For the comparison of Dongfang’s selection industry analogy, see the end of the article for details;
Why do consumer companies place so much emphasis on inventory and turnover rates? What is the ultimate turnover rate pursued by consumer companies, supply chains, and platforms? Refer to the following article will give you the answer.
Dongfang Xiaosun said at New Oriental Online’s performance exchange meeting in the first half of FY23 [Performance Exchange] – Dongfang Selection’s FY23 H1 conference call (Q&A) said, “We are also confident in our ability to control costs alone. Dongfang Selection is very confident in the number of orders and inventory turnover rate, because I also talked about some specific products just now. Many of our products are not moonlight or sunlight . They were shocked when they received the goods. For example, today is January 17th. Right? He received a box that was produced on January 15, placed an order on January 16, and drank it after eating on January 17. These fully prove that Dongfang Selection has no inventory pressure, and As a very compliant listed company, we pay back suppliers very quickly .”
Why do consumer companies place so much emphasis on inventory and turnover rates? What is the ultimate turnover rate pursued by consumer companies, supply chains, and platforms? Refer to the following article will give you the answer.
The author of this article “Recognizing Jingdong” / Liu Run @刘润商业学, this article was first published in June 2021
The following is the text of the republished article.
618 (Jingdong’s birthday) has become a major festival for Chinese consumers. This festival has involved almost all brands, distributors, retailers, and consumers online, and attracted a large number of specialty stores, collection stores, and hypermarkets in various postures offline. Even other platform providers outside of JD.com (Alibaba, Suning.com, Pinduoduo, etc.) use various innovative ways to “grab the festival”.
A festival involving the entire Chinese retail industry. Same as Double 11.
Therefore, 618, Double 11, and JD.com and Ali behind them are often compared together.
Many students asked me, what is the difference between Jingdong and Ali? Who is better? Is it because JD sells more 3C, home appliances and books, while Ali sells everything? Is JD.com building its own logistics, and Ali uses four links and one delivery? Is Liu Qiangdong accustomed to Sushang thinking (Suqian, Jiangsu) and Ma Yun accustomed to Zheshang thinking (Hangzhou, Zhejiang)? In other words, the two companies are essentially the same, that is, one is bigger and the other is smaller?
neither. At least, none of this is fundamentally different about the two companies.
How about this. 618 is a shopping festival founded by JD.com, so let’s talk about JD.com. In my eyes, Jingdong is a “iron Hanhan”. Today, I will try to use 3 numbers to help you get to know JD.com again. Re-acquaint yourself with the “iron Hanhan” that you may not have known from the beginning.
it is good. Start with the first one.
Question: In your guess, Ali and JD.com, which of these two companies has a higher annual income?
ah? you still need to ask? Although Jingdong is also very powerful, after all, Ali is one of the top 10 companies in the world by market value. Of course, Ali’s income is high, right?
you are wrong.
Both are listed companies. You can check their annual report.
Jingdong’s annual report shows that in Jingdong’s 2020 fiscal year (January 1, 2020-December 31, 2020), Jingdong’s revenue is about 745.8 billion yuan. According to Ali’s annual report, in Ali’s 2020 fiscal year (April 1, 2019-March 31, 2020), the group’s revenue is about 509.7 billion.
Jingdong 745.8 billion. Ali 509.7 billion. Jingdong’s annual income is higher than that of Ali.
ah? Why? I always thought Ali had a high income.
This “always thought” is a misunderstanding. The reason why many people have this misunderstanding is because they do not understand the completely different business models of the two companies. The difference in business model directly leads to the difference in the nature of the two companies.
The essence of JD.com is a supply chain company, or a technology and service company based on the supply chain, while JD Retail, which is more familiar to us, is a “self-operated e-commerce company.”
What is self-operated e-commerce?
I bought a rice cooker for 100 yuan, and sold it online for 120 yuan, earning the difference. This is self-operated e-commerce. In this example, I earned 120 yuan, of which the gross profit (that is, the difference) was about 20 yuan.
The vast majority of JD.com’s income is just such a rice cooker and a microwave oven, which are sold one by one. Added together, in 2020, JD.com’s self-operated revenue will be 651.9 billion.
But at the same time, Jingdong also allows other sellers to settle in. For settled sellers, JD.com charges transaction commissions and advertising fees. Transaction commission + advertising fee is called “platform income”. I don’t sell, you sell, I am a platform. In 2020, JD.com’s platform revenue will be about 53.5 billion yuan.
