--- title: "The Biological Evolution of Distribution Networks" description: "This article explores how distribution networks in the FMCG industry, like natural networks, evolve towards efficiency and lower costs. It argues that digitalization is the key to optimizing these networks, but emphasizes that companies must adhere to the 'law of gravity' of market economics—self-sustainability—to avoid being crushed by their own scale." author: "奚亮" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2018-08-18" language: "en" canonical: "https://xinjignxiao.com/en/articles/the-biological-evolution-of-distribution-networks-e8991398/" markdown: "https://xinjignxiao.com/en/articles/the-biological-evolution-of-distribution-networks-e8991398.md" original_source: "https://mp.weixin.qq.com/s/9BpXpxoGsGpM0XKNMXA-sg" translation: "https://xinjignxiao.com/zh/articles/%E5%88%86%E9%94%80%E7%BD%91%E7%BB%9C%E7%9A%84-%E7%94%9F%E7%89%A9%E8%BF%9B%E5%8C%96%E8%AE%BA-e8991398.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/the-biological-evolution-of-distribution-networks-e8991398/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # The Biological Evolution of Distribution Networks > This article explores how distribution networks in the FMCG industry, like natural networks, evolve towards efficiency and lower costs. It argues that digitalization is the key to optimizing these networks, but emphasizes that companies must adhere to the 'law of gravity' of market economics—self-sustainability—to avoid being crushed by their own scale. Click 'Read Original' for details. Many complex phenomena in nature often hide simple and elegant mathematical relationships. For example, humans rely on the heart to pump blood through the vascular network, which branches from the aorta to capillaries, delivering oxygen and energy to cells and sustaining life. When the heart pumps blood into the aorta at a rate of 60 beats per minute, the blood flows in waves. At branch points, reflections occur: some blood flows back toward the heart, while the rest continues into smaller arteries, repeating similar reflections at the next branch. These reflections at branch points place a heavy burden on the heart and waste energy, making the network inefficient. Is there an optimal solution that eliminates reflections? Indeed, there is. Scientists have found that when the cross-sectional area of the main vessel equals the sum of the cross-sectional areas of the branch vessels, reflections disappear, and the network structure maintaining this mathematical relationship requires minimal energy. Remarkably, the human vascular network has evolved over time to maintain this exact mathematical relationship at branch points. Even more astonishingly, not only humans but all mammals, and even plant vascular systems, follow this rule: the sum of the areas after branching equals the area before branching. This evolutionary instinct in network systems is universal, always tending toward a state of minimal energy consumption, such as fractal structures in mathematics. Human road transportation systems also follow fractal structures, optimizing logistics costs. [Note: Some believe the universe itself is a fractal structure, seemingly with a purpose toward order, but this exceeds our cognitive abilities, so we won't delve into it to avoid superstition. However, the tendency of natural networks to optimize efficiency is an observable phenomenon.] In the world of artificial systems, FMCG distribution is also a network. At the terminals are thousands of fragmented small retail stores. Brand owners use local distributors as main nodes to distribute downward. However, most distributors cannot efficiently and cost-effectively deliver directly to fragmented small retail stores, so they rely on intermediate links such as second-tier wholesalers, third-tier wholesalers, and wholesale markets. At each downward node, there are time delays, handling costs between warehouses, and labor requirements. Additionally, there are invisible information losses. Brand owners' marketing intentions and promotional investments often fail to reach small retail terminals accurately due to a lack of digitalization at distributor nodes. Feedback from small retail terminals upward requires extensive ground personnel, and as labor costs rise exponentially, ground costs increase. Such a network system suffers 'reflection' losses at every branch node, requiring 'booster pumps' to push down, but the flow direction is uncontrollable, and the pumps themselves add energy consumption. As a result of this operational system, China's supply chain costs account for 18%, compared to about 8% in the US and 6-8% in Japan. Specifically in the FMCG industry, excluding trunk line costs from factories to cities, the cost from city distributors through multiple nodes to small stores is around 12%, varying slightly by category. FMCG B2B, through digitalization of distribution networks, can aggregate products, orders, warehousing, and distribution, enabling efficient and low-cost scheduling, one-stop delivery to small stores, and even in the near future, aggregation of ground personnel organization and scheduling, greatly streamlining channel costs. 