The 3rd "FMCG + Internet Conference" organized by New Distribution was grandly held at Chongqing Yuelai International Conference Center on November 8-9, 2017! It attracted thousands of industry distributors, manufacturers, and internet companies from all over the country. The venue was packed, and the event was unprecedented. The following is the speech delivered by Dr. Lu Lixin, Chairman of Gong Sheng Logistics Platform, at the conference, specially compiled by New Distribution for our readers.
I am very glad to have this opportunity to communicate with you. Let me briefly introduce myself. I am indeed a veteran in logistics, having worked in the field for many years. I have been in charge of two well-known and relatively large third-party logistics companies in China. I have always considered myself a logistics veteran, thinking that among people with higher education, I have been in logistics for a long time, and among those who have been in logistics for a long time, I have a relatively high education. But I dare not claim to be a professor.
Today we talk about supply chain. As a practitioner who has paid attention to supply chain early on, what changes will it bring from the perspective of supply chain? The first supply chain registration company in China was registered by me, but it didn't go well. There will be some changes in the supply chain: first, omni-channel, the issue of how to integrate online and offline. Second, with the advent of the internet era, the supply chain becomes a supply network, bringing challenges. I think we should focus on five aspects: transparency, cost, response speed, reliability, and targeting. As for the trend of supply chain development, big data is certainly inevitable, and data collection and application are very important.
When we studied logistics before, we learned about "just-in-time" every day. I think "just-in-time" may not be enough; it is still a result of planning. When and where to go, there must be a plan first to have the concept of "just-in-time." I believe in the future it will be a concept of "anytime," with very short planning. Our supply chain faces the challenge of shifting from "just-in-time" to "anytime." I often use this diagram, which was first used at Mr. Liu's meeting. For an individual enterprise, whether it is a manufacturing enterprise, logistics enterprise, or circulation enterprise, where to start to improve supply chain efficiency? I have drawn 26 nodes, and each node can play a role in optimizing the supply chain. It is about how to improve capital efficiency, whether the same capital can do more business, then whether to increase inventory turnover and reduce inventory costs, and also reduce transaction costs and logistics costs.
The supply chain will undergo obvious changes in these aspects: from emphasizing planning to emphasizing rapid response. In the future, we will pay more attention to how to respond quickly when plans deviate. Second, from fixed and few supply chain partners to extensive and rapid connections. Third, from the closedness of large companies to the collaboration of small companies. Originally, large companies did everything themselves, dominated by large companies, but now internal management collaboration also faces many problems. Fourth, from push supply chain to pull supply chain, and the next step will be to change with demand.
The second part is about the current state of B2B logistics, which is scattered, chaotic, and poor. B2B logistics refers to logistics between enterprises, from manufacturers to distributors, from distributors to retailers, from suppliers to channel providers. Overall, the enterprise logistics side is still relatively scattered, but the volume is large. The consumer logistics side looks lively, but it actually accounts for only about 10%, while 90% belongs to enterprise logistics. But sadly, this 90% of logistics is scattered among 500,000 contract logistics companies, and some are done by manufacturing and circulation enterprises themselves. Overall, B2B logistics still shows a situation of being scattered, chaotic, poor, and small.
We all know that logistics is considered expensive on one hand. Is the logistics cost high? Sometimes it is very high, sometimes very low. But it is also a fact that logistics companies have a hard time making a living. Is it expensive? I think it is still expensive. In many places, logistics waste occurs in different links, not in one link. If it were in one link, it would be easy to identify. Now different enterprises have waste in different links at different times. How to identify it is a big challenge. Every link has room for improvement, and can reduce by 5%-10%. If there is data scale support and online mechanisms, it can be reduced, but it is scattered in various links. As Teacher Bao said this morning, the ultimate goal is to integrate the three inventories. I very much agree with that view, and my view is the same.
Now, from the perspective of supply chain efficiency, we look at inventory management. In the future, it must be integrated supply chain inventory. It is impossible for manufacturers, distributors, and retailers to each hold some inventory; this must change. Because you need to respond to demand, and products update quickly. If you still have the old inventory, it means you have high costs. Second, integrate online and offline inventory. Not to mention inventory integration, the entire supply chain channels for online and offline are currently separated. I particularly want to say that in the future, when we manage warehouses, there will definitely be 3D printers in the warehouse. Consumers want to buy not what you have produced, but what they want. What should we do then? I think a better solution is that most of a product is already made, with a small part left out, and in the last step in the warehouse, it is 3D printed to create the product you need. This will come soon. Consumers don't want the things you produce; they want what they want.
