Shenzhen Chengpu Henghe Information Technology Co., Ltd. Operations Director Huang Yizhi
The 4th "FMCG + Internet Conference" in 2018, hosted by New Distribution, was grandly held at the Fairmont Chengdu Palm Springs Hotel Conference Center from March 18 to 19. It attracted over a thousand distributors, manufacturers, and internet companies from across the country, with a full house and unprecedented scale. The following is the speech delivered by Huang Yizhi, Operations Director of Chengpu Henghe, at the conference, organized by New Distribution for our readers.
In recent years, the hottest topic in the industry has been transformation, with all kinds of strange models emerging, but the mainstream remains B2B and third-party logistics. I have personally experienced both of these industry changes, so I am fortunate to share some of my experiences with every entrepreneur friend who is transforming, preparing to transform, has tried and failed, or is heading toward success.
In 2010, I established a trading company specializing in beverages and alcohol. It wasn't large, with annual sales of about 40 to 50 million yuan. In 2013, I hired a team to develop our own mall platform, fully self-operated. In 2014, we cooperated with Zhanghe Tianxia. The "sandwich" nature of distributors means that if something isn't yours, you don't feel secure, and you always think building your own platform is reliable. In 2015, we bought a matching platform. Early promotion went smoothly, but as sales volume rose (about 200,000 yuan per day), we found that distribution was fragmented, and customer experience was poor. Without unified warehousing and distribution, integration couldn't be completed, and the grand dream of supply chain management couldn't be realized. So we joined forces with several large trading companies and a chain convenience store (total 300 million yuan) to build a third-party logistics, investing 4.5 million yuan in an 8,000-square-meter warehouse plus hardware and software, achieving a throughput of over 100 million yuan. Looking back at the platform, although it had sales, it was not profitable at all. In this process, I fully experienced running a trading company, building a self-operated B2B platform, joining a national B2B platform, purchasing a matching B2B platform, building third-party logistics, and finally starting to think about convenience store operations. It sounds like a rich career, and many distributors who have gone through these experiences share similar mental journeys. But the reality is that I paid all the tuition fees along the way. In the end, the third-party logistics was crushed by the monthly rent of over 100,000 yuan and the huge organizational structure from the early stages, leading to dissolution. Without the support of third-party logistics, the matching platform couldn't survive either. I didn't avoid any of the pitfalls. At that time, because all my energy was invested in building third-party logistics and the B2B platform, my trading company's sales plummeted, and in the end, I sold the entire trading company as a package, like dominoes falling one by one, collapsing in an instant. After much thought, I felt unwilling to give up. The path was clearly right, but what caused the failure? With this question, I have persisted in this industry to this day.
Looking back, I was full of enthusiasm to transform and upgrade, but not only did the transformation fail, I also lost the tangible things I had in hand.
As participants in this era, what we need is more direct, concrete methodologies to change our operations and lives, rather than repeatedly reiterating "truths" that everyone knows. Statements like "B2B and unified warehousing and distribution will disrupt our industry and may have a huge impact on its future development" are nothing but correct nonsense.
So the first key point is how to avoid the mistakes I made and dig fewer pits for yourself.
Summary of my experience:
Pit 1: Rushing to transform before completing internal management upgrades. Overconfidence led me to ignore the fact that I didn't have the ability and energy to manage two or three companies simultaneously. Lack of management talent and information technology were bottlenecks.
For everyone here today, when you are away from the company like today, can you know in real time your inventory, what your salespeople are doing outside, order execution status, whether payments are collected normally, and whether you are making or losing money today? In other words, if you cannot fully control logistics, information flow, and capital flow, it proves that your internal management is not perfect or modern enough. I suggest you don't rush to transform; first find ways to upgrade and adjust internally, because you may not be able to control more than one company at the same time.
Pit 2: Whether B2B platforms are self-operated or matching, the ultimate goal is to do retail chains. Why do I say this? In Taiwan and Japan, once chain convenience stores reach a mature stage, so-called B2B platforms have no room to survive.
