New Distribution Note: On October 24, 2018, at the "2018 China FMCG Urban Distribution Logistics Conference" hosted by New Distribution, industry leaders held a roundtable discussion on the theme "What exactly should urban distribution earn from?" Forum Moderator: Lu Lixin, Gongsheng Logistics; Forum Guests: Wang Pingdong, Juma Group; Liu Zhongmin, Yishang Logistics; Fu Chifeng, Yuncangpei; Wang Jianjiang, Hailian Tianxia. Moderator: This topic is indeed very straightforward and sensitive, but it's not easy to get everyone to discuss it, because many people are unwilling to share how they make money. They might say they rely on the "Nine Yin Manual" or the "Sunflower Manual" to make money, but they don't tell you the tricks. First, they fear customers lowering prices; second, they fear suppliers asking for higher prices; third, they fear employees negotiating with them; fourth, they fear more people coming to compete for their jobs. So today, I hope we can bring you more direct and practical insights. Wang Jianjiang: Keywords: Personnel, existing base, value-added services. Before discussing this topic, let me first explore a side issue: why is urban distribution difficult? First, the industry lacks standardization. China's B2B delivery system is not standardized. Traditional retail systems like China Resources Vanguard, Walmart, and RT-Mart have different receiving systems, which is a standardization issue in delivery. Why is 2C easier? Because large platforms like Alibaba and JD.com have standardized the industry, but it's hard to build large platforms in B2B, which also gives small and medium enterprises an opportunity. Second, data is not connected. China's logistics costs are actually low; Chinese truck driver costs are much lower than in the US. The main reason for high logistics costs in China is the bullwhip effect due to disconnected data, causing waste in transportation. Of the goods transported by vehicles on Chinese roads, 50-80% of capacity is wasted. How to reduce logistics costs? The biggest reduction point is standardizing the delivery system and connecting data chains. Let me share my views on how urban distribution can make money: First, let's not talk about models; I think people are the most critical factor. People determine whether this business makes money. If you hire a good business manager, a good sales manager, or a good warehouse and distribution manager, the business will make money. If you don't find the right people, no matter how correct your model is, you won't make money. Second, making money on the basis of an existing foundation is a good approach. Let me give a successful example of unified warehousing and distribution: Shenzhen's largest distributor, also the largest distributor for Mengniu nationwide. Besides Mengniu, he also does supply chain projects, and his logistics is profitable. Why? Because he has his own business foundation. Even adding one new customer is incremental and profitable. If you do urban distribution without a business foundation, it's hard to make money early on; it's basically a loss-making business. Third, value-added services. We have a client, Shenzhen's largest central kitchen, which has built China's most modern supply chain production system. Many enterprises cannot do his logistics. He can deliver different recipes and semi-finished products with different temperature requirements to various restaurant chains within 24 hours. That's impressive. From this case, I want to illustrate: What others can't do, you do; what others can do, you do at lower cost—that's how you make money. Wang Pingdong: Keywords: Model innovation, technology optimization, scale. Everyone says China's logistics costs are high, and there's a lot of room for improvement. What is the room? High freight rates—where are they high? Recently, oil prices have been rising. It's rumored that oil barrels have risen. China's oil prices keep rising, but compared to the US, they seem much higher. Second, we find that highway tolls in China are also high; in the US, they seem okay, even free in some cases. So China's high logistics costs are due to these factors. On the other hand, there is a lot of empty loading and empty driving in Chinese logistics. Is it enough to just connect data? It's not that simple. Do you want to squeeze drivers? Drivers are already struggling. Speaking of urban distribution, you are all experts. What is the loading rate? How many urban distribution vehicles go out with goods and return empty? It's serious. Today, we should not squeeze drivers, but find effective ways to make urban distribution vehicles fuller and more efficient. That's the core issue urban distribution should consider. Back to the topic: how do we make money? My answer is: how do we make logistics practitioners or those with logistics needs get what they need? Shippers, receivers, and equipment providers should all benefit—a win-win-win. Does urban distribution have such a situation? Are there innovative companies or new model companies exploring new things to reduce urban distribution costs without exploiting drivers? We've seen many new solutions in this venue. So where does urban distribution make money? Model innovation, technology optimization, and scale—these dimensions are the kingly way to make money. The most core is the second: continuous technology iteration. Next is model innovation. Third, if technology iteration is good and the model is validated, then we can run fast and scale up. Only by achieving these three points can we possibly reduce costs for the client. Liu Zhongmin: Keywords: In urban distribution, you can't be both athlete and referee. I entered urban distribution by accident. I started as a distributor in 1992. In 2002, because I had a piece of land to build a warehouse, I entered the urban distribution field and gradually transformed into serving distributors. After several years of development, I have completely transformed into a delivery and service provider. If you are both a distributor and a delivery provider, the biggest problem is being both athlete and referee. To dispel distributors' concerns about being undercut, we exited the distributor role and focused on services. We now serve over 380 distributors in Yantai, and have replicated this model in dozens of places nationwide, especially in Hebei. I want to share my experience on how we achieve profitability: First, whether it's business innovation, change, or scale, on the surface it's warehousing, distribution, and delivery, but the hidden profit is in value-added services. Where are value-added services? It's in breaking bulk. FMCG volumes are large, but 80% of products have a need for breaking bulk. In urban distribution, value-added services earn hidden profits. Second, account and inventory accuracy. Over 90% of distributors have discrepancies between accounts and inventory. This is a major bottleneck, so management is crucial. The hidden benefits are significant; if you manage well, your profits will be greater. Third: refined management and operations. How do you make money from this? It's still management. If you manage warehouse and distribution operations well, it's fine; if not, no matter how good the warehouse is, it's useless. Operations must be done. Another is scale. Scale allows customers to get standardized services and trust. Only with scale can you achieve logistics bus-ification and standardization. Fu Chifeng: Keywords: Can't make money from distributors. In the past two years, we've also done urban distribution business and stepped on many mines and pits. The biggest pit at the beginning of the year was Yatang Xiaochao; we basically operated all ten of their national warehouses. Recently, we've been internally debating whether unified warehousing and distribution and urban distribution are a false proposition. We concluded: how to make money? In our internal words: we can't make money from distributors, and we can't earn that money either. We aim to help distributors earn more money through value-added services, and we share in the additional benefits. That's the opportunity. I believe distributors' cost control has reached an excellent extreme. We need to do better. How? We need an empowering mindset and capability to do this, and only then can we make money. That's our internal view. How to empower? We need to do it from two dimensions: one is a three-dimensional, multi-functional perspective. Second, from a breadth perspective, we bring in commercial flow traders and resource providers on the chain, connect them to the distributor platform, and make the distributor's revenue field larger and stronger. We share the extra part. That's what we can earn. Let distributors earn more first, then we share. Lu Lixin: If a unified warehousing and distribution company says it makes money as soon as it starts, then it's not doing unified warehousing and distribution. To make money in unified warehousing and distribution, you must first unify and share; you must have scale to make money. I strongly agree with Mr. Wang's view. Reducing vehicle costs is almost impossible; only through data connectivity can we better collaborate and earn more money. Click "Read Original" to see more about the 2018 China FMCG Urban Distribution Logistics Conference... -END-