The 3rd "FMCG + Internet Conference" hosted by New Distribution was grandly held on November 8-9, 2017, at the Yuelai International Convention Center in Chongqing! 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 content from the roundtable forum on the afternoon of November 9, where Liu Zhengdong (Head of Supply Chain Finance, GLP Warehousing), Lu Lixin (CEO, Gongwu Logistics), Liu Zhongmin (Chairman, Yishang Logistics), He Jianfeng (CEO, Chengpu Software), and Sheng Yan (Chairman, Yijia Logistics) discussed "How Can Distributors Leverage Centralized Warehousing and Distribution for E-commerce Transformation?" New Distribution has organized their remarks for our readers.
Liu Zhengdong: If convenient, please introduce yourselves, starting with President Lu.
Lu Lixin: I've already been introduced. I've worked in the logistics industry for many years. My current platform, Gongwu Logistics, serves as an industrial internet platform for logistics, working with small and medium-sized logistics companies to provide better logistics services. We can offer several services to B2B platforms and distributors: first, from sourcing goods from brand owners to line-haul transportation, we can integrate capacity through our platform and cooperate with more small logistics companies to reduce costs. Second, we provide technology output services for logistics platforms. Third, we also offer specific logistics services. That's our current business.
He Jianfeng: Hello everyone, I'm He Jianfeng. I've been engaged in enterprise informatization for nearly 20 years. We mainly provide two services to brand owners, distributors, and logistics companies: we solve delivery problems, offering a series of services from order systems to financial management systems, with a complete set of solutions. The second service is to leverage our talent pool and industry experience to provide logistics warehousing and distribution implementation services for companies in need, from process design to every node detail. What we do is solve physical problems, strengthen the body and build bones. We will stay true to our original aspiration and forge ahead, providing better services for more companies, saving time, effort, and worry. I wish all companies continued success.
Liu Zhongmin: Hello everyone, I'm from Yantai Yijia Logistics. I used to be a distributor and know the pain points of distributors. Now I serve distributors, which is an advantage. Regarding centralized warehousing and distribution, my view is that even if you have supply sources and distributors, regardless of whether there's a B2B platform, the first step should be centralized warehousing. Centralized warehousing solves the most fundamental issue: cost and expenses. After centralized warehousing, then centralized distribution, and then B2B platforms, etc.
Sheng Yan: Hello everyone, my business is very similar to Mr. Liu's. We transitioned from manufacturing. We have over 5,000 distributors and face similar issues. Many people are complaining, but we want to find problems within ourselves. From manufacturing to the B2B link, there's actually a lot of room to effectively reduce costs. How to improve efficiency and reduce costs? But if we only do Arawana (a brand), the product line is relatively single and seasonal. So under pressure, we're also building a public platform, bringing FMCG products from the same channels onto our platform for intensification. Through IT upgrades and system integration, we aim to effectively match people, warehouses, vehicles, and products to provide greater value to platform customers and better promote business development.
Liu Zhengdong: Should distributors do centralized warehousing and distribution themselves? Let's ask Mr. Liu to answer this question first.
Liu Zhongmin: Whether distributors should do centralized warehousing and distribution, my answer is definitely yes. We deal with FMCG, which has the largest delivery volume. Building materials and hardware are difficult for centralized warehousing and distribution, but FMCG has large volume, complex management, and significant social impact. Currently, warehouse management is very difficult; it's a weakness.
Over 95% of distributors have discrepancies between accounts and goods. Using third-party services to manage your accounts is certainly a good thing. But who will manage it now? Real estate companies have money but are unfamiliar with this industry; cross-industry work is very difficult. However, distributors have all worked in warehouses and know the pain points well. But for one distributor to do it alone is very difficult because they are weak. Now, do distributors want centralized warehousing and distribution? I believe over 95% of distributors want it, but why haven't they done it? They're unwilling to be the first to try, with many problems and confusions. At this point, distributors should form a consortium. If you have a certain turnover, I can help you determine cost and expenses within three to five months. Everyone talks about burning money; it seems like a convention. To put it bluntly, it's losing money; to put it nicely, it's initial investment. How to reduce costs fastest? I think only by distributors uniting. If you lack software, we provide software; if you lack city distribution, we provide city distribution, including financial capital—all can be done.