The core of B2B is product procurement capability and store management capability, not sales and promotion capability. My early promotion was smooth; a dozen salespeople could cover a city in ten days to half a month, but profitability was nonexistent. Almost all B2B platforms nationwide are unprofitable because B2B cannot do A-class supermarkets; daily chemical and general merchandise categories basically won't cooperate with you. Also, you can't do B-class large clients because you don't have manufacturer fees. In the circulation channel, you can still compete on price to grab customers, but it must be at the expense of profit. Platforms cannot directly bring sales and profits to distributors.
Pit 3: Third-party logistics is difficult not because of attracting merchants, but because of high rents. At the beginning, we rented large warehouses of over 10,000 square meters to reserve space for attracting merchants, but without professional participation, improper system selection, unscientific preliminary planning and design, and poor management processes, the long market cultivation period would waste at least a year or more, even longer, to adjust and adapt to the new industry. The pressure of time and rent would cause oneself or shareholders to lose confidence, becoming a fatal flaw that crushes most operators.
It's like when we act as agents for products: if the distribution contract isn't signed, you wouldn't expand warehouse scale first. No one does such a stupid thing.
Better to invest less in hardware equipment initially than to have a lot of idle warehouse and equipment. Compared to this cost, moving warehouses a few more times is nothing. Failure is caused by eagerness for quick success, impatience, and misjudgment of the market.
Treat the enterprise as a "son," following the "poor raising" approach: every penny must be spent carefully, and wait until the right time to make a big push.
How to avoid these three pits: Plan →→ Rehearse →→ Act, Upgrade first →→→ Then transform
Once on a variety show, the host asked Dong Mingzhu: As the decision-maker of such a large enterprise, if you make a wrong decision, what would be the consequences? Dong Mingzhu replied: I have never made a wrong decision. The host asked again: I mean, what if? Dong Mingzhu said: There is no "what if." Any decision should have a plan and repeated rehearsals, so mistakes won't happen. With a plan, repeated rehearsals, and then action, borrowing the first sentence of Sun Tzu's Art of War: Business is like a battlefield, a place of life and death, so it must be carefully examined.
The premise of transformation is whether your internal upgrade is complete; this is a plan.
Small strategy mistakes are not a big deal, but big strategies must not fail. In the past, I was proud of scale expansion and development speed, but now when others comment that I am conservative, I calmly reply, "Let's go and see; there is a destiny."
So after you complete internal upgrades, you will find that transformation is actually that simple.
Real case: A distributor with sales of 120 million yuan needs more than 20 people in the office, including 8 document handlers, 6 accountants, 2 for checking manufacturer fees, etc., totaling 160 people, with annual labor costs of 5.8 million yuan. But we observe that they spend a lot of time on tedious tasks and paperwork. These tasks don't add value but are necessary and cannot be omitted.
The solution lies in clarifying departmental relationships and information technology construction.
When labor costs are low, transaction costs dominated by labor costs are not prominent. With labor costs rising, the cost of internal communication will receive increasing attention.
Case: Currently, in trading companies, the handover between finance and drivers: one person can hand over at most 200 documents per day. If the information flow between drivers and finance is opened up, during the delivery process, all adjustments to documents, changes in payments, and handovers with the warehouse are received by finance in advance through reports. Finance only needs to verify the payment amount. Without opening up information flow, finance personnel actually think all orders may have accidents, so they have to spend a lot of time and energy. With information flow opened, finance personnel no longer need to review documents one by one, saving time for the essential work of finance: accounting, budgeting, analysis, control, performance, etc.
The 80/20 rule: Currently, finance in trading companies spends 80% of time on non-value-adding tasks like checking documents, and only 20% on valuable tasks like cost accounting. Budgeting, analysis, control, performance, etc., are basically unmanaged. What we need to do is reverse this.
Business owners face all these similar problems; either they are numb and take it for granted, or they are anxious but can't find solutions. I was like that myself back then.
When informatization is low, the solution is often "hire another girl." As labor costs rise, limitations grow. Besides improving enterprise information management, I don't see any other good way for enterprises to respond.
Next, let's talk about specific solutions
First, look at internal upgrades
As a trading company, the enterprise structure basically consists of procurement, sales, warehousing, distribution, and finance. Internal management upgrades must start with improving information flow (real-time, interconnected information transmission among departments and links). The execution process is logistics, commercial flow, and inventory, and the ultimate goal is to improve capital flow.
