---
title: "The Second Path for Traditional Distributors to Survive: Outrun Your Peers, Hone Your Skills, and Enlarge the Pie!"
description: "Xu Yonggang, founder of Madeline, argues that distributors must transform their core competitiveness into 'the speed of precise service' to outpace competitors in harsh market conditions. By leveraging digitalization to achieve 'connectivity' and 'computation,' distributors can optimize operations, reduce costs, and increase efficiency, thereby capturing market share from weaker rivals."
author: "徐永刚"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-08-30"
language: "en"
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# The Second Path for Traditional Distributors to Survive: Outrun Your Peers, Hone Your Skills, and Enlarge the Pie!

> Xu Yonggang, founder of Madeline, argues that distributors must transform their core competitiveness into 'the speed of precise service' to outpace competitors in harsh market conditions. By leveraging digitalization to achieve 'connectivity' and 'computation,' distributors can optimize operations, reduce costs, and increase efficiency, thereby capturing market share from weaker rivals.

"
Transform your core competitiveness into 'the speed of precise service.' In a harsh market environment, outrun your competitors, let them fall first, and their existing market share will be released and come to you. It's like a cake: if three people can't get enough to eat, one must be sacrificed so the remaining two can share it. Therefore, for leading distributors, if you refine your internal capabilities, you can still make considerable money.
 _——Xu Yonggang, Founder of Madeline_
"
This content is from Mr. Xu Yonggang's presentation on 'New Technology, New Logistics, New Efficiency—Distributor Professional Edition' at the FDIC2018 China FMCG Digital Innovation Conference, edited and organized by New Distribution for our readers.
Before discussing the three 'news,' let's review the changes in the FMCG market related to distributors over the past three years. 2014 was the hardest year for business, marking the beginning of widespread difficulties for physical businesses. In 2015, the national Internet+ strategy led to the proliferation of B2B platforms across the country. In 2016, supply-side reform was emphasized, and a new species called 'unified warehousing and shared distribution' emerged in the FMCG market. In 2017, the buzzword was artificial intelligence, and for FMCG distributors, 'new retail' was the key term.
Looking at the past three years from 2018, you'll notice that the market changes affecting distributors are essentially a 'model' reconstruction of the FMCG industry chain! In the first year, the platform was a 'transaction' model; in the second year, unified warehousing and shared distribution was a 'logistics' model; in 2017, new retail was a 'store' model. Over three years, it has been reconstructing models. I believe many distributors think these three models haven't significantly impacted or disrupted their local markets.
From a macro perspective, these models have emerged but haven't yet created value locally. What's missing is digitalization, which is the focus of 2018. For all models and enterprises in 2018, the core value of digitalization lies in efficient operation or operational reconstruction—using higher efficiency to refine previous methods. This applies to distributors as well; it's a trend. The efficient operation model will persist for several years, not just one or two, to make enterprises highly efficient.
Digitalization for distributors is a broad concept. When it comes to implementing digitalization in your enterprise, I estimate half of you think digitalization means software. However, digitalization goes far beyond traditional software; it's a different concept from the internal efficient operations we previously considered.
**Two cores of digitalization: 1. Connectivity, 2. Computation.**
First, 'connectivity.' The first step is to do what wasn't done well in the past five years: connect internal departments. In many enterprises, sales, procurement, and finance are not connected, leading to poor information flow. For example, if finance deducts a fee from a store and this information isn't shared with sales, the salesperson won't know immediately, leading to misjudgment of that store's business. Similarly, if the warehouse processes a return without connecting to sales, you can't quickly grasp the store's return rate or the reasons behind it—whether a competitor was faster or the product has issues. Only with internal connectivity can you 'compute' intelligence. Thus, internal connectivity is the first step for distributors in digitalization, making up for past shortcomings.
The second step is connecting with hardware. At technology expos, you'll see unmanned forklifts; you need to connect with them too. For example, in logistics related to distributors, there's a connection with 'hand carts.' In our warehouses, when shipping, each person has a hand cart—a piece of hardware. If not connected, it's just hardware, but once connected, it becomes active. When connected, when you place goods from shelves onto the cart, the system can detect if you've loaded too many or too few, feeding back to your ERP, which then alerts the operator: 'You picked incorrectly.' This connectivity can reconstruct your warehouse workflow. Previously, distributors had to manually count items to prevent errors. But with hardware connectivity, the counting step can be optimized away; front-end control ensures accuracy better than human counting, as it uses weight to verify.
This includes connecting with logistics vehicles and ERP—everything needs to be connected. Once you open your mind to this, you'll find your enterprise gradually becoming an 'Internet of Things' enterprise. Additionally, we need external connections with manufacturers and B2B platforms. In the Internet age, information is open, not closed. External connectivity is a key means to become a 'platform' enterprise. For instance, allowing manufacturers to connect to your warehouse lets them see their inventory in real-time, enhancing their cooperation experience.
From the abstract diagram, the first step is to execute connectivity. The purpose of connectivity is to obtain data, and the first purpose of data is to 'calculate accurately.' Many distributors rely on manual data accumulation through finance and clerical staff, and the accuracy is questionable.
Through 'accurate calculation' in the computation phase, you can calculate costs, gross margins, and expenses accurately. But you might say you already calculate accurately. I must tell you that in the digital age, the purpose of accurate calculation isn't just for a report; it's to enable you to bring in partners. When someone partners with you, your data must be transparent, real-time, and accurate—only achievable through digitalization.