Liu Zhengdong: Mr. Lu from the Gongwu platform showed a diagram of 26 steps in logistics, which made me dizzy. Do you think warehousing should be done by distributors or directly outsourced to logistics companies for professional solutions?
Lu Lixin: I think it's not that they can't do it, but if distributors focus on how to do logistics themselves, I think it's putting the cart before the horse. There are many ways to improve supply chain efficiency; any other link is better than logistics. Not all distributors can't do it, but the vast majority are unsuitable. I've seen too many distributor warehouses where they can't even manage their own goods clearly, let alone for others—they're just waiting to lose money. Doing logistics is not easy, as Mr. Liu said. Although distributors are familiar with products and channels, many things aren't necessarily advantages. When I was in charge of a logistics company, we managed a warehouse where a lot of liquor went missing—hundreds of thousands of yuan. We reported it to the police, and they found that the warehouse keeper colluded with a distributor's salesperson to steal and sell the goods. I thought, if it were our own warehouse staff, they couldn't sell it outside, but distributors could. So, I think doing logistics is not something distributors should spend much energy on. Let third-party logistics companies do it; they're even willing to lose money for you, so why do it yourself? You not only won't make money but will also lose money—that's not right.
Liu Zhengdong: As an observer, let's ask President Sheng. From your perspective, what would be a more reasonable answer?
Sheng Yan: I think many people are commenting on others' business models. There's no absolute answer, no right or wrong, and identity isn't the issue; it depends on how you do it. Between Mr. Liu's and Mr. Lu's views, I'm 60% more inclined to agree with Mr. Lu. I've also tried for a few years. Our internal distributors were conflicted at first, unwilling to bring products back to our platform due to many concerns. Actually, it's a matter of mindset. Once they truly open up and come back, it turns out to be a good thing. I have many cases to illustrate. Some distributors originally ran their own logistics, which was very troublesome. Arawana has many products, but costs weren't optimal. Compared with RT-Mart's central warehouse, which can achieve 1%-1.5% for secondary logistics, our research showed distributors are around 3.5%. Even Retail Link (a B2B platform) uses distributors and gives 6% logistics fees, but they're promoting a business model; once the model matures, that cost is also high. So, there's no right or wrong. But through our case studies, if distributors release logistics and focus on commerce, relationships, and product promotion, their performance grows rapidly instead. You'll find that distributors reaching 300-500 million yuan is already a big bottleneck; few reach 1 billion. If capital isn't the issue, the biggest problem is logistics. Without systematic support, it's hard to achieve industry-leading efficiency and lowest costs. If a good platform emerges, future KPIs will show that efficiency improves for distributors, costs decrease, and conversely, commercial volume increases. That's a good platform. Don't evaluate who does it—whether you or I do it better. The biggest issue is: if you're in commerce, will others be willing to put their commerce on your platform? Once you have their big data, you might disrupt them. That's a big problem to think about. Others won't put their business on your platform just to save a little money; if their business is taken away, they won't do it even if there are benefits. So, this needs to be balanced.
Liu Zhengdong: Let's ask Mr. He for his view.
He Jianfeng: I fully agree with President Sheng. There's no right or wrong, only suitable or unsuitable. The direction of centralized warehousing and distribution is definitely correct, but it takes time and requires everyone to liberate their thinking. For cost reduction and efficiency, I personally lean towards regional approaches. For example, a regional distributor leader, or someone with influence and status. Why status? To solve the trust issue; otherwise, you can't do centralized warehousing and distribution or same-city logistics. It's best to have several strong distributors do it together, becoming shareholders and customers, forming a distributor alliance to do regional centralized warehousing and distribution or joint distribution. That would be better. After doing centralized warehousing and distribution, we can also make it a profit growth point and serve society. I think this direction is promising in the future.