Self-operated income was 651.9 billion. Platform revenue is 53.5 billion. Self-operated accounted for 92.42% (=6519 / (6519+535)).
92.42%. JD.com is an absolute self-operated e-commerce company.
ah? Isn’t everyone like this? Isn’t Ali?
Ali is not. The essence of Ali is platform e-commerce.
What is platform e-commerce?
You spend 100 yuan to buy a rice cooker, and plan to sell it online for 120 yuan to earn the difference. But where to sell it? So, let me build a platform. You come too, and users come too. You sell the rice cooker to the user for 120 yuan on the platform. You earn your difference. So what do I earn? I earn commissions. If you want to promote your store, I will earn some advertising fees.
Under this model, the sales revenue of the 120 yuan for selling rice cookers is not the income of the platform, but the merchants on the platform. These revenues just “flow through” the platform, but do not belong to the platform. Therefore, it is generally called “transaction flow”. All the transactions of merchants on these platforms are added together, called GMV (Gross Merchandise Value, total merchandise transaction value).
In 2020, Ali’s GMV, that is, the total amount of merchandise transactions, reached 7.053 trillion yuan. However, this is not Ali’s income, it is the income of sellers on Ali’s platform. Ali’s income is the commission + advertising fee charged to them.
In the 2020 fiscal year, because of these 7 trillion transactions, Ali obtained a total of 332.8 billion retail revenue in China. Among them, the commission was 71.1 billion, and the advertising fee was 175.4 billion.
Therefore, Ali’s platform revenue accounts for about 74.07% (= ( 711 + 1754 ) / 3328). Among them, advertising revenue accounted for 52.7%.
74.07%. Ali is an absolute platform e-commerce. Even, about half of its retail revenue (332.8 billion) comes from advertising (175.4 billion). In this sense, we can even say that Ali is an advertising company.
JD Retail is a self-operated e-commerce company (92.42% self-operated income). Ali is a platform e-commerce (74.07% platform revenue). This is the fundamental difference between the two companies.
In the words of Ma Huateng, JD.com is a shop owner with its own shop, while Ali is a charterer who collects rent.
So, which model is better?
Each has advantages and disadvantages.
The benefits of platform e-commerce are obvious, that is, it is easy to expand. I’m not alone in selling. I unite thousands of people to sell goods on my platform. Unity is strength, and if we work together, we are more likely to grow bigger. Therefore, the transaction flow (GMV, 7 trillion) on the Ali platform is almost 10 times that of JD.com’s self-operated income.
However, the problems of platform e-commerce are also obvious. Because the platform does not directly control the goods, it is difficult to absolutely guarantee the authenticity of the goods. Ali’s core proposition is platform “governance”, using various wonderful reward and punishment mechanisms to crack down on counterfeiting. However, although Ali made 120% determination, no matter how big the Bodhisattva is, Cricket can always find a hiding place. This cat and mouse game is difficult to end.
What about direct e-commerce? I bought the rice cooker for 100 yuan and sold it for 120 yuan. Direct e-commerce must guarantee the quality of this rice cooker. Otherwise, the customer returns because they are not satisfied with the product, and my income is lost. Therefore, because the return and exchange of goods is directly related to income, direct e-commerce companies naturally care more about quality.
However, the disadvantages of direct e-commerce are also obvious. How do you manage such a large inventory of self-operated goods? Occupying a huge amount of funds, where does it come from? It is too difficult, so self-employment is inherently difficult to expand. JD.com’s core proposition is self-operated “management”, and the ever-increasing management costs are becoming a stubborn “regulation loop”, trapping the galloping horses and pulling them back.
I see. Jingdong uses the logic of “self-operated e-commerce” to first occupy the quality, and then use the “management” ability to pursue scale. Ali uses the logic of “platform e-commerce” to first occupy the scale, and then use the “governance” ability to pursue quality.
Jingdong to the left. Ali to the right.
Ali’s governance capabilities, we will write an article later on. Today we only talk about JD.com.
However, how can Jingdong, which chooses to take the left road, expand its scale through its “management” ability?
There is no other way but to continuously improve management efficiency. Now that we have chosen this path, we must focus on various management indicators to improve management efficiency.
For example, “inventory turnover days”.
What is inventory turnover days?
