---
title: "Is Warehousing and Distribution the Lifeline of Distributors, or Will It Be Their Downfall?"
description: "At the 2018 'Opening Class', when I mentioned that warehousing and distribution functions would be separated from distributors and outsourced to third parties, a distributor in the audience asked a soul-searching question: Without warehousing and distribution, is a distributor still a distributor? Before that, warehousing and distribution were indeed the lifeline of distributors. In 2012, Midea Group underwent digital transformation, with its subsidiary Annto Logistics implementing 'One Inventory' and integrated delivery and installation. Not only did distributors not touch the goods, but retailers also did not. 'One Inventory' greatly reduced the number of loading and unloading times from factory to user, from 6 times to 2-3 times."
author: "刘春雄"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2024-04-23"
language: "en"
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# Is Warehousing and Distribution the Lifeline of Distributors, or Will It Be Their Downfall?

> At the 2018 'Opening Class', when I mentioned that warehousing and distribution functions would be separated from distributors and outsourced to third parties, a distributor in the audience asked a soul-searching question: Without warehousing and distribution, is a distributor still a distributor? Before that, warehousing and distribution were indeed the lifeline of distributors. In 2012, Midea Group underwent digital transformation, with its subsidiary Annto Logistics implementing 'One Inventory' and integrated delivery and installation. Not only did distributors not touch the goods, but retailers also did not. 'One Inventory' greatly reduced the number of loading and unloading times from factory to user, from 6 times to 2-3 times.