Liu Zhengdong: Second question: In the process of same-city logistics, what kind of cooperative relationship do you think same-city logistics companies or warehousing and distribution companies have with B2B platforms? Are they merely service providers, or are there new ways to better integrate the two?
He Jianfeng: From an observer's perspective, there are two paths. If you do centralized warehousing and distribution without solving the trust issue, it won't work. Of course, with capital, like Zhanghe or GLP, it's possible. Our future is correct, but market cultivation takes time. If you want to make quick money, it seems difficult in this era. Actually, distributors and platform companies can do it. But if platform companies don't have enough capital, they should cooperate with companies like Weijie City Distribution. I think there are two paths.
Lu Lixin: B2B companies, no matter where they come from, have many things to do: connect goods and connect stores. If they choose to do logistics themselves, the pressure is high. Like Mr. Liu, Mr. Sheng, Mr. Han, Mr. Wang, and GLP have done well. If you try to reach 80 points at once, it's hard. If you connect goods and stores but logistics services lag, it increases pressure. In any case, in the short term, B2B must find a same-city logistics company to cooperate with. As for the future, we'll talk later.
Liu Zhengdong: So, I can accompany you for a while, but whether we continue depends on mutual fate and磨合 (adjustment).
Liu Zhongmin: Just like an airport has planes and ground services, centralized warehousing and distribution is the ground service, and the B2B platform is the plane. They serve each other. You build an airport for planes to fly; the airport serves you. I think same-city distribution is like an army; without logistics support, even if you win today, you won't last long tomorrow. China's reform and opening up started early; poverty drives change. Now, B2B platforms in China may be unmatched globally, but in same-city distribution, developed countries do much better. Even without B2B platforms, they had centralized warehousing and distribution, which is their biggest advantage for cost reduction. Now with B2B platforms, if you have centralized warehousing and distribution but still can't reduce costs, it's useless. Also, third-party logistics differs from centralized warehousing and distribution. Order logistics is point-to-point, moving dozens of tons. But our FMCG centralized warehousing and distribution involves goods that need professional handling, which third-party contractors can't do. I now serve over 400 distributors. The key is whether we can serve them well. Centralized warehousing and distribution is based on FMCG, and today's B2B platforms also focus on FMCG, so their integration is optimal.
Liu Zhengdong: What's President Sheng's view?
Sheng Yan: I fully agree with Mr. Liu. The issue of FMCG ordering is a core problem, not as simple as many imagine. Especially with 5,000 to 10,000 SKUs, forward logistics is doable for many, but reverse logistics decomposition and process reengineering is a complex project. Distributors have inherent advantages here—that's the first point.
Second, I think we should think about the sharing economy. Don't limit yourself to whether you do it or I do it. Previously, it was a module pushed down; Chinese people like to do that. I hope the future is shared. Everyone should see who has advantages and let them do it. Data and systems should be open, seamlessly connected, to maximize value across the value chain. That's the future trend. Whoever does it, open thinking is essential. In the US, my system can be open to you, but in China, my data is closed to you—that's not an ecosystem. If everyone thinks this way, China has a future, and the value chain will be optimized. Many professional companies will emerge to do well in the chain. This mindset might lead to better considerations.
Liu Zhengdong: Everyone talks about the concept of centralized warehousing and distribution. How can it truly be achieved? Besides the concept, what are the real core barriers?
Lu Lixin: The value of centralized warehousing and distribution is clear, but achieving it is not easy. Mr. Liu from Yishang has done well. I think there are several key points to break through. First, brand owners have traditionally used exclusive channels, and distributors serve only them. Channel independence leads to logistics independence; they can't be combined. Second, how to combine multiple brands is a challenge. Using B2B platforms to dismantle exclusive channels will promote centralized warehousing and distribution in the future.