Another key point in 'computation' is 'algorithms.' Algorithms are the effective method for distributors to truly implement digitalization and achieve 'cost reduction and efficiency improvement.' The impact of algorithm-driven cost reduction differs greatly from the traditional ERP era.
For example, how should goods be placed in our warehouse? Most rely on warehouse managers' experience. To achieve cost reduction and efficiency, we must use computers to calculate when a batch of goods will ship and which SKUs will ship together, then recommend the optimal storage location—not a fixed one. This calculation aims to maximize warehouse staff efficiency. Also, for picking, leading distributors don't lack orders; they have orders but can't ship them out. It's like eating: you have plenty of rice but can't digest it. Orders pile up, delivery delays cause a vicious cycle, and customer satisfaction drops.
To break this deadlock, we must use digitalization to calculate the fastest picking methods. I won't go into details, but one key to efficient warehouse operations is using algorithms to determine how to pick goods—not simply picking order by order, but based on order attributes, store attributes, and warehouse layout, to find the most efficient method.
Computation has many other uses, such as dispatching. High logistics costs are partly due to low loading rates, often because orders on a route are few. We need to change from fixed route-based logistics to density-based loading, calculating how to load trucks for maximum efficiency. Our digitalization is overturning traditional thinking in warehouse, management, logistics control, and salesperson visits.
The most powerful aspect of digitalization is 'profiling.' Profiling means determining how a store should promote new products, which items to stock, without relying on salespeople's judgment—it's done automatically. This includes what new products to introduce and how to plan the warehouse, all achievable through profiling. This is the highest value of enterprise digitalization.
We often talk about reconstructing 'people, goods, and scenes' in retail, mostly within new retail. But for warehousing and logistics to truly improve efficiency by 50% to 100% or more, we must also reconstruct the 'people, goods, and scenes' within the warehouse. Treat the warehouse as a retail store; our logistics and warehousing need reconstruction for real qualitative change.
How to reconstruct? We used to think goods in the warehouse were the core. Now we must shift to a 'people-centric' approach—your employees. Focus on how people can quickly find goods. So we must shift from goods-centric to people-centric; people must keep moving to improve efficiency, not wait for goods.
Our logistics management should change from route-based distribution to density-based distribution. The truck should never stop; wheels keep rolling for maximum efficiency. But the premise is that trucks don't take detours.
Warehouse staff tasks should shift from 'finding work' to 'receiving instructions,' similar to ride-hailing apps like Didi. Traditional taxis pick up passengers when they see them. In warehouse reconstruction, we should adopt the Didi mindset: directly push instructions for tasks to be done. Regardless of your job, when idle, you complete whatever instruction is pushed to you. This fully utilizes each employee's fragmented idle time.
Once you grasp these points, you'll find your warehouse and distribution efficiency becomes exceptionally high.
Next, I'll share three cases where reconstructing the warehouse and distribution system produced significant results.
The first case is a snack food distributor in Sichuan. Before transformation in 2016, the warehouse had 3,500 SKUs, 9,000 order lines daily, daily delivery of 200,000–300,000 yuan, and 4,000 square meters. After transformation in 2018, with the same 4,000 square meters, they handle 300 orders daily, 15,000 order lines, 85% broken-case picking, daily delivery of about 500,000 yuan, with 15 warehouse staff. That's reconstruction.
The second is a condiment distributor that replicated four 50-million-yuan regions in Sichuan within half a year in 2018. Originally, with 70 million yuan in transactions and 62 people, after model improvement, they now have 32 people and replicated the model in four cities at once.
The third case is about making unified warehousing and shared distribution profitable through attracting merchants. My advice to those in this field: when warehouse accuracy is below 99.99%, do not aggressively recruit merchants. Low accuracy indicates management problems. A single distributor can achieve 99% accuracy without issues because losses are absorbed. But in unified warehousing, you're responsible for all gains and losses. If you have 1 billion in volume and accuracy is below 99.99%, the losses can be significant. Remember, in third-party logistics, profit margins are extremely thin.
Finally, I want to say that the core competitiveness of distributors has changed. Now it must be 'the speed of precise service.' Being fast, accurate, and cost-effective are the new competitive advantages, not warehouse size, number of vehicles, or staff. Through digitalization, we must align ourselves with this, especially leading distributors.
Distributor transformation comes in two forms: one is 'transformation'—bold innovation; the other is sticking to tradition. If you stick to tradition, many say there's no future from a five-year perspective. In my view, in every city, some distributors, even without changing their model, can still make more money by optimizing 'cost reduction and efficiency improvement.' This window lasts about two years. The strategy is to digitally transform the enterprise to achieve significant cost reduction and efficiency. Transform your core competitiveness into 'the speed of precise service.' In a harsh market, outrun your competitors, let them fall first, and their market share will come to you. Like a cake, if three people can't get enough, one must be sacrificed so the remaining two can share. So, leading distributors, refine your internal skills, and you'll still make considerable money.
For enterprises and distributors to thrive long-term, they must thoroughly 'reform and innovate.' Distributor reform must grasp two key points: first, integration of online and offline; second, building an ecosystem. Master these two before transforming.
These are my suggestions for transformation. If you need deeper understanding of the models I've mentioned, or want to see what these warehouses look like and how distributors actually transform, we can discuss further. Thank you!
Click **Read Original** to see more from the 2018 FDIC China FMCG Digital Innovation Conference...
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