New Distribution Note: At the "2018 China FMCG City Distribution Logistics Conference" hosted by New Distribution on October 24, 2018, the following is the keynote speech delivered by Mr. Wang Qi, CEO of Weijie City Distribution, titled "Follow the Rhythm of Commercial Flow Changes and Focus on Platform Construction".
Thank the organizers. Today in Changsha, I will report on Weijie City Distribution's exploration and development in the city distribution industry.
Unlike the recent cold economic climate, the atmosphere here today is very warm. It is also possible that because it is so cold, we have gathered together to find ways to keep warm. I am passionate about the logistics industry and am proud to have been in it for over 15 years. Logistics is the foundation of the entire supply chain and the infrastructure serving commercial flow. As former Alipay President Shao Xiaofeng said, Logistics and payment are both underlying infrastructures. Once they reach scale, their high barriers and stability provide unimaginable support to all other businesses. However, as a logistics veteran, I must rationally say that the opportunities for logistics development still stem from changes and developments in commercial flow.
Around 2000, I witnessed the era of huge profits in international logistics, driven by the demand from the booming foreign trade. Around 2005, domestic warehousing and full-truckload transportation flourished, and I was fortunate to share in the dividends of that era, mainly benefiting from the rise of domestic infrastructure and basic consumption. Around 2010, due to the development of B2C e-commerce, the foundations of several domestic express delivery empires were laid. What will happen after 2015? What opportunities will it bring to the logistics industry? I believe the foremost is the opportunity for city distribution brought by the development of new retail, along with the opening of a strategic window.
What is new about new retail? It is new in the restructuring of the elements of people, goods, and scenes; new in the deep insight into consumer needs. As consumers, we are becoming increasingly proud, with more diverse and personalized demands. We require fast fulfillment, more new categories and brands, and orders are becoming more fragmented. Our consumption scenes are becoming richer and more diverse, with more innovation at the terminal. I remember ten years ago, my consumption scenes were simple: hypermarkets, wet markets, and small shops. In recent years, I have not visited these terminals.
What are the elements and capabilities of the new retail supply chain? There are several characteristics.
First, there is a demand for multi-temperature zone resources and facilities, due to the fresh food category. Also, there is a trend towards short-chain operations; the consumer supply chain is clearly shortening, and logistics delivery and support are becoming shorter. In the past, goods flowed from CDC, RDC, DC to stores; today, DC and FDC play a more significant role. Third, there are new technologies and equipment, especially driven by upgrades in information technology and automation equipment.
Another characteristic of the new consumer supply chain is the shift from a linear supply chain to a networked supply chain, due to the change in the center of consumption power. In the era of shortage economy, brand owners were the center of power in the consumer supply chain; they produced goods, controlled channels, and completed delivery to terminals. Today, China has long entered an era of oversupply and intense competition. At this time, the center of consumption power is the consumer. There was a brief period when the terminal was king, but it did not last long. Consumers are the long-term center of power in the consumer supply chain. Whoever can predict and quickly meet consumer needs will win consumer favor and achieve better profits and development. In the past, the consumer supply chain was linear. Many of you here may be distributors or city distribution service providers. As nodes in a linear chain, you still had value. When the entire consumer supply chain becomes networked, it must be said that the value and capabilities of all our friends here are severely diminished, reduced by an order of magnitude.
How do we respond to changes in the consumer supply chain? Over the past few years, we have done two things. One is to continuously refine our integrated warehousing and distribution operational capabilities. Due to our customers' needs, having multi-city, multi-temperature warehousing and distribution capabilities is crucial. The second is to continuously build a warehousing and distribution network. Infrastructure supports all deliveries, and warehousing is the core node of supply chain inventory management. Once the warehousing and distribution network gradually takes shape, we can achieve omni-channel, full-link delivery and management.
Today, I will share the development of Weijie City Distribution over the past few years. How did we climb out of the pain? I hope to help some friends avoid pitfalls and black holes in future development, achieving good corporate growth.
Let me first mention Weijie City Distribution's modest achievements.
Founded in Xiamen in July 2014, a small team of six people started same-city warehousing and distribution business. In July 2015, we established an operations headquarters in Shanghai and began expanding the national network. As of October this year, we have built a warehousing and distribution network covering 22 directly-operated cities and 19 franchise cities, with over 200,000 square meters of multi-temperature warehousing resources and over 20,000 vehicles of transportation resources.
Weijie City Distribution also has the Tianqiong system cluster, with more than 7 intellectual property systems. I can brag a little: I often see many companies promoting their intelligent scheduling, but I believe ours is the strongest. If you don't believe it, come and try. We can handle scheduling for 1,000 orders in less than 5 seconds. That's powerful. Over the years, we have also received some industry and government honors and completed some financing. These are all good results and achievements for Weijie.
In 2014, this niche market was truly a "hundred-city war" with smoke and fire everywhere. In the past two years, at every meeting, I notice some competitors no longer show up. It is said that after obtaining financing, they encountered operational difficulties, and even more than 70 companies have gone into liquidation. In other words, this is an extremely difficult market. If it weren't so difficult, the tens of billions of yuan invested in the city distribution market should have supported several particularly successful and good companies. Why hasn't that happened?