In front of our house, there is a husband and wife shop. The husband is responsible for buying goods in the wholesale market, and the wife is responsible for sitting in the store and selling goods.
One day, my husband saw a children’s toy in the wholesale market, which cost 100 yuan, so he bought one and sold it in the store. How much do you sell it for? Just sell it for 120. Gross profit margin, 20%. Unexpectedly, this toy was very difficult to sell, and the dust accumulated thicker and thicker. No one bought it until it was finally bought after a whole year.
Excuse me, how many days is the inventory turnover of this toy? 365 days. It is the number of days from buying (into the warehouse) to selling (out of the warehouse), which is the number of days of inventory turnover.
100 yuan, 365 days of inventory, changed to 120 yuan. Earn 20%.
Another day, my husband bought a bag of dog food at the wholesale market, which was also 100 yuan. How much do you sell it for? Just sell it for 110 yuan. 10% gross profit. Earn less. Unexpectedly, after 2 months, the dog food was actually bought away. The husband was overjoyed, and with the money he got back, he bought another bag of dog food. Two months later, it was bought again. In this way, my husband purchased dog food 6 times within a year and sold it 6 times.
Excuse me, how many days is the inventory turnover of this dog food? 60 days. That is 2 months.
100 yuan, stock for 2 months, turned into 110 yuan. Earn 10%.
However, because the inventory turnover days of dog food is 2 months, the purchase money of 100 yuan has been “turned over” 6 times within a year. Earn 10 yuan each time, 6 times a total of 60 yuan. So the 100 yuan also took 1 year, but the total profit of dog food accumulated as high as 60%.
This is the meaning of days inventory turnover. The shorter the inventory turnover days, the more money you can make with lower profits. Therefore, in the real retail industry, the ultimate management efficiency competition is to compare whose “inventory turnover days” are shorter.
In 2006, when JD.com first entered the home appliance category, the inventory turnover days of the offline home appliance industry was 87 days. This means that in the offline home appliance industry, the entire inventory can only be turned over 4.4 times a year.
The slower the inventory turnover, the more liquidity will be taken up. Therefore, in order to occupy their own working capital as little as possible, offline home appliance stores ask upstream home appliance companies for an account period (days of accounts payable), and some even reach as high as 180 days. I will sell the goods first, and the money will be paid to you in 180 days. The essence of this “account period” is to use the money of the home appliance company to run its own business.
Therefore, in the offline era, the net profit margin of home appliance stores is as high as 6%, while the overall profit margin of home appliance brand companies is less than 1%. This is why Dong Mingzhu of Gree once built a channel in a fit of anger.
So, how many days is JD.com’s inventory turnover days?
31.2 days.
What is this concept? That is to say, JD.com can turn over 11.7 times a year for the same stock.
Offline turnover is 4.4 times a year, and Jingdong turnover is 11.7 times a year. So, I can have a lower gross margin per turnaround, but still make more money overall.
The days of inventory turnover is shorter, which also brings the benefit that I no longer have to tie up funds upstream for 180 days. Only by leaving the money to them can the upstream be healthier. In 2019, JD.com’s account period from upstream was only 54.5 days on average. In 2020, this number has dropped further to 47 days.
180 days – 47 days = 133 days. More than 4 months. JD.com took less than four months of funds from upstream home appliance companies. And these 4 months of funds can make many companies whose upstream cash flow is on the verge of breaking, come back to life, or even turn losses into profits.
In 2018, after the rise of JD.com, the net profit of home appliance brands in China’s home appliance industry not only did not decline, but rose to 10%. Only when the industry earns more profits can it have the energy and ability to develop and innovate, improve efficiency, and avoid involution such as imitation and plagiarism.
However, how did JD.com improve its management efficiency, thereby shortening the inventory turnover days to 31.2 days?
Many ways. Such as C2M.
What is C2M? C2M, Customer to Manufacturer, is based on big data, starting from insight into consumer needs, and reversely guiding production.
The essence of the long inventory turnover days is that the products cannot meet the needs of consumers. According to the real purchase data, the products produced by reverse guidance must be more popular in theory, and the inventory days are of course shorter.
As early as 2013, JD.com tried to conduct in-depth insights into users through the “JD Phone Project”, and cooperated with brand owners to produce products such as “reading mobile phones” and “elderly smart phones”. Popular. In 2019, JD.com established a C2M platform and began to systematically increase the proportion of C2M products.
