Guide:
- Why did former Facebook and Google executives return to China to start a business, targeting the FMCG warehouse and distribution field?
- If it cannot save money for distributors, what is the real value of unified warehousing and distribution?
- What should distributors pay attention to when transforming into unified warehousing and distribution?
Rising labor and material costs have further squeezed the already thin profits of the traditional distribution industry. In this context, more and more traditional distributors are putting transformation on their development agenda. Among the many transformation paths for distributors, unified warehousing and distribution is undoubtedly the most special one, because transforming into unified warehousing and distribution means that distributors have to give up their long-established agency business and focus solely on warehousing and distribution services. For distributors, this undoubtedly enters an unfamiliar no-man's land.
In the absence of successful transformation experience to draw on, how should unified warehousing and distribution be done? How can new business growth be achieved through cooperation with third-party warehousing and distribution companies? These are questions that distributors must consider. Recently, New Distribution exclusively interviewed Max, founder of Zhoupu Data, to see how this entrepreneur with a background in world-renowned internet companies views the traditional FMCG distribution business.
The following content is compiled from the interview video transcript. For the sake of fluency and readability, the content has been slightly abridged. For the full interview, please watch the complete video.
1. You previously worked at Microsoft, Facebook, and other globally renowned internet companies. Why did you return to China to start a business, and why did you choose the FMCG warehouse and distribution field?
My previous work experience at Facebook and Microsoft was mainly related to technology and big data. Until 2013, I was still on the front lines of technology. From 2013 to 2016, I transitioned to technical management, but still focused on big data. Later, I gradually came into contact with B2B clients, using big data and technology to empower small and medium-sized clients. This was quite inspiring for me and made me see opportunities in the B2B market.
The efficiency of supply chain operations in China is generally not high, and it is full of small and medium-sized enterprises, which we call distributors or channel partners. At that time, I thought, can we use technology and data empowerment to help them improve efficiency? That was our starting point.
Because I had done similar things, I had a strong impulse to try it. Around 2015, there happened to be a wave of de-intermediation in China. The whole industry thought that distributors should be revolutionized. This also made more people think: is there another path that can help some distributors improve efficiency and complete their transformation, rather than simply improving efficiency through revolution? This is why I was willing to return to China to do this, despite having worked at Facebook.
2. How do you view the traditional distributor group? How has their living environment changed?
In the traditional distribution channel, distributors undertake many important functions, such as sales, capital pooling, warehousing and logistics. It is difficult for any distributor to achieve intensive operation or become particularly large. A distributor represents three to five brands, and at most a dozen or so, which leads to their overall small scale and too many tasks.
However, it is certain that capabilities such as brand operation, customer relationship maintenance, and shelf space competition will still be needed for a long time. This requires a division of labor at the technical level, letting professionals do professional work. For example, capital advances can be achieved through supply chain finance, and warehousing and logistics can be optimized through third-party intensive fulfillment. This allows traditional distributors to focus more on market sales. This is the inspiration we drew from comparing developed countries with our current market situation. Moreover, we believe that the vitality of the distributor group is stronger than we previously thought.
On the one hand, the social division of labor in Europe and the United States shows us that only specialization can improve social operational efficiency. On the other hand, our entire social environment has also undergone tremendous changes. We used to operate extensively; you could make money by producing almost anything. That was the era driven by consumption. Now that society has developed to its current stage, the entire industry chain faces the issue of efficiency improvement. You cannot simply expand scale by adding labor. Extensive operation has become a bottleneck, especially in the traditional distribution industry. In many places, the demographic dividend has disappeared, and the way of gaining growth by increasing manpower is no longer sustainable.
4. For the future development of distributors, do you think they should first achieve scale and then use technology to achieve intensification, or should they first intensify and then gradually expand scale?
Many people think that Walmart first achieved scale and then optimized its information system based on that scale. In fact, the two are complementary. The same applies to Chinese distributors. Currently, we see some leading distributors with considerable business scale, with sales in the hundreds of millions, but their informatization level is very low. If they want to grow from 100 million to 1 billion, they will encounter obvious bottlenecks in most areas.