Let's review. In 2014, when discussing city distribution opportunities, everyone's attention was captured by Didi Chuxing. Could the same fragmented scenarios and massive scale replicate a "Didi for goods" in city distribution? Except for Huolala and 58 Suyun, others have not developed well. In 2014, the hottest thing was O2O, but there was no real change in the consumer supply chain; the supply chain design and operations before arriving at the store were exactly the same as before. Weijie defines 2017 as the first year of China's new city distribution because last year we perceived the development of terminal diversification, the internet-based transformation of channels, and the fragmentation starting from brand owners. So entrepreneurship is truly not easy. If you do it too early, you become a martyr; if too late, you miss the opportunity. Therefore, grasping the rhythm and pulse of the industry is very important.
How did Weijie survive? The reasons Weijie survived the hundred-city war and developed steadily are roughly as follows.
First, the judgment and construction of corporate strategy. Earlier, Mr. Ren Xiaodong talked about strategy and endgame, and I strongly agree. Strategic thinking is endgame thinking; strategic iteration is strategic trade-off. I usually envision what Weijie will look like in five years: what will the consumer supply chain look like, what will the competitive landscape of city distribution be, and where will Weijie stand in that competition? In the early stages of development, Weijie firmly believed that integrated warehousing and distribution is the most fundamental, efficient, intensive, and scientific way for the consumer supply chain. So over the years, we have insisted on doing only one thing: integrated warehousing and distribution. We have also been tempted by platform thinking; the platform concept is very sexy, but we can't do it. We really don't understand it. We can only move and deliver goods, and honestly build our own service capabilities.
Weijie has at least two capabilities that are relatively leading in the market. One is efficient warehousing and distribution operational capability. In Xiamen, Shanghai, Xi'an, and other places, Weijie's warehousing and distribution are quite good. The second is the construction of data-driven operational processes. We provide customers with management reports, sharing all order data, fulfillment time, cost, quality, and efficiency with them.
We have a customer in Shanghai with slow inventory turnover. When they first entered our warehouse, it was 29.4 days. We provided them with weekly data on outbound categories, quantities, near-expiry, and expired inventory, allowing them to adjust their purchasing and sales strategies. Four months later, it dropped to 9.7 days. Last month, I saw it dropped to 7.2 days. We digitize logistics operational data that customers previously couldn't clearly perceive, thereby providing them with decision-making basis for their operations and management. I think this is very important.
Second, organizational management. No matter how good the strategy, without execution, it's nonsense. I believe Weijie has accumulated a good capability over the years: the team is very hardworking and down-to-earth. There are few star employees in the Weijie team, but everyone is very good at doing things. Last night, two colleagues from the Xi'an company reported to me at 12:30 AM. After they finished, I urged them to go back and rest. They only then said they hadn't booked a hotel. They had flown in and gone straight to the Changsha Weijie project site to learn. At 3 AM, they still had to visit a fresh food project site, and they didn't know when it would end. They felt that since they had finally come to Changsha, they wanted to bring back advanced and useful methods and models to Xi'an to help it develop well. With such a team, I think it's hard not to succeed.
In the past, Weijie has spent a lot of energy on organizational management. Planning management, goal management, and process management are the basic capabilities of an enterprise. Cultural management determines the boundaries and height of an enterprise. We do internal cultural construction. The colleague in charge first reported to me his ideas for corporate culture, writing five or six pages. I said it was too complicated; the team couldn't remember it. Go back and simplify it. There was only one requirement: every colleague must find a reason to strive at Weijie. Why did he come here? How does this organization help him achieve his goals? If we can solve this problem, our enterprise will succeed.
It's easy to talk about this today, and I'm happy, but it wasn't like that in the early days. It was very difficult. Every year, half of the directors would leave. In the end, I lost confidence in myself, thinking I was blind and couldn't judge people. There was a period of intense anxiety. After interviews, I would desperately deny myself, thinking this person is no good, that person is no good. It was torment. I remember once during a critical moment of financing due diligence, the CFO resigned. That was a very stressful event, but I overcame it.
Looking at Weijie today, we don't pursue speed, sexiness, or other flashy things. We just honestly do warehousing and distribution well. In the early days, development was slow. By the end of last year, we only had 4 directly-operated cities; the 18 were done this year. Shareholders sometimes complained why I was so slow, and this year they worry about being too fast. The steering wheel is in my hands, and the accelerator is under my foot. Passengers don't know the rhythm; the driver must know. In the early days, without capability, driving too fast would cause a rollover. Many times we don't take on loss-making business. When a customer talks about strategic cooperation, I become wary; it might be asking me to make strategic losses, and I don't agree. Doing the service properly and doing every order well is the most important thing.
The opportunities today are in front of everyone: the potential market of FMCG, the opportunity of channel internet transformation, the rise of new brands and categories, and their urgent need for new supply chains all bring great opportunities to city distribution companies. However, what we see today is a trillion-yuan market that is still an ant market, with fragmented city distribution companies.
We think we need to rethink how to seize this century-level opportunity. Obviously, the current approach won't work. We've been doing this for twenty or thirty years, and it's still like this. No large companies have emerged in city distribution. Should we re-examine our thinking about the path?
So I'm very glad that today we have the opportunity to join the China FMCG City Distribution Alliance, and we have the chance to participate in building a big platform dream. As the ancients said, "A lone traveler moves fast, but together we go far." One person runs fast, but a group can go far. Thank the organizers, and again welcome all friends to visit Weijie.
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