The efficiency of an enterprise depends on whether processes are smooth. If there is waiting, it proves the process is unreasonable and needs immediate sorting. For example, finance waits every day for drivers to return for handover. If drivers don't come back, finance has nothing to do; when they all come back at once, finance is overwhelmed. Whether finance is busy or not, the boss can't tell. This is because information flow is not opened up.
Whether an enterprise's upgrade can succeed depends on two things: one is capability, such as leadership and insight. Capability is an art and talent; no one can help you. The ceiling of a company is determined by its CEO. The other is technology, such as information technology construction, which can be achieved through system applications, management experience, and skills.
First point of internal improvement: Procurement management
Procurement management is simpler in operation compared to other links, but it has high requirements for report analysis. I summarized the six most important reports:
- Safety stock warning: how to calculate safety stock;
- Single-item sales growth rate;
- Single-item turnover rate;
- Single-item gross profit contribution rate;
- Order timeliness and fulfillment rate;
- Supplier reconciliation table: prepayment, payable, advance payment;
- Performance management: If you have two purchasers, compare the above reports to see who is better. If you have only one, it's also clear for setting goals.
In procurement management, I think the most headache for distributors is the management of advance payments, which is never clear. So let's focus on advance display fees. For example, the trading company mentioned earlier has over 10 million yuan in advance payments annually, requiring a dedicated person to manage. If one is missed, the loss is huge. In the past, our practice for signing display agreements was: salespeople took paper display agreements, signed them, filed them, and clerks distributed displays one by one based on the signing time. In this case, all information was disconnected. Managers didn't know the standard for distribution, sales didn't know whether displays were actually distributed, and finally finance and procurement didn't trust the accuracy of data. What to do? Let's think from another angle: First, the manufacturer should tell the company's procurement personnel that there is a fee, and procurement should enter it into the system in advance. Then the sales department defines how to allocate this fee in the system, such as by region or by headcount. Next, when a salesperson goes out to sign a display agreement, they upload a standard display photo through the visit order system, and at the same time, the system generates an order, such as giving away a bottle of mineral water. Then the salesperson takes a comparison photo every week. At the agreed time, the system automatically triggers a display gift order. Managers compare display photos to determine the final distribution ratio, and after approval, it is automatically passed to the warehouse. After warehouse operations and delivery are completed, the document status is automatically passed to finance to record this advance payment. At this point, through a statistical table, procurement can see that the advance payment has taken effect, sales can see that the display fee has reached the customer, and finance has recorded the accounts receivable. Then sales won't have to constantly check whether the fee has been distributed, and procurement won't lack confidence when reconciling with the manufacturer. The management problem of advance payments is naturally solved. To summarize the process I just described: procurement first confirms the fee with the manufacturer, which is a plan. Then in the sales department, there is also a plan for fee allocation. Then orders are generated according to the plan, and finally, the execution status of orders is fed back to each department. So there must be a plan first, then execution, and finally feedback. The purpose of opening up information flow is also to have a plan first, then execution, and finally feedback.
The above six reports basically meet the needs. When selecting a procurement system, you must pay attention to these six reports. At least it can ensure that bestsellers are not out of stock, slow movers are not overstocked, and you know which products to eliminate, which to strengthen, which suppliers are high-quality, and which to eliminate. And you shouldn't put main energy on statistical analysis; the procurement function should spend more than 80% of energy on new product development, equivalent to the R&D department of a manufacturing enterprise. You should attend various sales meetings, understand market trends, source, and dig out valuable new products. What others can help with is to save your time; whether you can find good products depends on your own vision and data analysis.
Currently, our procurement is limited in resources for strategic sourcing, and supplier selection is not in place, laying hidden dangers for future operational problems. On the other hand, subsequent supplier management is not in place, leading to more order-level problems and a vicious cycle. These are the pitfalls of "small procurement" and typical problems many companies face.
Second point of internal improvement: Warehouse management (operational efficiency and inventory accuracy)
Only when inventory is accurate can opening up data flow be meaningful. If inventory errors are large, all other departments will receive wrong information, directly leading to procurement having no reference data, low sales order fulfillment rates (as low as below 50%, real data), a lot of order cancellations in warehouse picking, low efficiency in delivery handover with customers, complex financial settlement, large inventory discrepancies, and the boss not knowing whether he is making or losing money. The larger the sales volume of the trading company, the larger the errors, creating a vicious cycle.
