Medline is a supplier of information management and urban intelligent warehousing solutions for the FMCG industry. Currently, Medline has 28 offices nationwide. In 2017 alone, Medline operated 57 distributor warehousing and distribution projects across the country, with a cumulative warehouse area of 450,000 m², serving 200,000 stores with a total of 560 vehicles. Recently, New Distribution interviewed Medline CEO Xu Yonggang, hoping to gain his perspective from a third-party service provider's viewpoint on the direction of FMCG distributor transformation and upgrading, as well as improving daily operational efficiency:

  1. Which types of distributors are suitable for centralized warehousing and distribution?
  2. How should distributors respond to the sudden arrival of giants?
  3. How can operational efficiency be improved in daily operations?

1 Which types of distributors are suitable for centralized warehousing and distribution? What kind of distributors are suitable for centralized warehousing and distribution? Is it based on the categories they handle, sales scale, or coverage of terminal outlets? On this point, Xu Yonggang told New Distribution that whether a distributor can do centralized warehousing and distribution depends on whether their sales scale ranks in the top five in the region. Centralized warehousing and distribution is not suitable for small and medium-sized distributors to play; if they cannot reach the top five in the regional market, the risk of failure is high. Xu Yonggang believes that distributors doing centralized warehousing and distribution must have "three cards": scale, efficiency, and model. Although centralized warehousing and distribution is a trend, distributors must clearly recognize their own advantages. Regardless of the outcome, large distributors already have a scale advantage. The next step is to strengthen their backend operational efficiency and set clear rules for distributor onboarding. "Even if large distributors have scale, they still face two major pitfalls when doing centralized warehousing and distribution: the efficiency pitfall and the model pitfall." In terms of efficiency, Xu Yonggang told New Distribution that in the past, a large distributor only had themselves to manage, and a warehousing and distribution accuracy rate of 95% was already quite good. But if they do centralized warehousing and distribution and still have 95%, the onboarding distributors will think they are not capable of managing the goods well and will be uneasy. If there are 10 onboarding distributors, previously with a volume of 100 million, now 500 million, the error rate in warehousing and distribution will be far more than 95%. What is the model pitfall? First, many distributors doing centralized warehousing and distribution have a common misconception when recruiting other distributors to join their warehouse: they think the core is to help them reduce warehousing and distribution costs. In fact, in Xu Yonggang's view, the cost reduction is relatively small and not enough to truly attract distributors to join. Distributors must change their mindset and not simply hope to persuade other distributors to join by reducing costs. They should adopt a "nurturing" mentality, helping the onboarding distributors grow bigger and stronger. "Nurturing" means helping the distributor achieve growth in the categories they operate, leveraging the platform's influence to connect with upstream brand owners, helping the onboarding distributor select products, and then handing them over to the onboarding distributor to operate. Second, when inviting onboarding distributors, not all distributors should be invited. The platform should invite distributors whose category structures do not conflict with its own. For example, if the distributor itself deals in beverages, the most suitable onboarding distributors are those in snacks, condiments, daily chemicals, and personal care. The onboarding distributors and the distributor must complement each other in category structure, growing together, rather than having multiple players in the same major category. Xu Yonggang told New Distribution that the business model of centralized warehousing and distribution should be led by large distributors first. Distributors ranked in the top five have the opportunity to do centralized warehousing and distribution. How should medium-sized distributors proceed? Xu Yonggang gave New Distribution an example: Distributor A in a certain region does one-stop distribution of condiments, with 1,000 SKUs, a warehouse area of 3,800 m², and 7 vehicles. Centered on the warehouse, it covers all small and medium restaurants, circulation outlets, and farmers' markets within a 40-kilometer radius. In the past, traditional condiment distributors could only deliver once every three days or once a week, using route-based delivery. Distributor A broke tradition by connecting to an online ordering platform, achieving two deliveries per day. Instead of delivering by route, they deliver based on the location of order sources. Assuming every 20 orders as the basic delivery standard, the backend calculates distances based on order locations, and when an area reaches 20 orders, delivery is made. Currently, Distributor A's warehousing and logistics staff is only 26 people, including drivers, dispatchers, warehouse keepers, and pickers, with annual sales of 160 million and a daily order volume of 500 orders. From the above case, it can be seen that medium-sized distributors can choose another path: becoming the leader in their category through efficient operations, deeply cultivating the market around their category, and growing bigger and stronger. Of course, many medium-sized distributors are unwilling to give up and want to unite multiple distributors to do centralized warehousing and distribution. Xu Yonggang believes that multiple distributors uniting often leads to a tiring journey. Even if several medium-sized distributors in non-competing categories unite, they still face many issues such as people's hearts, recruitment, decision-making, and models. Compared to large distributors leading centralized warehousing and distribution, multi-distributor alliances face more hurdles, and currently, few have succeeded. Where is the way out for small distributors? Xu Yonggang told New Distribution that it is quite difficult for small distributors to stand out in the current environment. The most suitable path for small distributors is to take sides, complementing large distributors in categories, and gradually grow by leveraging the resources of large distributors. Some distributors do well in certain categories or special channels (such as nightclubs and construction sites). Large distributors lack teams, so small distributors can consider becoming a department of a large distributor to drive incremental growth.

