New Distribution Note: On October 24, 2018, at the "2018 China FMCG City Distribution Logistics Conference" hosted by New Distribution, Mr. He Yan, Senior Director of Market Operations at Fengwang, delivered a keynote speech on "Shared Warehousing and Distribution: The Foundation and Core of the Second Half of the Internet". Today's topic is how smart supply chains empower the transformation and upgrading of traditional retail and FMCG. Before that, let me express a few viewpoints. The retail and FMCG industries do not have pure warehousing and distribution; they must have integrated supply chains, meaning that the flows of commerce, logistics, capital, and information must be bound together. However, this does not mean that one company does all four flows; rather, the links must be connected. That is the core viewpoint. Fengwang has been doing unified warehousing and co-distribution since 2007. From 2007 to 2016, for ten years, we focused on unified warehousing and co-distribution for the e-commerce industry. We centralized the goods of small and medium sellers into one warehouse, with a third party providing warehousing and distribution services. Fengwang helped Alibaba's entire e-commerce system manage over 200 warehouses, building them from scratch, managing and operating them. Later, when Alibaba had Cainiao Network, we gradually sold the entire system to Cainiao, including the business and operations system. After that, we entered the FMCG industry. The FMCG market is huge; e-commerce currently has a market size of less than 10 trillion, but retail FMCG is easily tens of trillions in scale. In 2017, Fengwang developed a fourth-party system to serve third parties, with core clients being third-party warehousing and distribution logistics companies. We previously thought that at least 70% of Fengwang's service targets would be distributors and wholesalers looking to transform, with few logistics companies. But now, the result is that out of 57 cities, nearly 45 are warehousing and distribution companies that either have existing FMCG city distribution business or no existing business but want to transform to serve new retail. This was unexpected. Traditional Retail FMCG Supply Chain This picture is familiar to everyone. Retail FMCG is not a new industry; it has existed for hundreds or thousands of years. There are people serving the urban retail system in very inefficient, traditional, and hard ways, delivering goods to retail terminals. Inefficient, traditional, and hard means FMCG really doesn't make money. Ten years ago, I participated in Mengniu's national trunk and branch line transportation bidding, and we won. Once, when I was having dinner with a friend, he brought along a company that didn't win the bid. He said they had reduced the trunk line cost to 0.15 yuan per kilogram, with a cost of about 0.3 yuan, and they quoted 0.15 yuan but still didn't win. He asked me what my quote was. I said 0.07 yuan. He asked how I did it. I said it was simple: Mengniu uses Tetra Pak packaging, and I was the one delivering packaging to Mengniu's factory. After delivering the packaging, I would return empty, so I could easily pick up some milk from the factory. If I quoted 0.01 yuan, I'd earn 0.01 yuan; if I quoted 0.02 yuan, I'd earn 0.02 yuan. Doing logistics in the retail FMCG industry is tough and doesn't play by the rules. This is especially true on the city distribution side. Different retail terminals, for example, delivering to a small shop, there might be a nightclub customer next to it. The small shop requires morning delivery, while the nightclub requires afternoon delivery. These two adjacent stores have to be served by two different vehicles at different times. When talking about retail supply chains, we must mention Walmart. Over the past 20 years, only Toyota has been better than Walmart in refined supply chain management and efficiency. Walmart built a system of transfer warehouses, forward warehouses, bonded supervision warehouses in different countries, trunk and branch line networks, sea, land, and air transportation, etc., to serve various retail terminals at low cost and high efficiency. However, such an efficient and advanced supply chain system can only serve Walmart's own system; it is completely closed. Managing supply chain efficiency is like wringing a towel. To compress the cost of a link from 0.1 yuan to 0.09 yuan requires a huge effort. How to reduce costs? Simple: increase order volume and concentration. That's why the concept of unified warehousing and co-distribution came about. From the earliest Haier to today's JD.com, companies have opened up their logistics supply chain networks. Instead of wringing the towel, it's better to bring in more orders, serve more terminals, and lower marginal costs. This is the core of shared supply chains. Iteration of B2B Models The most common B2B (V1.0) is self-operated warehousing in a city with 3,000-5,000 SKUs, having its own platform and a ground promotion team, whether partners or assistants, to serve terminals. These are usually terminals with relatively standard delivery scenarios, primarily mom-and-pop stores or small convenience stores. They take categories from local distributors, agents, and second-tier wholesalers. Some platforms self-purchase and self-sell, while others are consignment. "You sell 100 a day, we help you sell 150, with a 50-day or 30-day payment term." Are there benefits? Yes. For most distributors, they cover few terminals. By cooperating with B2B, they can cover more terminals, and sales do increase. But it doesn't solve the fundamental problem. Why? Vehicle sales and visit sales still exist because they have to deliver to other terminals like restaurants and special channels, which most B2B platforms can't do. Another issue is when it comes to self-operated and buy-sell. An agent's products are divided into first, second, third, and fourth tiers. Large platforms only buy first and second-tier products. For distributors, Mengniu doesn't care how much Telunsu is sold each year; for Mengniu, it's just "filling the flow". The core concern is third and fourth-tier brands, which are the main source of profit. Currently, some B2B platforms haven't solved the