Re­tail: Ef­fec­tive sup­ply chain key to suc­cess

China Daily (Canada) - - FRONT PAGE -

op­er­a­tors have in­creased in­comes in re­cent years.

“The vil­lagers have the money to spend,” said Luo. “The chal­lenge is howwe­canget­com­modi­tiestothem.”

Long dis­tances be­tween stores in ru­ral ar­eas can mean high dis­tri­bu­tion costs.

InHe­nan, there are around 45,000 vil­lage sta­tions of China Post and thou­sands more in­de­pen­dent stores.

But dis­tri­bu­tion to ru­ral vil­lages in China is also prov­ing a ma­jor chal­lenge for re­gional and na­tional man­u­fac­tur­ers, and brand own­ers.

PostMart has al­ready held widerang­ing talks with ma­jor brands about how to dis­trib­ute their prod­ucts more ef­fi­ciently, and cheaply to more re­mote prov­inces.

Ma­jor fast-mov­ing con­sumer goods brands, es­pe­cially, are ea­ger to gain a firmer foothold in the coun­try­sides and in lower-tier cities.

“What this is do­ing is ac­tu­ally dis­rupt­ing the old-fash­ioned sup­ply in­dus­try in China.

“Now the dis­tri­bu­tion sys­tem is like a bowl of noo­dles, and we hope the big­ger brands will use our sys­tem to help them build a more ef­fec­tive sup­ply chain,” said Luo.

China Hori­zon first signed its 50-50 joint ven­ture agree­ment with China Post in June 2013.

By the end of Au­gust, PostMart had 98 di­rectly op­er­ated stores and 6,000 fran­chise stores in China. The State-owned China Post spe­cial­izes mostly in postal fi­nance, de­liv­eryand lo­gis­tics ser­vices.

In a 25-year co­op­er­a­tion with China Post, China Hori­zon said it would in­vest 1 bil­lion yuan ($162 mil­lion) to de­velop 10,000 re­tail stores. The part­ners also de­cided to build 111 ter­mi­nal dis­tri­bu­tion cen­ters (one in each county in He­nan) and seven re­gional

farm­ers’ dis­tri­bu­tion cen­ters to sup­port largescale dis­tri­bu­tion to the vil­lage stores.

At each cen­ter, there are now at least five sales em­ploy­ees, who visit stores to check on prod­uct avail­abil­ity. The ser­vice is sup­ported by a truck fleet that de­liv­ers the next day, on-time and in full.

Such a sys­tem would have proved ex­pen­sive for man­u­fac­tur­ers to build, but Luo said PostMart’s ad­van­tage is be­ing able to call on a large-scale sys­tem that low­ers costs, pro­vides doorto-door de­liv­ery, and sup­ports and man­ages ser­vices to in­di­vid­ual store own­ers.

PostMart claims to have re­duced de­liv­ery time from 21 days to one day.

Ben Caven­der, prin­ci­pal of the Shang­hai-based China Mar­ket Re­search, is en­thu­si­as­tic that the China Post/Hori­zon lo­gis­tics model may­work­well in help­ing to get small busi­nesses their com­modi­ties eas­ier.

But the ques­tion re­mains how they will han­dle com­pe­ti­tion from other whole­salers and e-com­merce op­er­a­tors in the next fewyears.

Caven­der said that the part­ners must build their brand aware­ness and the re­la­tion­ship with their cus­tomers quickly, to guar­an­tee any hope for long-term growth.

ThePostMart ideawas­ac­tu­ally the brain­child of Alan Cling­man, CEO of China Hori­zon Man­age­ment, who con­cluded that its pre­vi­ous busi­ness model of man­ag­ing re­tail shops in ru­ral China was not work­ing.

Cling­man took part in a three-year joint pi­lot pro­gram with China Post in ru­ral re­gions, dur­ing which time the part­ners opened 100 stores un­der the PostMart brand and pro­vided ser­vices to more than 6,000 Chi­naPost vil­lage postal sta­tion­sand fran­chisees.

The idea of de­vel­op­ing a full­blown re­tail busi­ness in ru­ral China then came to Cling­man.

The PostMart pi­lot pro­gram with op­er­a­tions in three prov­inces— He­nan, Shan­dong and Jiangxi — was to run re­tail op­er­a­tions out of China Post real es­tate in var­i­ous towns.

At the same time, they would run a whole­sale dis­tri­bu­tion model to dis­trib­ute prod­ucts to stores at the vil­lage level.

“It was not a com­mer­cial op­er­a­tion. It was a gi­ant ex­per­i­ment. The prime ob­jec­tive was to find a com­mer­cial model,” said Cling­man.

China Hori­zon con­cluded that run­ning its own small stores at a town level was dif­fi­cult to man­age. They sus­pended op­er­a­tions in Shan­dong and Jiangxi.

One of the ma­jor de­ci­sions in the new­pro­ject was to fo­cus all the com­pany’s re­sources on He­nan with the goal of be­com­ing prof­itable and im­prov­ing the model fur­ther in that prov­ince, said Cling­man.

Speak­ing about the rea­son for se­lect­ing He­nan prov­ince, Cling­man em­pha­sized its in­fra­struc­ture.

“The roads are world class, the roads to the vil­lages are in very good con­di­tion,” he said.

He was also amazed by the use of cell phones and the avail­abil­ity of elec­tric­ity in vil­lages in the prov­ince.

Most im­por­tantly, how­ever, choos­ing the right part­ner to work with in ru­ral China is vi­tal.

The dis­tri­bu­tion sys­tem cen­ters owned by China Post have eased the in­vest­ment pres­sure for in­ter­na­tional part­ners.

The use of tra­di­tional mail in the world is de­clin­ing be­cause of elec­tronic and wire­less ser­vices. “Phys­i­cal mail is a dy­ing busi­ness, with the ex­cep­tion of pack­age de­liv­ery thanks to e-com­merce,” said Cling­man.

How­ever, the value of the postal net­work is enor­mous, he said, and can­not be repli­cated by pri­vate busi­nesses. In ad­di­tion, China Post is the most fa­mous brand in China, es­pe­cially in ru­ral ar­eas where it is most trusted.

“Some of the best peo­ple in ru­ral China al­ready work for China Post,” said Cling­man. “The key to suc­cess is to­havean­ef­fi­cient dis­tri­bu­tion­model at mas­sive scale.” Con­tact the writer at wangzhuo­qiong@chi­nadaily.com.cn

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