2 How should distributors respond to the sudden arrival of JD.com and Alibaba? What should be done when the wolf comes? Xu Yonggang believes that Alibaba and JD.com are giants, and in direct competition, distributors are no match. JD.com and Alibaba face the national market, so there is a time lag. In a specific regional market, compared to distributors, JD.com and Alibaba are still at a disadvantage. Distributors should find the right timing and take sides with them, "dancing with the wolf." For example, distributors can provide forward warehouses for Ling Shou Tong (Alibaba's retail platform). The goods of Ling Shou Tong are stored in the distributor's warehouse, and the distributor earns warehousing and distribution fees. JD.com has also launched a joint warehousing and distribution plan, and distributors can consider cooperating with JD New Road. Xu Yonggang emphasized, "Even if large distributors do centralized warehousing and distribution, they should also consider cooperating with JD.com and Alibaba, walking on two legs. In China's FMCG industry, whether platforms or distributors, the future may only have two surnames: Alibaba and JD.com. The internet has no boundaries, but warehouses do. A warehouse cannot cover the whole country. Distributors can place products on platforms for incremental growth and integration, leveraging the platform's mature operating system, combined with their own warehousing and distribution efficiency, to do a good job in a small regional closed-loop business."

3 How to improve operational efficiency in daily operations? The first two points revolve around the direction of distributor transformation and upgrading. Regarding how to improve operational efficiency in daily management, Xu Yonggang also gave his views. Currently, the internal operating systems of most distributors are relatively chaotic. Not being able to calculate accounts well or not knowing how to calculate accounts is a common problem among distributors. To improve operational efficiency in daily management, the first priority is to achieve data transparency. For each SKU, each link, how much money is earned, how much cost is incurred, down to each store, logistics costs, product costs, and even customer relationship costs, distributors must achieve comprehensive dataization. Only with data transparency can operational efficiency be improved. Second, the partner mechanism. After a distributor reaches a certain scale, they should establish a business partner mechanism. The distributor boss has limited time and energy. When representing a new product, they can consider selecting excellent business managers internally as business partners for the new product. For example, the company provides 500,000 as capital, and the business partner invests a certain amount, making the business partner fully responsible for the profit and loss of the new product. Third, the establishment of a position PK mechanism. In the past, position PK mechanisms were usually in the external business sector, and internal PK mechanisms were rarely involved. Xu Yonggang believes that internal positions should also have PK mechanisms. For example, warehouse pickers can PK on accuracy. If accuracy is 100%, there is a reward; the last place might have to eat a bitter melon, etc. Fourth, team motivation. When the business team develops "work inertia," their thinking tends to degenerate. At this time, external teachers should be invited to provide business personnel with fresh working methods and mindsets. As the saying goes, "The monk from outside chants the sutras better." The boss can do daily assessments, but their ability to improve the work capabilities of business personnel is very limited.

Final Thoughts The above are Xu Yonggang's views on distributor transformation and operational efficiency improvement. In the view of New Distribution, whether distributors are transforming or upgrading, the first priority is to improve internal operational management. In reality, many distributors only calculate annual accounts: annual revenue, costs, and profits. When considering company development, they often only think about whether to represent another product, enter another category, add a person, or reduce warehouse rent, etc., and rarely pay attention to the internal operational efficiency of the enterprise. In the past, the rising business of distributors masked many internal management problems. Now that sales growth has slowed, even if distributors add more products and personnel, it is difficult to return to the past. When distributors clearly grasp their own operating cost structure, they can make targeted adjustments with a basis. If vehicle costs remain high, can they adopt an internal contracting system? If others can achieve 99% accuracy in product management, and you only achieve 90%, is there room for improvement? By dissecting internal operational data, distributors can discover where to improve. Once internal operational efficiency is improved, whether distributors transform or upgrade, their competitiveness can be significantly enhanced. When facing platforms and large distributors, they will only increase their bargaining chips in cooperation negotiations. Distributor friends interested in transformation and upgrading can add the author's WeChat for exchange! -END-