At the 2018 'Opening Class', when I mentioned that warehousing and distribution functions would be separated from distributors and outsourced to third parties, a distributor in the audience asked a soul-searching question: Without warehousing and distribution, is a distributor still a distributor?
**Before that, warehousing and distribution were indeed the lifeline of distributors.**
In 2012, Midea Group underwent digital transformation, with its subsidiary Annto Logistics implementing 'One Inventory' and integrated delivery and installation. Not only did distributors not touch the goods, but retailers also did not.
'One Inventory' greatly reduced the number of loading and unloading times from factory to user, from 6 times to 2-3 times. Later, Annto Logistics described this phenomenon as 'one less jump', where 'one jump' equals one loading and unloading.
When 'One Inventory' was first implemented, out of Midea Group's 4,000 distributors, 2,200 chose to leave.
**Without goods in hand, they felt insecure. Distributors were afraid!**
At the 'Supply Chain Revolution' conference held by New Distribution during the 2024 Spring Sugar Fair, a survey released by New Distribution showed that **in first-tier cities, the outsourcing rate of warehousing and distribution for distributors reached 44.8%, comparable to the proportion of self-operated warehousing and distribution.**
To be honest, I was very surprised by this data. The change was too fast!
The more first-tier the city, the larger the distributor, the higher the proportion of warehousing and distribution outsourcing.
Perhaps it can be said: **In the future, if distributors still hold on to warehousing and distribution, it might really cost them their lives.**
**Is warehousing and distribution a 'natural function' of distributors?**
China's channels began to sink from 1998, from 'provincial agents' to 'city agents' and then to 'county agents', overall executing wholesale functions. Before 2000, distributors only had warehouses, no delivery. They executed a large-scale wholesale radiation function, with the most numerous personnel being loaders and unloaders.
At that time, what I said most to distributors was 'transform from sitting merchants to traveling merchants'. '**Sitting merchants' only wholesale, not deliver; 'traveling merchants' deliver to stores.**
The warehousing and distribution function of distributors was established at that time. Later, it was described as 'vehicle sales', selling along the way. Gradually, 'traveling merchants' squeezed out the business of 'sitting merchants'.
Marketing people spent a lot of effort to give distributors delivery functions, and we also spent a lot of words until distributors got used to it.
Around 2010, visit sales emerged, separating orders from delivery. This process tested distributors' management capabilities. Large distributors basically switched to visit sales, while small distributors still used vehicle sales.
The separation of delivery and visit sales was equivalent to internal departmental outsourcing of the distributor's warehousing and distribution, which helped professionalize warehousing and distribution and performance evaluation. This process was actually a rehearsal for later warehousing and distribution outsourcing. Therefore, distributors with visit sales had little obstacle to outsourcing warehousing and distribution.
In 2014, B2B became hot, and Chen Siting, now CEO of New Distribution, participated in B2B entrepreneurship. My advice to him was: only do professional third-party delivery, not touch orders. In hindsight, this was correct. However, he did not survive the B2B downturn. What Annto Logistics does now is what he did back then.
After the B2B craze, big platforms like JD New Channel and Alibaba Retail Link disappeared, and distributor B2B and regional B2B evolved into platform-based distributors based on B2B, becoming the mainstream of B2B. At the same time, Midea Group's Annto Logistics extended from trunk logistics to same-city warehousing and distribution, forming a perfect combination with platform-based distributors.
Warehousing and distribution completely separated from distributors' functions entered the countdown.
From the changes in warehousing and distribution, we find that the relationship between distributors and warehousing and distribution is constantly changing. **Warehousing and distribution is not a 'natural function' of distributors.**
The warehousing and distribution function of distributors, from nonexistence to existence, is progress in China's channels; then from existence to nonexistence, it is even greater progress in China's channels.
Negation of negation, spiral rise, this is the law of development of things.
**Lifeline, or sense of security?**
**There are two special characteristics of China's channels:**
> **First, the vast territory and long channels. Taking FMCG as an example, covering 6-7 million terminals, the channels must be very long.**
>
> **Second, the three channel forces of manufacturers, distributors, and retailers are unbalanced. Deep distribution is a manifestation of unbalanced channel forces.**
The essence of deep distribution is that the manufacturer's power extends to terminals through distributors, which is rare in world channel history. Or to put it more bluntly, manufacturers incorporate distributors into their 'internal management system', and distributors are not completely independent business entities.
This state of channels is formed through 'distributor miniaturization', small regional agency, with the county as the basic unit for distributors. The consequence is that distributors are 'small but complete'.
**Small refers to small scale, complete refers to complete functions.**
Small but complete violates the principle of professional division of labor. But in periods of rapid market growth, pursuing increments far outweighs pursuing efficiency and cost reduction.
'Small but complete' distributors mainly undertake four major functions: promotion, order, capital, and warehousing and distribution.
If the four functions are ranked by importance, it should be: promotion > order > capital > warehousing and distribution.
Logically, because promotion succeeds, there are orders; because there are orders, capital is needed to purchase goods; because there are orders, delivery is needed.
If a distributor only has one function left, it should be promotion. Among the four functions, only promotion is 'work that contributes to sustained sales growth'.
Important thing repeated: **Promotion is work that contributes to sales growth.**
Note, I emphasize not sales, but sustained sales growth. **Not only growth, but sustained growth.**
**My simple measure of whether an organization or individual's work is effective is: whether it contributes to sustained sales growth.**
If a distributor wants to strip one function, then **the first to be stripped should be warehousing and distribution**. Because warehousing and distribution work will not have a major impact on sustained sales growth.
Stripping warehousing and distribution from distributors will most likely not have a significant impact on distributors' business operations.
However, when first hearing about giving up warehousing and distribution, most distributors instinctively oppose it.
Instinctive behavior is actually a natural reaction, mostly not professional behavior.
People's natural reactions are mostly related to a sense of security.
I often say that the size a company can grow to is related to the boundary of the boss's sense of security.
Only trusting oneself means being a self-employed person; only trusting family means being a mom-and-pop shop; only trusting friends and relatives means being a small boss; trusting capable people in the world means being a big entrepreneur.
**With goods in hand, no panic, may just be a small distributor; without goods in hand, but with confidence, trusting professional third parties, may become a big platform merchant.**
The sense of security in warehousing and distribution is essentially the sense of security of goods.
Giving up warehousing and distribution may make distributors lose their sense of security. At this time, they will treat warehousing and distribution as their lifeline.
From the survey by New Distribution, **the larger the distributor, the more inclined they are to outsource warehousing and distribution, and the boundary of their sense of security is enlarged.**
**Take advantage of your illness to take your life**
Why should distributors give up warehousing and distribution now? Personally, I think there are roughly three points.
**First, important things and urgent things**
Among the four functions of distributors, the most important is of course promotion. But what is the most urgent? I think it is delivery.
Customers want goods, so it is very urgent.
The worse the delivery management, the more urgent the user's demand. For example, **improper delivery cycle planning, improper delivery route planning, and improper delivery quantity planning all lead to emergency delivery.**
The hardest balance in management is 'important things and urgent things'. Theoretically, important things should be prioritized. In reality, urgent things are definitely prioritized.
In reality, small and miscellaneous matters do trouble distributors. I once visited a distributor and found that the manager stayed in the office all day dealing with small matters, miscellaneous matters, and signing documents, without doing work that truly contributes to sales growth. Doing urgent things, not important things, over time, important things may be forgotten.
Warehousing and distribution work interferes with promotion work, and warehousing and distribution personnel exceed promotion personnel, which is the norm for many distributors.
**Second, terminal coverage rate**
The reason deep distribution became popular in China is largely because it is valuable for improving terminal coverage. However, **deep distribution up to now can only distribute to large terminals, while small terminals are covered through second-tier distributors.**
The early reason was that a single brand or a single distributor delivering to small terminals was not cost-effective. For example, stores within the second ring road of provincial capitals or above basically have no warehouses, and split-case purchasing is very common. Second-tier distributors solved the problem of multi-brand integrated delivery.
Currently, the need to find second-tier distributors is mainly due to inventory pressure. Because of inventory pressure, and stepwise policy pressure, only second-tier distributors can accept large orders. When second-tier distributors accept large orders, they immediately disrupt prices.
With warehousing and distribution outsourcing, whether small orders or split-case orders, they are integrated delivery, so there is no problem.
**Third, economies of scale**
Logistics must be economies of scale, and modern logistics is even more capital-intensive. **The more central the city, the stricter the management of warehousing and distribution, and the higher the costs.**
Without scale, costs are inevitably high. Of course, some distributors are unclear about their core costs and don't feel the high costs. Looking at the current warehousing and distribution costs of FMCG distributors, the small ones are only about 3%, while the high ones exceed 8%, with significant differences. If there are more near-expiry products, it will be even higher.
**The warehousing and distribution function has shifted from an early driver of sales growth to a hindrance to the promotion of core market work.**
The early lifeline may cost you your life in the future.
**The lethality of warehousing and distribution is like chronic poison. At first, it seems to have no effect, but when it accumulates to a certain dose, it is beyond cure.**
**Outsourcing is the trend**
Many newly established distributors start without warehousing and distribution functions, outsourcing everything, and instead find it easier to start and reap benefits.
Distributors transforming into B2B platforms, because of rapid growth, constantly change warehouses, even several times a year, and finally choose to outsource warehousing and distribution.
In the past, trunk logistics and city distribution logistics were separated. With Annto Logistics' 'integrated warehousing, trunk, and distribution', the two are combined. In the future, it may even be possible to achieve 'one-stop delivery' from factory to store (from 'one less jump' to 'only one jump'). Outsourcing combines the two better.
Outsourcing is the trend.
**Large distributors do it first, small distributors follow; central cities do it first, lower-tier cities follow. Eventually, warehousing and distribution will be completely and fully third-party.**
As long as it is a trend, choosing the most appropriate time to enter is very important.
**Recommended Reading**


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