Solution: Three steps
1. Need a warehouse management system that suits you
Warehouse management is the most difficult and complex point for trading companies to adjust, but it is also a point that must be overcome.
If you need to select a system, refer to the following requirements. Most distributors think the internal structure of software systems is mysterious when selecting, relying entirely on the eloquence of software company salespeople, who paint a rosy picture, and finally you confirm the selection without even opening the system. The correct method is to ask the other party to open the system, take the actual product, and do repeated on-site simulations with you. Watch for five days, and you will naturally see whether the software meets your needs. Spending five days to solve your five-year problem is definitely not a loss. The essence of a software system is to solidify management processes. There is demand first, then software. So, you may be more professional than the software company; you just haven't discovered it. Also, when selecting software, don't just bring senior managers; it's better to bring frontline operators. Often, a detail they notice can leave unqualified system companies speechless. Warehouse operations are assembly-line style; any detail can become a bottleneck. If the bottleneck isn't broken, water won't flow.
- Location management: able to find products based on system prompts;
- Batch management: which batch of products is placed where;
- Barcode management: used to record which batch of goods is placed where;
- Safety stock management: overall, picking area, and storage area;
- Picking operation mode: order picking and batch picking, picking by zone, separate whole and loose picking (snacks, daily chemicals); different operation modes for different orders;
- Inventory management: movement inventory, cycle counting;
- Performance management: performance accounting for operators (pricing for receiving, picking, shipping, counting). Every department should have performance management, even if it's trial and error, you must try to establish performance.
After the system selection is determined, it doesn't mean you have succeeded. You still need people with on-site management experience to help you with site layout and solutions. This is very critical. If you have done third-party logistics transformation, you must have deep experience. Without professional guidance in the early stage, you will definitely feel that everything is not smooth. Whether the system is good or not has almost nothing to do with how well you use it, because the warehouse involves too many aspects and interacts with every department. It requires experience and skills to coordinate and cooperate.
2. In-warehouse planning and process design
After system selection, how to identify whether the company has professional talent? It depends on whether the system company can help you do planning and design. If they can't do planning and design well, and they tell you the system is good, it's basically nonsense. A company that doesn't understand warehouse logistics operation planning cannot make a good system. Even if it's an industry-recognized good product in your hands, without professional participation in the early stage, good steel may become scrap. There are many cases in the market where companies bought systems like Full and SAP, spent a lot of money, but didn't do well. The root cause is that the people involved in planning and design are not good. They may know the system well, but they don't have practical experience in our industry.
Only with craftsmanship can one become an excellent warehouse manager
1. Data research and analysis before planning: Including products, orders, inventory, split rate, throughput, inventory turnover analysis, warehouse capacity analysis, transportation, finance, etc.
The power of data is far greater than our personal perception. Data reflects the most real changes and trends.
2. Warehouse planning and design: Overall layout of logistics center, regional space design, equipment planning, operation processes, job configuration
Due to space limitations, I can't elaborate on the above, but you can use them as criteria to judge whether the other party is professional.
3. Industry practical experience
After all this, it doesn't mean your inventory will be accurate. You also need to combine a lot of practical experience. Normal warehouse management is to manage A-class products well, but for many distributors, the fast-moving items don't have problems; the problems are often with the slow-moving ones. How to manage C-class products is the key to distributor warehouse management. The profits created by A-class products are largely eaten up by C-class products.
Example: In the entire logistics industry, more than 50% of costs are transportation, and more than 50% of warehouse operation costs are walking and searching.
Assume 500 SKUs, classified into ABC. C-class products with 1-2 units per day account for at least 300, scattered in various corners of a warehouse over 1,000 square meters. If you separate storage and picking for C-class products and use a concentrated 100 square meters as the picking area, warehouse efficiency will improve immediately, and accuracy will also greatly improve because you only need to pick in this 100-square-meter area daily, and the storage area is basically untouched. Then, for inventory counting, you only need to do spot checks in this small area because we can do movement inventory based on locations. This is the embodiment of combining the location management and safety stock management mentioned earlier.