Without a certain level of informatization, it is difficult to grow the business further. Without a certain social division of labor, doing everything and managing everything, with 70% of time wasted on warehousing, makes it hard to focus energy on expanding sales scale. Therefore, tools, social division of labor, and informatization are necessary means for these distributors to expand their scale.
5. What stage is Zhoupu currently at? What pilots have you conducted, and what were the results?
We started our business in early 2016. Initially, we provided distributors with a comprehensive information system called Cloud Manager, which covers the entire operation of distributors' people, goods, and places, including procurement, marketing, sales, inventory, attendance, customer management, performance appraisal, etc. It contains a lot of data and data reports that can be easily pushed to traditional distributor bosses. Even while chatting and drinking tea, they can see their operations and abnormal analysis of various situations on their phones, greatly improving management efficiency and making daily operations more efficient. This is what we are currently doing, and our business has begun to be promoted nationwide. Most of our business comes from customer referrals.
In addition, we have built a unified warehousing and distribution business on this basis. When many distributors in a region use our system, we can aggregate all orders and then perform centralized fulfillment, improving the efficiency of the entire commodity circulation. When we perform centralized fulfillment, our full-load rate is 2-3 times that of traditional distributors, effectively reducing costs. Most importantly, we free up distributors' energy, allowing them to focus on market expansion and service. Since February 2017, we have been piloting in Lianyungang, and we now have 4 warehouses with a total area of 60,000 square meters.
Moreover, after aggregating orders, we can also provide stores with a Store Manager service, an electronic ledger based on a mini-program. Through Cloud Manager, we can know the order transactions between stores and local distributors. Stores can use the mini-program to perform simple analysis of their orders and also receive promotional information from distributors.
6. How do you understand the various complex transaction scenarios between domestic distributors and stores?
I have to thank my team. Several co-founders of my team have been rooted in the domestic market and know the domestic circulation market very well. They have observations and thoughts on marketing, brands, manufacturer channel management, and the current situation and future of retail. Moreover, my team also includes management who have worked at SF Express and the China Federation of Supply and Marketing Cooperatives. They have deep industry knowledge, so our team can complement each other internally.
In addition, when entering channel services from the distributor perspective, you must understand who the distributor serves. It connects brand owners and retail terminals. If you don't understand its upstream and downstream, and only serve distributors, you cannot meet the deep needs of distributors. Distributors' customers are retail terminals, and their upstream is general distributors or manufacturers. Therefore, our solutions must help them reach stores and manage their customers well.
From the store perspective, the starting point and core of the upstream supply chain are how to serve small stores well, enabling them to sell well, purchase well, and sell well. If we are positioned to improve the efficiency of circulation supply, we cannot bypass the small store scenario. We must focus on the pain points of small stores.
7. After more than two years of development, what products and services can Zhoupu provide to traditional distributors?
In addition to Cloud Manager, which improves distributor efficiency, we are now mainly promoting the Store Manager system, which helps distributors communicate with customers and better connect with channels, as well as our unified warehousing and distribution system. We have established warehouses in four regional markets. Through the operation of these four different types of markets, our technology and model have basically been proven. In the process of cooperating with distributors, we deliver the entire model and full set of systems to you. You have local customer relationships, local resources, and understand local market conditions. You operate, and we are just a partner, equivalent to a fourth-party logistics provider. We hope to promote this model nationwide, which can drive industry development faster and truly improve the efficiency of the entire industry.
8. Compared with other warehousing, distribution, and software service providers, what are Zhoupu's main advantages?
First, our integration is good. From order collection, warehouse management, order management to delivery scheduling, everything is developed by ourselves, including all hardware such as PDAs. This ensures smooth operation between various links.
Second, data-driven capability. For example, orders were originally randomly assigned, but now through our intelligent order assignment system, we can identify which orders are prone to errors, allowing us to assign orders in a targeted manner and reduce order picking error rates.
Third, we have our own experimental field. The software system has been repeatedly optimized and verified.
9. Some people say that distributors are the cheapest warehousing and distribution logistics in the world. Currently, many distributors who have transformed into unified warehousing and distribution are actually not making money. How do you view this situation?