(JD’s C2M platform)
At the 2020 JD Global Technology Explorer Conference, Xu Lei, CEO of JD Retail Group, mentioned that home appliances developed based on the C2M model accounted for 40%. In the next three years, JD.com will release a total of 100 million new products and C2M products. C2M has played a huge role in shortening the inventory turnover days.
Besides C2M, what else? Also, such as intelligent prediction, knowing who will buy what in advance. For example, automatic allocation, put the goods you need in the warehouse closest to you. For example, smart contract fulfillment, once an order is placed, the subsequent delivery is automatically completed. All of these are for one main purpose: to shorten the inventory turnover days and improve management efficiency.
So, how many days is the limit of shortening the inventory turnover days?
In 2019, I led more than 20 entrepreneurs to visit the United States and visited Costco, a world-renowned retail company. Costco’s inventory turnover days are notoriously short. I asked Jay B. Smith, its executive, what are your days of inventory turnover.
He said: Good question. 30 days.
30 days, which is almost the limit of large retail companies.
However, Costco obtains 30-day inventory turnover days by strictly controlling SKU. It only has 4,000-5,000 SKUs in Wal-Mart’s stores that can hold 100,000 SKUs. The fewer SKUs, the faster the turnaround.
And what about Jingdong? JD.com has 5 million SKUs. Under such a complicated pallet, it is already very remarkable to be able to achieve 31.2 days.
From 31.2 to 30. Every day shortened, there will be another unfathomable moat.
However, efficiency is not just fast, right? Is it even cheaper?
Yes.
Question: In your guess, which country has higher logistics efficiency, China or the United States?
ah? you still need to ask? Although the United States is also very powerful, in the past two years, China has invested a lot in infrastructure construction, roads, and high-speed rail, which has led to China’s logistics efficiency is getting higher and higher. Ordered last night and it arrived this morning. How can the United States not do it?
you are wrong.
Looking at the logistics efficiency of a country depends on the total cost of social logistics in the country, as a percentage of the country’s GDP. This ratio roughly means that we create a wealth of 100 yuan, how much logistics resources need to be allocated to complete the creation and transfer of wealth.
You said, is it better to have a high proportion or a low proportion? Of course low is better. Spending 10 yuan to transport 100 yuan of wealth is of course more efficient than spending 20 yuan to transport 100 yuan of wealth.
In 2007, the total cost of social logistics in China accounted for 18.4% of GDP. The United States is 8%.
Why? Because although our express delivery in the last mile is very good, but in the backbone logistics link, the efficiency is too low. We rely too much on roads and too little on cheaper waterways. We have too many trucks idling on the highway. We move goods around with no value.
And all these social logistics costs will eventually be added to the price of the product in some form and borne by consumers.
Let me give you an example.
You bought a box of cotton swabs at the mom-and-pop store in front of your house. Do you know how many times it was “handled” before you got this box of cotton swabs? About 5-8 times.
Come out of the factory and move to the warehouse of the brand owner. Then, move from the warehouse of the brand owner to the warehouse of the general agent. Then move from the agent’s warehouse to the provincial agent’s warehouse. Then move from the provincial agent’s warehouse to the municipal agent’s warehouse. Then move from the warehouse of the city agent to the district wholesale market. She was “moved” home by the husband of the husband and wife shop.
A total of 5-8 times. Every move is a cost. These costs will eventually be added to the price of the cotton swab.
Is there any way to reduce this cost?
Jingdong said, in the future, when your cotton swab is produced, it can be directly put into my Jingdong’s inventory. Based on big data, we put the cotton swabs directly into our warehouses around the country according to the distribution of the purchase volume of cotton swabs across the country. Then, the “goods rights” of this box of cotton swabs can be changed all the time, from the factory, to the brand owner, to the agent, but please don’t move the “goods”. One move is the cost. Until the end, every time the cotton swabs are sold to consumers, they are taken out of the warehouse and delivered to the door by express delivery.
Therefore, the number of “handling” of this box of cotton swabs is greatly reduced, approaching 2 infinitely. The reduction in warehousing and logistics costs will eventually be reflected in the reduction in commodity prices.
In 2020, driven by many companies including JD.com, the total cost of social logistics in China will drop to 14.7% of GDP. As an enterprise, JD.com actually put forward a goal, hoping to further reduce this number to less than 10% with its partners through the “construction of digital and intelligent social supply chain” in the next 10 years, which is close to the 7% of developed countries. %-9%.
