{"id":21025,"date":"2017-11-05T23:13:18","date_gmt":"2017-11-06T04:13:18","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/chinese-e-commerce-giant-eyeing-digital-supply-chain-to-create-competitive-advantage\/"},"modified":"2017-11-05T23:13:18","modified_gmt":"2017-11-06T04:13:18","slug":"chinese-e-commerce-giant-eyeing-digital-supply-chain-to-create-competitive-advantage","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/chinese-e-commerce-giant-eyeing-digital-supply-chain-to-create-competitive-advantage\/","title":{"rendered":"Chinese E-Commerce Giant Eyeing Digital Supply Chain to Create Competitive Advantage"},"content":{"rendered":"

Battle of Titans<\/strong><\/p>\n

Every competitive edge matters in the battle over the hearts and wallets of Chinese online consumers in the world\u2019s largest e-commerce market, totaling $750 billion of sales in 2016.[i]<\/a> JD.com, China\u2019s second largest e-commerce company, is betting on smart logistics to keep up with its larger rival, Alibaba Group. Unlike Alibaba, which mostly relies on third-party logistics providers to fulfill its orders, JD has built its own nationwide logistics infrastructure to promise faster deliveries to more far-flung locations in a cost effective manner. As of December 2016, JD operated 256 warehouses with a total space of approximately 5.6 million square meters in 54 cities, and 6,906 delivery and pick-up stations in 2,655 counties and districts across China.[ii]<\/a> So far, the huge investments JD made in its infrastructure has not translated into tangible profits \u2013 despite fast revenue growth, the company has had a cumulative deficit of $3.1 billion since its $1.8 billion IPO in 2014.[iii]<\/a> Using technology to reduce cost in the supply chain and create values for its retail partners becomes paramount to the long term viability of JD\u2019s business model.<\/p>\n

Data is King<\/strong><\/p>\n

Management\u2019s near-term strategy is to leverage JD\u2019s rich customer and warehouse data to upgrade JD\u2019s physical infrastructure to a digital supply chain. Project Y, an internal department launched in November 2016, is applying Big Data and Artificial Intelligence (\u201cAI\u201d) to predict customer demands for products directly sold by JD. Based on demand projections and real-time data on remaining inventory, automatic procurement orders are issued to upstream manufacturers to restock.[iv]<\/a> The company expects to increase the percentage of inventory under the automatic refill program from 30% in 2016 to 60% by 2018.[v]<\/a> Rather than separating supply chain decisions from JD\u2019s customer facing platform, Project Y aims to create a fully integrated supply chain from manufacturers through to end customers, and incorporate analytical demand planning into the procurement process.[vi]<\/a> This will help JD reduce inventory holding costs and better match product supply with customer demand.<\/p>\n

Sharing is Caring<\/strong><\/p>\n

As a longer-term strategy, JD plans to offer its home-grown smart logistics services to third-party retailers selling through its platform. One example is JD\u2019s recent partnership with Nestle, whereby JD shared its AI-driven demand forecast with Nestle to guide the French food giant\u2019s production and inventory management.[vii]<\/a> Another example is JD\u2019s value add in the product development process of Quaker, an American oatmeal producer. Through big data analyses of tens of thousands of customer feedbacks, JD identified a product gap for instant oatmeal drinks in China. Quaker used the insight to develop a new oatmeal drink for the Chinese market, which achieved 450,000 cases of sales volume within two weeks and 37% repeat purchase rate.[viii]<\/a><\/p>\n

E-commerce Logistics Lab<\/strong><\/p>\n

To prepare JD for the future of logistics, the company also partnered with hardware company Zebra Technologies to work on the applications of the Internet of Things in the e-commerce supply chain. The joint research lab created by JD and Zebra will look for ways \u201cto help JD.com improve the productivity of its current picking and packing operations using mobile devices\u2026and to seek potential of applications of machine vision and data analytics in the logistics industry.\u201d[ix]<\/a><\/p>\n

The Road Forward<\/strong><\/p>\n

The future of online retail will require lower cost logistics to fulfill more individualized customer demands. While mobile devices and machine reading are good starting points to streamline warehouse operations, bolder investments in robotics and unmanned vehicles are needed to upgrade JD\u2019s logistics capabilities. On the demand side, consumers\u2019 increasing preference for customized orders over mass merchandise calls for more seamless integration between the e-commerce platform and the upstream suppliers to reduce lead time and predict end demand. Given JD\u2019s access to valuable customer data, it might want to consider ways to monetize the data by offering value-added analytics services to upstream manufacturers.<\/p>\n

How Much Disruption is Good?<\/strong><\/p>\n

Today, JD likes to brand itself as a channel partner for global consumer brands. But as more consumers buy online and the e-commerce logistics industry consolidates, a selected few players like JD could hold monopoly power over customer demand data and product distribution, enabling them to squeeze margins from the Nestles of the world. How might that affect upstream manufacturers\u2019 profitability and product innovation, and the long-term welfare of end consumers? The jury is out on JD\u2019s impact on the retail value chain.<\/p>\n

(799 words)<\/p>\n

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[i]<\/a> National Bureau of Statistics of China.<\/p>\n

[ii]<\/a> JD.com Annual Report 2016.<\/p>\n

[iii]<\/a> Ibid.<\/p>\n

[iv]<\/a> Shengbo. 2016. \u201cJD Enters Logistics 4.0 Era by Building Smart Supply Chain\u201d. http:\/\/baijiahao.\/s?id=1561946273642376&wfr=spider&for=pc.<\/p>\n

[v]<\/a> Ibid.<\/p>\n

[vi]<\/a> Alicke, Knut, Daniel Rexhausen and Andreas Seyfert. 2017. Supply Chain 4.0 in Consumer Goods<\/em>. McKinsey & Company.<\/p>\n

[vii]<\/a> \u201cAnalyzing JD and Nestle\u2019s Supply Chain Partnership\u201d. China Economics Network. http:\/\/news.xinhuanet.com\/tech\/2017-06\/12\/c_1121129171.htm<\/p>\n

[viii]<\/a> Shengbo. 2016. \u201cJD Enters Logistics 4.0 Era by Building Smart Supply Chain\u201d. http:\/\/baijiahao.\/s?id=1561946273642376&wfr=spider&for=pc.<\/p>\n

[ix]<\/a> \u201cZebra Technologies Launches Joint Lab with JD.com and Digital China\u201d. PRNewswire. https:\/\/www.prnewswire.com\/news-releases\/zebra-technologies-launches-joint-lab-with-jdcom-and-digital-china-300418006.html<\/p>\n","protected":false},"excerpt":{"rendered":"

Battle of Titans Every competitive edge matters in the battle over the hearts and wallets of Chinese online consumers in the world\u2019s largest e-commerce market, totaling $750 billion of sales in 2016.[i] JD.com, China\u2019s second largest e-commerce company, is betting […]<\/p>\n","protected":false},"author":9820,"featured_media":21029,"comment_status":"open","ping_status":"closed","template":"","categories":[298,1036,49,2019,3225,44],"class_list":["post-21025","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-big-data","category-digital-retail","category-e-commerce","category-internet-of-things","category-smart-logistics","category-supply-chain-management","hck-taxonomy-organization-jdcom","hck-taxonomy-industry-technology","hck-taxonomy-country-china"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nChinese E-Commerce Giant Eyeing Digital Supply Chain to Create Competitive Advantage - 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