- Any model, including warehousing and logistics, emphasizes economies of scale and cannot achieve profitability quickly. When economies of scale cannot be formed, how to maximize profitability? Only through systems to control costs.
- Distributors are stratified. For head, large distributors, warehousing and distribution costs may not be high, but they consume a lot of distributor energy. When all labor costs, loss costs, and time costs are accounted for, the operating costs are actually not low.
The significance of unified warehousing and distribution is not about saving money for distributors, but about freeing distributors from complex work, enabling them to focus more on market service and marketing, and helping them grow their business.
For distributors transforming into unified warehousing and distribution, they cannot only see the traditional distribution business. The retail stores served are just the foundation of the unified warehousing and distribution business. On top of this, various city distribution services can be incubated. Through such services, on the one hand, they can bring more value to existing customers; on the other hand, they can use existing resources to expand more business. Therefore, I believe that distributors transforming into unified warehousing and distribution must not have the mentality of achieving profitability immediately, but rather expand the platform's profitability through horizontal business line expansion.
10. What is the core for distributors to achieve profitability in transforming into city distribution?
- Traditional distributors make money by flexibility. If distributors cannot adapt to the very standardized processes of unified warehousing and distribution, they cannot succeed in transformation. Only through specialization can scale be achieved. You cannot rely on the old scattered and chaotic operation methods, especially when the business grows larger. This business philosophy is even more unacceptable.
- Many distributors face a problem when transforming into unified warehousing and distribution: they cannot completely separate from their original business, acting as both referee and athlete. This directly leads to distributors being unable to devote all their energy to the unified warehousing and distribution business. In addition, it causes many distributors to be afraid to enter the warehouse, creating a fear of the platform. Only with scale can profits be generated. Traditional distributors transforming into unified warehousing and distribution can only succeed if they cut off their original agency business.
11. What do you think of the feasibility of several distributors in a region jointly doing unified warehousing and distribution?
I am cautiously optimistic about this. Because usually, in a distributor alliance, it is difficult to reach consensus on certain decisions. At the beginning, it may be fine because everyone feels pressure and thinks that banding together and intensification is a way out. But in the future, if there is no one person to lead the operation, there will be disagreements. As the business scale grows, the risk of business operation will increase.
12. If distributors cooperate with Zhoupu, besides the software level, what other cooperation opportunities are there?
Currently, our business scope mainly focuses on the middle link of the industry chain. But in fact, the industry chain includes production, retail, finance, and other sectors. We especially welcome enterprises in various sectors that have needs for digitalization and distributor cooperation to conduct deeper cooperation with us.
For traditional distributors, in addition to helping them digitize all business processes such as warehousing, logistics, and sales, in the future we will also help distributors match with manufacturers. Currently, cooperation between manufacturers and distributors often comes from sugar and wine fairs or manufacturer business visits. But when we have enough distributor users, we will also help brand owners match and recommend suitable distributor customers. For regional general distributors, we can provide services such as distribution management, regional sales dashboards, and B2B e-commerce platform construction.
13. How do you think the future development of China's city distribution industry will be?
The future direction of city distribution and smart logistics is to reduce inventory. Whether from the perspective of brand owners or retail, this is the case. The essence of smart logistics is to reduce inventory. Originally, traditional distributors supplied stores. To minimize logistics costs, they could only deliver every two to three weeks. Stores had to prepare two to three weeks of inventory to meet sales during that period. Stores also served as warehouses, making the storefront look non-standard and affecting sales.
On the other hand, we found that in traditional distribution, the inventory turnover cycle is very long. But through unified warehousing and distribution, the inventory turnover cycle has been shortened to a certain extent. Therefore, we believe that future logistics must be layered; otherwise, from the central warehouse to regional warehouses, the coverage of last-mile logistics is far from sufficient.
14. What is Zhoupu's future development strategy or vision?
We aim to drive the efficiency of the entire supply chain with technology. We hope to provide information tools and means such as electronic ledgers and software systems to help the entire industry chain achieve full-chain digitalization and visualization, thereby driving the efficiency improvement of the entire FMCG circulation industry.
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