I think this is why JD.com wants to build its own logistics. Therefore, JD.com has also started to improve the industrial efficiency of the supply chain by improving the transaction efficiency of e-commerce. Even if you don’t open a store to sell goods on JD.com, you can use JD.com’s supply chain infrastructure and capabilities to improve efficiency and optimize costs.
Over the years, JD Logistics has built a nearly 30,000-square-meter intelligent warehouse distribution center for Nestlé in Tianjin. Through the implementation of the order collaboration platform system, the overall inventory level of the automobile industry has been reduced by 30%. and other products have saved this international food company 60% of labor costs and 50% of document management costs.
final words
Liu Qiangdong said that in JD.com’s core business beliefs, there is a “thirty-five cents theory”:
If JD.com has the opportunity to obtain a profit of one yuan, it will not take all of it for itself, but only take 70 cents, and leave the other 30 cents to its partners; of the 70 cents taken away, 35 cents will be reserved for the team, and the remaining 35 cents will be used for The company continues to develop.
However, how can we make profits not only for partners, but also for the team, and finally for the company, and finally for consumers to save money?
Only by improving the efficiency of the industry.
92.42%. 31.2 days. 14.7%.
Through these 3 numbers, you now know why I think JD.com is an “iron fool”, right?
This Tie Hanhan identified the road of direct e-commerce, and then ran all the way regardless of the obstacles. In the era of consumer Internet, he is doing industrial Internet things, that is, while improving transaction efficiency, through the “commodity supply chain + logistics supply chain” “, to improve industrial efficiency. It’s hard. But it is difficult, as long as it can improve efficiency.
Real technology must allow everyone to increase their income, rather than taking income from others. Real technology will definitely bring global growth.
And the fundamental source of this global increase is efficiency improvement.
Note: The author of this article “Recognizing Jingdong” / Liu Run, this article was first published in June 2021
Dongfang Selection compares Bama Tea, Blue Moon and Three Squirrels
This morning, we published the Eastern Selection Observation—New Oriental Online’s November 8 institutional investors’ phone call recording; Yin Qiang, New Oriental Online’s CFO, answered most of the concerns of investors, and the most important point in it was management fees. and sales expenses, especially the sales expenses of the Dongfang Selection mode are extremely low; think of the three articles I read recently, about Bama Tea Industry, Blue Moon and Sanzhisong; move them here, and experience the self-operated live broadcast room of Dongfang Selection The operating model differs from that of traditional consumer companies, and I hope to have a deeper understanding of Dongfang Selection; Editor’s Note: The article is just for communication and sharing, and there is no intention to praise or criticize; there is only the most suitable business model, not the best.
A comprehensive look at the three, the effect is better.
Observation of Oriental Selection——Industry Analogy One: Bama Tea Industry Tea has no first share
Eastern Selection Observation——Industry Analogy II: Blue Moon · How to be No. 1
Eastern Selection Observation——Industry Analogy No. 3: Three Squirrels in Mikami’s Hot Search
Part III: Interpretation of Historical Articles
The following is a compilation of random thoughts and articles that have been tracked and studied by Dongfang Selection in the past 7 months for easy retrieval and reading; friends who are interested can pay attention to it and continue to update it;
1: Industry Observation and Enterprise Analysis
Oriental Selection – Industry Observation and Enterprise Analysis Series Update (2023/01/08)
Two: Tracking and analysis of the core three elements
1. People: The core team selected by Dongfang and the development of the live broadcast lineup
Oriental Selection——Anchor Team Development·Series Update (2023/1/4)
2. Goods: track the development of self-operated products
Oriental Selection – self-operated products series update (2023/01/04)
3. Field: The development process and rhythm of Dongfang Selection Live Studio from one set to six sets
Oriental Selection – Matrix Development Series Update (2022/12/4)
Three: Two Content Creation Platforms
1. Celebrity dialogue platform
Oriental Selection – “Hundreds of Lectures” Series Update (2023/1/25)
2. Outdoor live broadcast platform
Oriental Selection – Location Live Series Update (2023/01/04)
Four: performance tracking
Oriental Selection – Monthly Performance Report Series Update (December 2022)
Oriental Selection – Monthly Performance Report Series Update (November 2022)
Record and witness growth, invest in enriching life; continue to track and share.
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