange becomes a trifoliate orange when transplanted. Trading companies have reached where they are today. 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 respectable companies: 1. Change your thinking, improve management, and prepare for the next change. Understand the importance of supply chain thinking in enterprise management, and understand what planning and collaboration mean. It's not that the market is too cruel; it's that we're not strong enough. Don't just see the winners when playing cards, or only see the failures when working. 2. IT technology must be involved 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. Recently, I read Teacher Zhao Bo's survey report on the distribution industry: 80% of trading companies plan to transform. This is great news, and I agree with the report. Reasons:
  • From the upstream perspective, manufacturing is also reshuffling; 80% of small enterprises will disappear, naturally dragging down 80% of small distributors;
  • In the market, 80% of distributors are mom-and-pop shops. It's best for them to exit early, so the remaining 20% can live better, sell more, earn higher profits, and invest more in product development, market investment, and internal process improvement;
  • If a city can truly have only 20 distributors left, and companies grow, then third-party logistics, B2B platforms, and integrated IT solutions will all have a role to play.
  • Once third-party logistics rises, B2B platforms play their tool role, and internal IT process integration is complete, 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 managing tens of thousands—but also create new profit points.
  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;
  2. If B2B platforms are used well, we can consign others' products, increasing aggregation effects;
  3. With sound internal management, we can extend agency scope to fresh, cold chain, cooked food, short-shelf-life, and processed goods, capturing higher-end categories;
  4. Expand beyond the local region to the whole country or even globally, developing larger markets;
    1. As companies and the industry improve, supply chain finance will emerge. Capital won't 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 company to ask for money. Auto loans are an example of industry maturity. Third-party logistics companies will also be willing to act as guarantors and supervisors of goods pledges for finance companies. Supply chain finance can't avoid third-party logistics participation because only third-party logistics, standing from a neutral position, can provide accurate data and control the flow of goods and funds;
    1. 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. No matter how big a retailer is, its main suppliers are still distributors. These are two different fields—midstream and downstream. If possible, it's recommended not to cross over, 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, while regular categories are sourced directly from local distributors, who deliver to stores and handle warehousing and distribution. This reduces the logistics burden on retail chains, and distributors gain traffic and profits. These are all possibilities worth exploring. When discussing change, many companies fall into a trap of hoping for a quick fix, like thinking that implementing ERP will solve their process management problems. But here's a key point: Enterprise processes are 30% about the ERP system and 70% about the company's own understanding of processes. As for B2B, they think having a platform will skyrocket sales, integrate sales, and force manufacturers to comply instantly. But in reality, platform success requires massive product resources, strong service support, online traffic, brand influence, terminal management control, big data analysis, IT technology, etc. Wanting to do B2B isn't your fault, and not being able to due to limited strength isn't B2B's fault either. You need to find a transformation method that suits you. This transformation is destined to belong only to a few victors. The 80% preparing to transform should hurry, because time is running out in other industries too. The remaining 20% who stay should focus on self-improvement, conserve strength, and watch the changes unfold. Opportunity favors those who are prepared and know how to persevere. At this moment, somewhere in the world, some companies have already completed their transformation and are ready for challenges. More companies are in the midst of positive metamorphosis. Next year, they'll become models for everyone to learn from. We'll no longer just talk in meeting rooms; we'll see their existence, feel their charm, and lead the industry direction. Author: He Jianfeng, CEO of Chengnu Henghe New Distribution will hold the 2019 (5th) FMCG + Internet Conference during the Chengdu Spring Sugar and Wine Fair from March 16-18. This conference will focus on the theme "Breaking the Deadlock" , with in-depth discussions involving brand owners, supply chain service providers, distributors, and retailers. Compared to previous conferences, this summit will be fully upgraded. In addition to original topics like channel innovation, city distribution logistics, and distributor transformation , we've added multiple parallel forums on new marketing cases, IP + FMCG empowerment, community group buying, and innovative retail . Through three days of ten high-density, high-quality expert sharing sessions, we believe every brand owner and distributor can learn the latest business models, expert insights, and practical methods, finding new tools and approaches to break the deadlock in 2019 and return to high-speed growth. -END-