The 5th FMCG + Internet Conference, hosted by New Distribution, was grandly held from March 15 to March 18 at the Chengdu Longemont Hotel. The event attracted thousands of FMCG industry professionals, including distributors, manufacturers, and internet companies, from all over the country. The venue was packed, and the scene was unprecedented.
The following is the speech delivered by Mr. Liu Bo, Vice President of BEST Inc. and General Manager of BEST Store Plus, at the main forum on March 16, organized and released for our readers.
Two years ago, I talked about B2B at this conference. I believe 2016 was the first year of B2B, 2017 was a time of fierce competition with all players entering, and 2018 was led by giants. So far, the overall trend is close to this development. In this process, what will be different about the future of B2B? Personally, I think there are several misconceptions:
First, using C-end traffic thinking for B-end; second, using a cost-saving model to empower small stores; third, using an internet fast-company model to build an industrial internet company for the B-end, which is also a huge misconception.
Changing any industry takes at least ten years, and the B2B industry is no exception. It requires resilient companies to accomplish this mission. Today's conference theme is "breaking the game." What game exactly? It is breaking the game of the entire FMCG industry. Over the past two decades of development, extensive management, product-centric market pressure, and channel conflicts have led to four isolations: channel isolation, brand isolation, regional isolation, and information isolation. This is the key to the problem.
Let me briefly talk about our thoughts on breaking the game: how to change the supply chain structure of the entire FMCG industry and improve the turnover of heavy goods across the whole industry.
First, let's look at the difference between consumer internet and industrial internet.
The core of consumer internet is traffic. Traffic is easy to gain but hard to keep, extremely fragmented, and changes over time. The core of industrial internet is definitely not traffic. The core of industrial internet is to hold your traffic. The core competitiveness is the supply chain. Only with a continuously efficient and stable supply chain can goods be delivered to consumers, and only such companies can wait for the final traffic. Traffic is easy to gain but hard to keep, but it has a sedimentation process. The next ten years will be the sedimentation of traffic.
In the past industrial changes, we have lessons from the past. The logistics industry ten years ago was different from today's industrial internet. Ten years ago, China's logistics had over 10 million vehicles, which could be described as small, scattered, chaotic, and numerous. Look at the proportion of logistics in GDP, which is an important indicator of efficiency. Comparing China with the US, China has a long way to go. Reducing the proportion of logistics in GDP from over 16% to about 8% is the inventory turnover rate.
The logistics industry's trends of intensification, informatization, and automation have led to top players taking 70-80% of the market share. The same is true for logistics. Why do we think industrial internet will be a major transformation of the macro economy in the next ten years? Because the structure of various industries is also undergoing major transformation.
There are two core drivers of transformation: first, informatization; second, logistics networks.
China's logistics can be said to have the highest efficiency and cost-effectiveness. It is because of the development of logistics that a solid foundation has been provided for the digital development of the supply chain industry.
The core of industrial internet is the supply chain. The development and evolution of the supply chain itself has gone through several stages. Those familiar with brand manufacturers should know that when you build a factory, you manage production coordination. When sales channels rise, ERP manages channel partners, connecting sales and production. With the connection of sales and production, and then channels, you need each batch of goods to resonate in sync according to the priority order of the supply chain. These are all operated within a single enterprise. Industrial internet drives the entire industry's goods production with consumer demand as the driving force for synchronized demand and supply. Today, no matter which company does this, it is not just because of traffic, but because of the digitalization process of the supply chain behind the traffic.
The three steps of future development: First, digitalization. This is a prerequisite. You obtain data, but what data do you first obtain? If you get data from promotional pressure to stores, the data quality is poor. If you get data from store sales to consumers, that data is very valuable. With data, second is algorithms. Through algorithms, we save the manpower of purchasing staff placing orders, and reduce the manpower of store inspections for stores like Meiyijia. Today, I am also here to give some examples of how to break the game, especially for brand manufacturers: how to use the development of B2B to achieve greater channel digitalization, and how to change existing distributors from distributors into future service providers. We will provide some cases in this regard. BEST Store Plus operates an S2B2C model, from supply chain to small merchants to consumers. This includes our layout in logistics and supply chain over the past decade, forming a closed-loop advancement.