Through the above three steps, warehouse problems can basically be solved. A perfect integrated management solution for trading companies must start with improving your warehouse management level, because the warehouse is the only link that connects all departments.
Third point of internal improvement: Sales—the charm and regret of visit orders
This is the focus of distributor management and the greatest value of distributors. A visit order management system alone is enough for many software companies to study for years.
Many distributors have already started using visit orders, and from visit orders, we can already experience the charm of opening up information flow to some extent. But let's go back to the first case: why does he still need 8 document handlers even with visit orders? The reason is inaccurate inventory. For example, a promotion of "buy 10 get 1 free" is opened, but inventory is only 8 units. What to do? You have to filter out all orders that don't meet the promotion rules, seriously affecting document processing efficiency. So, relying solely on visit orders cannot completely solve all problems for distributors. If inventory is inaccurate, the problems of order fulfillment rate and customer satisfaction cannot be solved. Therefore, distributor management must be integrated. Although we have experienced the benefits of opening up information flow from visit orders, if we want to solve all problems, we must consider each department; otherwise, our salespeople are fighting outside while the back end is dragging them down—inaccurate inventory leads to no stock for orders, and many policies promised to customers cannot be fulfilled.
Functions: Sales order, return order, inventory query, visit routes, promotions, order status query, performance, billing, special sales, photo upload for approval, etc.
Manage products: Inventory, promotions, display fees, key promotion, special prices
Manage customers: Transaction cycle, store inventory, proportion of SKUs on sale, sales summary, ranking and proportion, new, lost, credit period, credit limit
Manage orders: Execution status, satisfaction
Manage tasks: Visit routes, cycles, task completion rate
Manage performance: History, today, internal ranking comparison, commissions
Exception reports: Products not selling for a long time, promotion fees not distributed on time, customers with no transactions over time, orders exceeding time limits, task completion rates below average, low performance rankings
Fourth point of internal improvement: Distribution management
To better open up our distribution information flow, we must have a mobile APP.
Functions of the distribution APP: order receiving, navigation, payment management (cash, partial payment, arrears, prepayment deduction, credit limit control), rejection document feedback, return document feedback, performance management
How to open up information flow between distribution and other links?
As soon as the driver leaves, the order execution status is promptly passed to sales, so sales knows the delivery has started. When the customer signs, sales knows the goods have been delivered. Return information is generated in the warehouse in advance through mobile operations, making return handover very fast.
Finance and driver handover: during delivery, all adjustments to documents, changes in payments, and handovers with the warehouse are received by finance in advance through reports. Finance only needs to verify the payment amount.
After the driver and finance check, finance clicks confirm receipt in the system, and the driver's mobile receives the next task order to continue loading.
The entire process can be completed in one go.
Fifth point of internal improvement: Financial management
Currently, finance spends too much time on daily trivial tasks, such as counting documents and checking accounts, leading to the most serious consequence: lack of the financial analysis we need most. Currently, over 90% of trading company finance can only do simple accounting.
If we do the previous points well, finance's time will naturally be freed up.
Eliminate the heavy workload of daily document checking and performance wage calculation
We can start to cultivate and require: budgeting, analysis, control, performance plans, etc.
The above provides some methodological suggestions for information technology construction in each department, also as a reference for system selection.
Finally, and most importantly, how to connect these scenarios and information flows.
Let me briefly sort out the entire process according to the idea of Plan →→ Execution →→ Feedback.
Procurement: Procurement plan order generation, warehouse receives expected arrival time, after inbound completion, finance deducts prepayment, and then feeds back inbound and financial information to procurement;
Warehouse: Pass inventory warnings to procurement, after receiving sales orders, pass operation status to sales and distribution, and pass return handover with drivers to finance;
Sales: Need to understand inventory, pass orders to warehouse, and receive operation status and distribution information in a timely manner;
Distribution: Know the quantity to be delivered in advance, pass delivery progress to sales and dispatch in a timely manner, generate return information in the warehouse in advance, and pass money, documents, and goods information to finance in a timely manner;
Finance: By observing information flow, understanding logistics, and knowing capital flow, various reports can be extracted at will.