'No digitalization, no distribution.' Ultimately, digital distribution networks, being transparent, precise, and real-time, can drive information, goods, and capital faster through the network to retail terminals, reducing intermediate links and unnecessary delays, thus greatly reducing network operating costs. Therefore, as long as the market's instinct for efficiency optimization exists, FMCG distribution networks will continue to evolve toward digitalization. However, economic reality is not as smooth as models suggest. The evolution of FMCG distribution networks is a gradual process, not a disruption or overnight change. Moving toward higher efficiency and lower costs through digitalization, solving the old problems of overly complex channels and excessive personnel and nodes, is the evolutionary need of distribution networks. More and more brand owners and distributors are converging on this consensus. Channel digitalization is not exclusive to FMCG B2B companies. Conversely, FMCG B2B companies should first be self-sustaining enterprises. They cannot put the cart before the horse by using burning money, subsidies, low prices, or even negative gross margins as competitive weapons, like a bull in a china shop, causing only destruction without creating value. Both sides need to integrate with each other, with brand owners' participation. In reality, a bull in a china shop will get beaten. This should be common sense. In nature, it has long been known that the size of organisms is limited by gravity and follows strict mathematical relationships. Due to gravity, an organism's body must support its own weight, and the ability to bear weight (strength) is proportional to the cross-sectional area. The problem is that area scales with the square of length, while volume (weight) scales with the cube. If an organism's size increases tenfold, its volume increases a thousandfold, but its strength only increases a hundredfold—a non-linear relationship with a 2/3 power. This is why the largest animal on Earth, the blue whale weighing 100 tons, can only live in the sea, and even large dinosaurs were mostly semi-aquatic. It can be accurately predicted that, unless the material's strength changes, a creature like Godzilla, weighing 200 times more than a blue whale, cannot exist on Earth. No species can ignore gravity. 'Self-sustainability' is the gravity of the market economy. For FMCG B2B companies, the growth of network scale must satisfy certain mathematical conditions. In other words, they must first find this mathematical relationship and strictly adhere to it to continue growing; otherwise, they will be crushed by their own scale. Finding this mathematical relationship is not difficult; the hard part is adhering to it seriously. Whether a company can be self-sustaining depends mainly on revenue, gross margin, fulfillment expense ratio, sales expense ratio, and headquarters costs, which are not in a linear relationship. Headquarters costs can be amortized with scale. Once the digital infrastructure system is built, the high R&D costs borne by FMCG B2B companies can be significantly reduced and reused at zero cost. These are favorable conditions for digital distribution channels to support larger or even ultra-large networks. The real challenge lies in the discipline of capital input-output ratio. Only by finding an optimized combination of gross margin and expenses can the capacity to bear scale increase, giving the network's growth and expansion sustained vitality. **Heavy is the head that wears the crown. Are you ready to bear your own scale?** *Author: Xi Liang, founder of Dianda, an FMCG B2B platform. He graduated from Renmin University of China and the University of Paris (Law School), with years of experience as a mergers and acquisitions lawyer and TMT industry investment, and served as the head of M&A at a well-known listed company. This article is original by the author.* Want to know where the new growth in the FMCG market is? How to better embrace digital transformation? How will the supply side of new retail evolve? How can B2B truly empower upstream and downstream? Don't miss the 2018 China FMCG Digital Innovation Conference and Brand Innovation Growth Forum on August 22. Click 'Read Original' to register, and successful registration gets a three-day conference pass worth 399 yuan! **Scan the QR code to attend or click 'Read Original' to register!** **We are waiting for you in Shanghai!** --- ## Copyright and AI use This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL. Contact: zhaobo258@gmail.com · +86 158 5481 7671