To improve supply chain efficiency, logistics has a lot of room for optimization. On the enterprise logistics side, to improve efficiency, platformization is a very important direction. I am a platformist in the logistics field. If we want to build an industrial internet platform, what is an industrial internet platform? It must optimize logistics processes, achieve process optimization and reduction of links. If it cannot do that, it cannot be called industrial internet. Industrial internet must bring changes to processes and environments. From the perspective of transaction costs, it can reduce logistics costs by 5 percentage points. A large part of our logistics field is spent on management. There are 30 million drivers, and at least 30 million logistics management personnel, so management costs are high. Vehicle efficiency can be improved by 10 percentage points. Only by building a logistics industrial internet can we accumulate data and have big data. Although some in the logistics field talk about big data every day, I say your data and information are fake and cannot be collected in real time. If you talk about big data and artificial intelligence every day, the AI fed with such data is just a fool. So use big data to optimize logistics planning and ultimately achieve a logistics ecosystem. Why is our company called Gong Sheng (Co-prosperity)? Our goal is to build a win-win logistics ecosystem.
To build an ecosystem, we need to improve efficiency and build a platform. The biggest purpose is to achieve sharing. Because we have internet tools, the cost of sharing has decreased, so improving efficiency through sharing is a very good choice. From the logistics perspective, sharing still requires some conditions. To share, we need decentralization, networked connections, dynamic pricing (especially dynamic pricing is very important), and real-time information. What role does a logistics platform play in logistics finance? Our original partners in logistics finance, when they cooperated with logistics companies, because they needed to do logistics finance or supply chain finance, they had to change logistics companies. At that time, many of their customers could not accept it because if they did supply chain finance, they couldn't change logistics companies, so customers were very painful. In fact, different logistics companies can be integrated into one platform, and after changing logistics companies, the data does not change. With the intervention of a logistics platform, our logistics becomes more transparent, logistics interaction links become more reliable, and supply chain finance can expand in terms of risk control and customer selection.
Today we talk about intra-city logistics. My view is that human resource sharing is more important than vehicle sharing. The efficiency of warehouses at both ends is more important than in-transit. We talk about unified warehousing and joint distribution; we must have unified warehousing. Whether the vehicle is fully loaded or the mileage is a bit more does not have the greatest impact on cost, but rather the queuing in the warehouse area, which takes a lot of delivery time.
The connection between vehicles and warehouses is more important than distance. For delivery costs, there is a well-known intra-city delivery company in China that uses standard pricing: how much within a certain distance, 85 yuan within 5 kilometers, and an additional amount per kilometer beyond 5 kilometers. I think this must not have been done by logistics people, because the cost is not caused by distance, but by loading and unloading time, which is much more expensive than driving a few more kilometers. So to do intra-city logistics well, shared warehousing is key. Dynamic information sharing between vehicles and warehouses: we can only achieve vehicle information sharing or warehouse information sharing. Can we share information between vehicles and warehouses? Can the forklifts in our warehouse be linked with vehicles on the road? Only then can we improve efficiency. Finally, share human resources in the last link. During Double 11, the number of warehouse workers at Three Squirrels was three times the usual. If human resources are not shared, we cannot improve efficiency.
Finally, a little advertisement: we empower small and medium-sized logistics enterprises, help them improve competitiveness, get more business, and achieve platform-based operation. This allows each logistics enterprise to operate independently and autonomously while achieving the scale and network effects that logistics enterprises must have. This is what we want to do. We help logistics companies connect with vehicles, reduce costs through transparency, and second, through online bidding, which is not simple procurement price comparison, eliminating so-called under-the-table operations. Online bidding can improve vehicle efficiency. Third, sharing. Fourth, big data. All can create value. On this basis, we get business with small and medium-sized logistics enterprises, and then operate with users on the platform. Because with empowerment, there is more business; with more business, more money can be earned; with more money, the platform and users can share more money. This is different from the original third-party companies, which were win-lose relationships, while ours is a win-win relationship.
In terms of warehousing and distribution, we have also invested in a company called Luo Jie Si Jie Distribution Company, which shares human resources, unified warehousing and joint distribution, and optimizes the entire chain. What we do is purely provide human resources, or provide human resources + equipment, or be responsible for inventory risk control. It is a combination. Originally, you recruited people yourself or used labor dispatch companies. Now you outsource labor to us, and we provide it. Work can be transferred to different places because China's development is unbalanced. You can move people to third-tier cities, where a manager costs four or five thousand yuan, saving costs. In addition, these people can be made into small, individual businesses.
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