Another issue is technology. We've run many logistics companies, but none have invested enough. Without investment in intelligent facilities and equipment, you can't even find goods in a centralized warehouse. Technical problems remain unsolved.
Anything shared has a painful transition period. Who bears the nutrition costs during the ten months of pregnancy? Everyone is happy after birth, but during the process, various problems need solving. There must be contract periods and various adjustments. Asking someone to give up their warehouse and move to yours isn't easy. Someone must be willing to endure until that day. These are the main obstacles.
He Jianfeng: Centralized warehousing and distribution will clearly reduce costs and improve efficiency in the future, but there are difficulties. First, trust: if someone puts goods in, can your service meet expectations? How long can the company last? Moving a warehouse once and then moving back is painful. Building a warehouse costs money; these are positive investments. Companies with strength can do it. Because of these positive investments, barriers create a future. Also, there are many processes, requiring solid skills. The professionalism needed is N times harder than being a distributor. Technically, it's feasible, but can you achieve process, execution, personnel matching, and resource matching? If you solve these two points, I think it's doable.
Liu Zhongmin: Over the past three to five years, many people have come to me. I talk about costs and fees, including yesterday's discussion on expenses and costs. Actually, people most want to hear about cost reduction that's immediately achievable. If you draw a big pie, many won't listen. The best thing about this conference is telling the truth. In previous years, there was a lot of hype. Now it feels like winter talk; people are telling the truth.
FMCG is low value-added, fast-selling. A Hong Kong compatriot said the cost is about 10%; the CEO of Hd (a software company) said 4-6%; I'd say around 2%. For Coca-Cola, ten kilograms costs about 1.2 yuan per month, which is 3%; Tsingtao Beer is 1.5%. According to our statistics, the average total value of FMCG is 7,000-8,000 yuan per ton. If it's 8,000, then it's 1.5%. I'm not including tax. A few days ago, I showed them invoices; my charging standard is that. People hear it's so low; how can it be achieved? We reflect: distributors provide rigid services, serving by time and place. My concept is standardization and normalization. Normalization requires volume. According to my standards, at my specified times, this price is possible. Through this standard, I deliver before 12 noon and before 6 pm, like a bus service. That's just 1 yuan. If I follow your requirements, it might be achievable, but not at 1-2%. If you deliver yourself, it might be 10 yuan, like taxi vs. bus. That's the reality. So, pricing is like that. Why did we previously follow American standards? Now many standards are set by China because we have strength. I say 1.5-2% is the concept. If FMCG logistics costs exceed 6%, don't do it. None of the distributors here exceed 6%.
As for B2B, what does it bring? It's disintermediation. B2B platforms, if done well, allow small stores to buy from them instead of wholesalers. That's removing intermediate links.
Sheng Yan: I think doing centralized warehousing and distribution is a long-term, not short-term, endeavor. You need scale to form a network to have value. Take And (a company): how much money and people have they invested in IT over the years? I estimate 100-200 million yuan, at least over 200 million. Only then can they seamlessly connect with Tmall and JD in IT, delivering directly to B and C ends without entering Tmall or JD's central warehouses. But today's distributors—who has the strength for such continuous IT investment? That's why B2B and B2C are different; scaling up is not easy. Jack Ma said: Those who know what they want are smart; those who know what they don't want are wise. So, you need to assess whether you have that strength.
If I don't do it myself, I can leverage software companies. But you need to think: B2B's spring will come because it's a trend. I agree with Mr. Liu on freight bus services. If you can't form a freight bus service today, with less than 1,000 tons, your platform can't achieve freight bus-like operations. You definitely won't be a profitable platform. Without profit, the business model is unsustainable. In the future, you must consider profitability.
Liu Zhengdong: Thank you to the four guests for their wonderful sharing. Our roundtable today concludes here. Thank you all!
Click Read Original to see more from the 3rd FMCG + Internet Conference... -END-