---
title: "Distributors: Differences Between Traditional Warehouse and Distribution and Digital Warehouse and Distribution"
description: "At the 2018 China FMCG City Distribution Logistics Conference hosted by New Distribution on October 24, 2018, Xu Yonggang, CEO of Madeline, delivered a keynote speech on the differences between traditional and digital warehouse and distribution. He emphasized that while traditional warehousing meets the needs of the industrial age, digital warehousing addresses consumers' demands for freshness and efficiency in the internet era."
author: "徐永刚"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-11-04"
language: "en"
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# Distributors: Differences Between Traditional Warehouse and Distribution and Digital Warehouse and Distribution

> At the 2018 China FMCG City Distribution Logistics Conference hosted by New Distribution on October 24, 2018, Xu Yonggang, CEO of Madeline, delivered a keynote speech on the differences between traditional and digital warehouse and distribution. He emphasized that while traditional warehousing meets the needs of the industrial age, digital warehousing addresses consumers' demands for freshness and efficiency in the internet era.

**New Distribution Note:** On October 24, 2018, at the "2018 China FMCG City Distribution Logistics Conference" hosted by New Distribution, Xu Yonggang, CEO of Madeline, gave a keynote speech on "**Differences Between Traditional Warehouse and Distribution and Digital Warehouse and Distribution**".
Today's main content is about the differences between traditional and digital warehouse and distribution for distributors.
On the surface, traditional and digital warehousing represent technological upgrades, but in reality, **traditional warehousing primarily meets the needs of commodity preservation and circulation in the industrial age, while in today's internet era, digital warehousing meets consumers' needs for freshness and efficiency.** Distributors present here, to sustain your business, you must prioritize warehousing and distribution.
**Characteristics of Digital vs. Traditional Warehousing**
**Traditional warehousing has three characteristics: low cost, low efficiency, and rough management.**
Most people agree with the last six characters, but some distributors disagree with "low cost." They argue that over a decade of warehousing, costs haven't decreased but have risen. This is from the distributor's perspective, comparing last year and the year before; costs are indeed increasing. However, from a national industry perspective, why is it said that distributors' costs are low? Because distributors don't need high-end warehouses; they can rent cheaper, more remote, or simpler spaces as long as they can store goods and protect them from the elements.
**Digital warehousing has three characteristics: low cost, high efficiency, and detailed management.**
The initial investment for digital warehousing is relatively high, including systems and warehouse hardware. But from another dimension, when all nodes are connected and efficiency improves, it can handle more volume, reducing overall costs.
Which is higher: traditional or digital warehousing costs? So far, it's hard to conclude; the underlying costs are similar. Since costs are similar, digital warehousing is far more efficient than traditional.
**For leading distributors in each city, today's transformation isn't for survival today; traditional business with current management models is sufficient. Upgrading warehousing digitally is more about seizing tomorrow's opportunities. Traditional warehousing isn't dying; it can still support existing trade, but it's hard to capture new opportunities.**
Era changes are always about cost and efficiency. When distributors transform, no matter how, efficiency is key. Only with high efficiency and low cost will the world not abandon you; your existence has value. If efficiency is slow and costs high, you're a social appendage; today's success doesn't guarantee tomorrow's.
Digital warehousing isn't just a technological shift; it's a transformation of the warehousing industry. Only when distributors build efficient warehousing without significantly increasing costs can they achieve various transformations, such as "digital warehousing + one-stop ordering," "digital warehousing + two deliveries a day," or "digital warehousing + shared warehousing and distribution."
Transforming distributors, especially leading ones, should adopt new methods for warehousing rather than relying on old manpower tactics. For example, doing 30 million in business with 10 people, and 60 million with 18-20 people, is the old way. What does transformation mean? Ten people doing 50 million, or even 200 million, with higher efficiency.
For transformation, distributors can "build from the bottom up": improve warehouse picking efficiency and logistics delivery efficiency, invite peer distributors to observe how you manage and your costs, then gradually take over their warehousing. Once a certain scale is reached, spin off the warehousing. This is a stable, risk-free approach; a solid warehousing foundation greatly benefits existing business.
When distributors achieve high warehousing efficiency, they can partner with national B2B platforms. For these platforms to land and go deep, building local warehouses poses cost and expansion speed issues; platform warehousing costs are higher than distributors'. So platforms focus on models, while distributors rooted locally can seamlessly connect with B2B platforms.
Digitalizing warehousing also enables new retail integration. The essence of new retail is transforming traditional retail entities, with logistics characterized by "faster delivery without significantly increasing costs."
Over the past five years, the external environment has changed—O2O, B2B, community group buying—but all revolve around the core: warehousing and distribution. Traditional distributors transforming "from inside (warehousing) to outside (trading)" is, I believe, the most solid approach.
**Amazon founder Bezos once said, "The world is changing, but our strategy must be built on something that doesn't change." Distributors should calmly think: what is constant? I believe it's warehousing and distribution.**
The short-term goal of digital warehousing is cost reduction and efficiency improvement; the long-term goal is to strengthen the "moat." Currently, distributors have two opportunities: **one is to deepen existing business, improve efficiency, and let competitors fall first; when one falls, their market share is released and redistributed. The second is to integrate new species, and the third is to proactively transform into new species. But the prerequisite for these is: is your "moat" valuable?**
This is our understanding of the differences between traditional and digital warehousing.
**How to Implement Digital Warehousing?**
At a macro level, reconstruct the "people, place, goods" within the warehouse. First, people: in traditional warehouses, it's "people looking for tasks," like taxis where drivers search for passengers; drivers are warehouse staff, passengers are tasks. What does "tasks finding people" mean? Like Didi, where passengers are pushed to drivers directly—tasks are pushed and executed immediately. Why are there so many people in traditional warehouses? Besides non-standard processes, each person's workload is unsaturated; they work when busy and rest when idle. Can digitalization fully utilize fragmented time? Second, "place": warehouse hardware—can it shift from flat to vertical storage? Not necessarily high racks, but a vertical mindset. Third, "goods": goods are typically stored by brand, but efficient operations optimize by frequency. This is the core of people, place, and goods, with three "reconstructions": **process reconstruction, system reconstruction, and management reconstruction.**
**In my view, any business model change must be validated by two criteria: "cost and efficiency." Testing whether a distributor can survive longer, sustain, and remain competitive comes down to cost and efficiency.**
**Case Study:** A traditional distributor in 2016 dealt in leisure food for restaurants, with a 4,000-square-meter warehouse, 200 daily orders, 2,500 SKUs, 60% broken-case picking, daily delivery of 200,000 to 300,000, 17 warehouse pickers, 3 put-away staff, 3 re-checkers, and annual sales of 100 million. For traditional distributors, 80 million to 100 million is a threshold. In 2018, warehouse area and fixed costs remained unchanged, but SKUs increased, and broken-case picking grew—a core competency for distributors. Behind new retail, broken-case picking will gradually increase, so this skill must be honed. Through digitalization, daily delivery reached 500,000 to 750,000 (data from three months ago), and by October it exceeded 800,000 daily. Sales are rising while headcount decreases; warehouse area is unchanged, but sales have improved. This leisure food transformation has now surpassed 200 million. They're also connecting with national B2B platforms, and several major platforms now outsource their broken-case picking to them.
Distributors must "get stronger first, then bigger," especially leading distributors. What is a win-win partnership? Only when you're strong will others partner with you; if you're weak and they're strong, why would they connect?
Click **Read Original** to see more highlights from the 2018 China FMCG City Distribution Logistics Conference...
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