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Distributors' Urban Distribution Transition in Deep Water Recently, many distributors engaged in urban distribution have reported to the author that they are losing money and have lost their direction. Many have complained: "Mr. Ren, are there any successful cases of distributors building urban distribution platforms?" "I already have over 30 customers on board, but I'm still losing money. What should I do?"

• Mr. X from Anhui said, "I've been doing this for 3 years and lost over 10 million yuan."

• Mr. Y from Hubei said, "I'm going to look for other business opportunities. Distributors building urban distribution platforms is a huge pitfall! It's simply not viable! My heart is completely cold; just talking about it breaks my heart."

• Mr. H from Jiangxi said, "The company that provided our system had no operational experience. After buying the system, it wasn't professional, and there was no dedicated personnel to support operations. They were too irresponsible."

• Mr. C from Hunan said, "Brother, look at me—I claim to have over a dozen shareholders, but in reality, everyone is doing their own thing. They just paid their dues to secure a spot. Operations and warehouses are separate. I feel like I'm slapping my own face. This is impossible to do."

As the saying goes, happy families are all alike; every unhappy family is unhappy in its own way. Facing the unpredictable market, many distributors transitioning to urban distribution are extremely anxious.

Since the second half of 2018, the entire concept of unified warehousing and distribution for distributors has encountered some resistance, just like B2B.

Is there something wrong with unified warehousing and distribution?

No! The author insists that the 2B internet transformation of the FMCG industry is definitely the right path.

Among the four directions—order platforms, logistics platforms, capital platforms, and marketing promotion platforms—the third-party social 2B logistics platform network is an excellent direction for distributors' digital transformation. This was the core viewpoint of the author's speech at the China FMCG Urban Distribution Conference last year.

The author will illustrate this with three cases, discussing from the perspectives of brand integration, intermediary integration, and retailer integration. Today's article will first discuss the brand perspective.

Zhisheng Group Case: In the New Distribution Era, a Dual-Driven Model of Supply Chain + Service Chain

In early June, the author attended a seminar on new distribution organized by industry experts in Shanghai. At the meeting, Mr. Tang, CEO of Zhisheng Group, a distributor for OPPO and vivo, introduced his transformation case. Although Mr. Tang is a mobile phone distributor, the logic behind his transformation is worth pondering for all distributors and is worth learning from for the FMCG industry.

Case Background:

To briefly introduce, Zhisheng Group is a distributor for OPPO and vivo, with an annual GMV of around 10 billion yuan. Its sales network covers Henan, Shanxi, Tianjin, Shenzhen, Chhattisgarh and Uttar Pradesh in India, Indonesia's A region, Ukraine, Germany, and more.

Because the brand behind them is BBK, and BBK does not build its own sales network, it relies entirely on large distributors to establish sales channels. Distributors perform the functions of capital platform, logistics platform, and sales service platform, with a status similar to or equal to BBK's sales company.

Around 2015, this model and channel capability succeeded in the domestic market and began to be replicated overseas. Mr. Tang noted that the Chinese model of manufacturer-dealer deep distribution also applies to foreign markets less developed than China, such as Southeast Asia.

Once scale grows, distribution channels become complex. At this point, improving channel operational efficiency is key, and digital transformation is the only solution. So how exactly did Zhisheng Group do it?

First, look at a set of data:

• Before transformation: 38 warehouses, over 520 warehouse logistics personnel, 38 agents, 90 profit centers. There were compliance risks regarding invoices and certificates.

• After transformation: The supply chain company has one warehouse, implementing "one inventory pool." Logistics personnel reduced to only 20 (warehousing outsourced), and other personnel only 200. Eliminated the cost of 300 people. Compliant tax payment, no invoice or tax risks.

Mr. Tang said: He started thinking about transformation five years ago, and spent three years testing and preparing. The launch time was October-December 2018, and it took shape from January to March 2019. The efficiency improvement was remarkable! Inventory effectively reduced by 40%, backend staff reduced by 300, financial security improved, standardization and execution improved, and customer satisfaction increased.

The author saw Mr. Tang's demonstration of the APP functions on site, covering all business scenarios from financial accounting, warehousing, distribution, order collection, advertising fee management, financial accounting systems, and experience store management systems.

Why Can Distributors Succeed in Transforming into Warehousing and Distribution Platforms? Insights from Zhisheng Group

First, it solves the trust problem.

Brands, distributors, and retailers share a common vision and have formed a consensus for transformation. Through the brand's market management and strong corporate culture, channel members develop a culture of collaboration and trust in profit distribution, market behavior, control measures, and price system management.

The difficulty here is resolving suspicion and fragmentation among supply chain participants through equity arrangements, professional methods, and corporate culture. The chain leader, as the main entity of digital transformation, has strong credibility and resource allocation capabilities.

The author cannot help but think: Without cultural/trust accumulation, B2B unified warehousing and distribution will be very difficult. This is why the adhesive effect of "gang culture" among internal shareholders differs from a unified corporate culture in many platforms.

Second, it addresses platformization and professional operations.

From 38 distributors and numerous retailers each doing their own thing, they unified into a supply chain platform. Through equity arrangements, they bound everyone together, using a professional operations team to manage the unified supply chain, turning it into a brand platform operating company.

The original distributors changed their functions to focus on marketing and promotion. For example, previously in Zhengzhou, it took more than 3 days for a product to go from order to store. Now it takes 1 day, and the system automatically arranges the inventory for all channels, improving the efficiency of unified warehousing and distribution, and effectively reducing inventory by 40%.

The author's viewpoint: The essence of deep distribution is deep management. Many brands such as Tsingtao Beer, Coca-Cola, Master Kong, Uni-President, Yili, and Mengniu do this well, and their distributors can also do well under the guidance of the manufacturers.

The transformation of FMCG channels is essentially the digitalization of deep management. It uses internet tools to reduce costs in distribution, warehousing, promotion, delivery, capital, order information, and advertising expense placement. Through digital tools, it promotes efficient connection and network collaboration among all links, reduces original labor costs, optimizes job efficiency and collaboration efficiency, reduces management layers, and transforms from a control-based management system to an empowerment-based management system.

From distribution model to agency model, and from agency model to platform model, B2B is about improving supply chain efficiency, while B2C is about improving service chain efficiency. Therefore, distributors transforming into warehousing and distribution must have a full-chain and full-link perspective and understand the essence.

Final Thoughts:

The regional "one inventory pool" plan initiated by brands and large distributors, through establishing regional unified warehousing and distribution platforms, improves regional market distribution efficiency, reduces common inventory costs, and increases inventory turnover.

Operations and marketing promotion are separated, various channels are expanded, and a series of digital tools are used to accelerate the capital chain, information chain, and order chain, achieving employee online, customer online, process online, and consumer online. This overall realizes network collaboration among all supply chain parties, jointly improving operational efficiency, reducing operational costs, and enhancing customer experience. This is indeed a good method for regional distributor transformation, worth learning from for many brands and distributors.