core problems for brand owners; they only solve some basic problems for a large portion of distributors. Later, there was version 2.0. In version 2.0, the unified warehousing and co-distribution platform is operated by a local third party, and the network can cover all channels. At the same time, the platform adopts a "Tmall model" where distributors can sell whatever they want on the platform at whatever price they want. The benefit is that distributors truly free up their vehicle sales teams. The business team truly becomes sales, expanding new stores, or promoting new products under agency, and implementing the manufacturer's new policies. At this point, the platform has value. At the same time, with the rise of community group buying, it helps retail terminals increase incremental sales. I agree with one viewpoint: B and C must be done together. Why? It's useless to only solve the problem of store supply for distributors. A traditional store can only sell 100 bottles of Coke a day. Only by helping him sell more goods will he be willing to stock more Coke. 2B and 2C must be bound together in future retail. That's why JD.com and Alibaba proposed the concepts of new retail and borderless retail. The core is 2C, but it's not the simple and crude 2C of the past; it's doing C-end through offline retail terminals. The advantage of offline retail terminals is, for example, a convenience store downstairs: "even if it's more expensive, you have to buy it"; you won't walk two or three kilometers to save 0.5 yuan. The Logic of 2C is the Pitfall of 2B Many platforms, whether doing city distribution or B2B, most easily make the mistake of applying 2C logic to the 2B field. When Taobao and JD.com grew big, they shipped from a few warehouses nationwide. JD.com initially had two warehouses and shipped nationwide; as long as there was an order, it could be shipped. That's 2C logic. A certain B2B platform is now struggling to survive. It did big business, making 9.7 billion in 2017, covering over 80 cities. But when you calculate it, each city has only 200-300 million, which is the volume of two or three distributors. Any regional king can beat him. Although there is total volume, the new retail and city distribution fields emphasize order concentration. The core of logistics is network effects, but in the FMCG industry, because commercial flows have distribution and agency rights, it's hard for a giant to emerge. In the future, a service-oriented platform or an empowering company will emerge, not a big company serving all cities. That's a core point. Fengwang has done pilot projects in several cities. C'estbon water and Arawana rice each have local distributors with their own warehouses. After sharing, logistics costs dropped by 50%. C'estbon's warehouse is in a remote area, while Arawana's is in the city center. You can see that products with very low order turnover occupy a lot of warehousing costs, while high-turnover products often need to be delivered over long distances, with a radius of 20-30 kilometers or more. When a platform uses unified warehousing and co-distribution to rationally lay out inventory based on different turnover rates, combined with different channels, terminals, and regions, the probability of reducing costs is very high, not even considering damage. Information flow: now there is no pure TMS or WMS. From the distributor's perspective, all links are called ERP. From SCM, trunk and branch line transportation, city distribution, TMS, OMS, customer management, salesperson management, B2B with stores, and even some stores have O2O with consumers, or mini-programs, or community group buying platforms. In this entire chain, any link has the power to process orders. There are already many such systems in China. In other words, any third-party company, logistics company, or distributor, regardless of size, doesn't need to build its own system. That's information flow. Capital flow: two types: payment and finance. Payment is simple. Fengwang will release a scenario at Tencent's Global Partner Conference, in conjunction with WeChat Pay. For example, after a consumer buys a 5-yuan Coke at a store, the small shop receives 0.5 yuan, the distributor receives 3.5 yuan, and the second-tier wholesaler receives 0.5 yuan, with real-time settlement. This is a payment reform based on new retail: after a product is sold at the terminal, it's settled in real time. Another issue is solving the problem of not entering the warehouse. If Moutai worth tens of millions is put into the warehouse, what if it's lost? Supply chain finance: turn a 20 million loan into a 10 million loan for him, and he can use it to act as an agent for new goods. Let me share a case that Fengwang did in a certain city in China. Fengwang's core is to serve warehousing and distribution companies, helping them transform. But the warehousing and distribution company is only responsible for logistics, with warehouses, teams, and delivery networks. We also cooperate with local large distributors, who are responsible for commercial flow. The division of labor is one responsible for warehousing and distribution, the other for sales, bound together. We also talked with chain convenience stores. In such a scenario, we serve all channels: KTVs, restaurants, mom-and-pop stores, vending machines, community group buying, unmanned retail, etc. A 4.2-meter truck goes out, delivers to a mall, then uses a key to open vending machines and refill them with water, delivers rice, flour, and oil to different restaurants, and finally drives around the mall to deliver goods to all convenience stores. It doesn't matter how high the cost is, because the order volume is large enough. In such cases, it always makes money, just more or less. Whether it's called new retail, smart retail, B2B, or B2C, whether it's city distribution or commercial flow, brand owners must participate. This participation is not just channel digitalization. Only by connecting the chain of brand owners, distributors, retailers, and consumers, and achieving full channel sharing, can city distribution or B2B platforms make money. Click Read Original to see more highlights of the 2018 China FMCG City Distribution Logistics Conference... -END-