In the past three years of the FMCG B2B industry, we have built a full-chain digital product for the FMCG industry, including Store Plus Cloud Eye. Many brand distributors have joined the Baizhihui club. We provide very low-cost products, and once you use them, they resonate with our business and continuously iterate and optimize. Once, I communicated with a friend from Huidanxia. He mentioned that last year there were some arguments at the forum. At that time, I still emphasized this viewpoint: Pure software companies will not exist in the future. Every company must be a software company. Those who do operations must develop their own software.
Today, many chain convenience stores pay 100,000, 200,000, or 500,000 yuan to software service providers each year to develop new products. As everyone knows, this time cannot match market demand. Every enterprise that wants to sustain operations must first be a software company. BEST Store Plus opens these software to various brand manufacturers and distributors to complete their digital transformation.
In addition to digital capabilities, it is more important to have infrastructure to cultivate full-chain supply chain fulfillment capabilities. For example, intelligent vehicle scheduling, intelligent store delivery, etc., must have a strong platform-based, digital fulfillment capability. This is what BEST Store Plus has accumulated in the past and can be used by everyone.
The second stage is algorithms. Our current AI algorithms, in addition to demand forecasting, intelligent replenishment, and intra-city delivery, have greatly reduced costs and also eliminated corruption. As everyone knows, when we place purchase orders, in many parts of China, personal relationships matter. Using AI for scheduling can largely avoid this situation. The scheduling of vehicles across China is done through AI. We have opened cloud supply accounts for various brand manufacturers. All orders on the account are placed by AI supply management, fundamentally reducing costs and increasing efficiency. More importantly, we obtain quantitative pattern recognition algorithms in operational practice. Initially, there is human intervention, and gradually these algorithms are embedded into the system.
The FMCG industry has strong pattern rules, such as off-peak and peak seasons, promotions, price reductions, and various influencing factors. Algorithms can iterate through continuous self-learning of operational data, so they can iterate every day of the year, making the algorithm very accurate. Looking at the trend brought by the algorithm, among these lines, the ones with large fluctuations in the front and the two intertwined lines in the back are the entanglement of AI and actual shipment volume. The red line is larger, which is the moving average prediction method. Our warehouse data, with so many SKUs, after automatic replenishment through AI algorithms, our inventory level dropped by 20-30%, but our service level, the out-of-stock rate, partially increased, partially remained, and only a few decreased due to incomplete data. This trend is very good, and we are continuously optimizing the algorithm. The cloud distribution part is not much to say; it is about vehicle scheduling in the AI part.
Additionally, let me give an example. This is a well-known FMCG company with 83 distributors across China. Previously, the cost of distributors was indeed high. Later, they adopted the systems and algorithms accumulated by BEST Store Plus to empower these distributors, upgrading them into digital distribution channels. You can see the various cost reductions, efficiency improvements, and inventory accuracy improvements. This is a very good trend. We also want to emphasize the core of the industrial internet field again: The core is still the fulfillment capability of the digital supply chain. This fulfillment capability must be based on consumer willingness.
In addition, in the past three years, besides promoting the B2B platform, BEST Store Plus also acquired WOWO in Chengdu. We are developing franchise stores nationwide, and now have over 2,000 BEST Neighborhood convenience stores. The core purpose is to explore consumer data and help brand manufacturers in this economic system to have goods pulled by consumers.
Second, we hope to use DT and IT forces to promote the business development of brand manufacturers, and use AI technology to quantitatively identify and improve supply chain efficiency. At the same time, we hope to grow into an open supply chain digital fulfillment platform for brand manufacturers to use, achieving end-to-end optimization of the entire chain, minimizing the turnover days of each SKU, minimizing the number of touches, and quickly reaching consumers. This is my sharing with you today.