In this process, there is almost no position for document clerks; clerks are another position that is about to disappear.
Next, let's discuss: What key information do bosses need to support management and decision-making?
Assuming that information flow at each node is recorded and real-time, then we bosses can receive all information anytime and anywhere for management and decision-making. Naturally, we can know at the first time:
1. Relationship between products and profits:
Which products have high sales and are profitable, and which products have no sales and are not profitable.
2. Relationship between customers and profits:
Which customers are profitable and which are not.
3. Relationship between people and profits:
Who is the most profitable and who is not.
4. Relationship between costs and gross profit:
What are the costs, what is the gross profit, and the curve changes between sales growth and cost growth.
5. Relationship between receivables and payables:
How much do manufacturers owe us, how much do customers owe us, and how much do we owe them.
6. Cash flow direction
5. How much did we actually earn?
It should have both total analysis and details, and be accessible anytime, anywhere. This is the greatest charm of opening up information flow. But without information flow and control and feedback of nodes, you definitely cannot get these data.
The bottleneck of trading companies is that when they develop to a certain extent, they cannot control themselves and dare not expand scale. Once these problems are solved, oligopoly and super distributors will immediately appear.
After solving the contradiction of high growth and high costs, you can achieve the goal of increasing sales without increasing management difficulty and costs, while increasing profits.
In the above content, I basically didn't mention the word "supply chain" because mentioning supply chain easily confuses everyone, making it unclear. But in fact, what I talked about is how to build the internal supply chain of an enterprise. Through the construction of information flow, we strengthen our control over logistics, commercial flow, and inventory, achieving the goal of reducing capital investment and accelerating capital turnover.
The current trendy concept of "getting profits from supply chain" is essentially simple: it means getting profits from management. At a higher level, people talk about industry supply chains. Industry supply chains are also simple, just like clarifying departmental relationships: collaborating with external enterprises to reduce overall industry costs and increase profits. But for us distributors, talking about the industry is meaningless. The improvement of the industry supply chain is composed of countless improved enterprise supply chains. "Family, country, and world; govern the family, govern the country, and pacify the world." We distributors are the "family" component in the industry. Without opening up the internal information and data of distributors, manufacturers and retailers cannot be connected. In the past few years, many people wanted to eliminate us, but found they couldn't, so they wanted to integrate us. I don't know what they want to do next, but in my view, we should ignore them and do ourselves well. In the past, it was a tripod of manufacturers, distributors, and retailers; in the future, it will still be a tripod.
But every industry will definitely see oligopoly. To survive in an era of coexisting oligopolies, you need to compete on both strategy and technology.
So: Excellent entrepreneurs + correct strategies + perfect information management construction = achieving super distributors
If we think carefully, we will find that the essence of distributors is to connect upstream and downstream, which is B2B. At the same time, providing warehousing and logistics services to multiple manufacturers is third-party logistics. You can also set up a professional sales company for OEM and exclusive sales. If you fully extend from your own expertise, as long as you avoid the high rent costs of third-party logistics, you avoid all risks. So don't be confused by these new terms; the essence is that simple.
After completing your own upgrade, you will have the ability to export models. Whether it's third-party logistics, B2B, or OEM and exclusive sales, it becomes much easier. It's just model export, replicating the management of a single enterprise into synchronized management of multiple enterprises.
Summary
After all this, to sum up in one sentence: When an enterprise develops to a certain stage, the profit space that can be tapped from market and R&D is limited, so you need to tap profits from management, that is, internal supply chain. Similarly, when an industry develops to a certain stage, you also need to get profits from the supply chain, collaborating with external enterprises to reduce overall industry costs and increase profits. This is industrial supply chain management.
Summed up in one word: stability. When an enterprise says it has found a windfall, develops fast, and has a good model, either it won't live long, or it's advertising and releasing smoke bombs to competitors. In the end, it doesn't deceive competitors but traps you, deceiving and hurting you.
Let's go and see; there is a destiny.
Shenzhen Chengpu Henghe Information Technology Co., Ltd. adheres to the purpose of creating integrated solutions for customers, not only from the technical level but more from the thinking level, with craftsmanship, based on enterprises, to change the industry.
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