by Yuchuan Wang

“The key factors driving global retail transformation are quite simple: channel reformation, store format innovation and supply chain management. China is already leading the global retail industry in channel reformation and digitizing the supply chain, but is still lagging behind the leading players, such as the US and Japan in terms of store innovation.” said Jonathan Wang (王敬), head of 7FRESH, JD’s innovative omnichannel fresh food supermarket business.

Jonathan Wang, Head of 7FRESH, JD.com

China’s retail industry is developing at breakneck speed and is destined to overtake the US as the largest retail market in the world. The size of China’s e-commerce market is larger than that of the US, UK and Japan combined. China’s growing middle class and rich technology application scenarios have acted as attractive catalyst to draw global retail giants like Walmart and Costco as well as local disrupters, including JD.com’s 7FRESH.

Prior to joining JD.com in August 2018, Wang was a senior vice president at WuMart(物美), a leading retailer in China; a global partner in Roland Berger consulting retail clients; and, acted as the COO of CR Vanguard at CRC(华润) Group, where he helped turn the retailer from loss-making to profitability, ultimately becoming the top retailer in China at that time.

Over two decades ago, Wang was one of just a small handful of Asian faces in Price Club, the offline supermarket chain headquartered in the United States.

He returned to China in late 1990s. It was the perfect time to cut his teeth on the fast growing retail industry, bringing some of the expertise and innovative thinking acquired from abroad to apply in the fertile and welcome soil back home.

In 1997, Wang helped open China’s first Price Smart store in Beijing and acted as the senior commodity director. Stroking his considerable goatee, he reminisces of his time in the US “At that time, most Asian employees were working in stores as clerks, only me and another Korean guy were working in the office since the company was assessing the Asian market.”

 

Channel reformation

Omnichannel retail is a business model that integrates multiple sales channels to provide a seamless shopping experience. For customers, it means they can get unified services across any channel, at any time and in any circumstances. Wang and his team at 7FRESH are on the very cusp of JD’s omnichannel strategy.

“In China, some omnichannel supermarkets are far more advanced than those of leading Western supermarkets. Many Chinese shoppers today are accustomed to ordering online and getting live and fresh seafood, fruits and vegetables, and other produce delivered to their doorsteps within 30 minutes. This is still far from the norm in most major U.S. cities,” said Wang.

At 7FRESH supermarkets, online orders typically account for 40% to 45% while the proportion reached nearly 70% in February when COVID-19 was peaking in China. The company’s advanced supply chain technology was clearly the lynchpin to provide the superior omnichannel retail experience.

Wang continues, “But if you look at the overall industry in China which is still dominated by traditional offline retailers, their online channel only account for less than 5% overall. That doesn’t mean traditional players do not have omnichannel advantages. Their decades of operational experience in offline retail have provided them with extensive knowledge of their customers, categories, management and operations. What they lack is the technological experience over time. And they don’t know much about online operations. This is where JD’s 7FRESH steps in.”

A customer picks up her online order in a Tianfu convenience store in Guangdong province.

Under Wang’s leadership, 7FRESH introduced what he calls the Operation Field Counsel (OFC) partnership model, which enables JD to leverage its considerable strength in retail innovation, supply chain and online operations to provide omnichannel services to regional partners. For example, in a partnership with Tianfu (天福) convenience store chain, a leading Chinese convenience store brand, JD covers nearly 180 Tianfu stores that serve 200 residential compounds in the city of Dongguan, Guangdong province. This enables consumers to place orders through JD’s Friends Shop WeChat mini program and get their orders delivered to the dedicated Tianfu convenience stores in their related residential communities the next day.

 

Store format innovation

If the online retail arena is about navigating the variety and diversity of opportunity, offline retail is more about store formats.

As China’s middle class continues to expand and consumers subsequently have more disposable income, there is greater hunger for quality. The habits, tastes, expectations and buying patterns of this cohort are also evolving more rapidly than at any other time in recent history.

McKinsey: The share of Chinese households in each income level will shift dramatically by 2020

For example, demographic research indicates that busy residents in China’s large cities – including young urban professional singles, couples, and extended families – have both less kitchen space and less time to spend preparing meals. Meanwhile, wholesome options on food choices continue to become available. Last year, Wang promoted his idea of providing meal solutions to address this consumer need. Since then, 7FRESH has been expanding the restaurant areas within stores, allowing more people to sit down and enjoy fresh and delicious meals cooked for them onsite.

Wang attests: “Significantly, we are finding that by offering more everyday meal choices to customers alongside the more traditional grocery and produce items that have helped make 7FRESH a destination for smart shoppers, we are seeing greater traffic, more return customers, higher customer satisfaction and faster paths to profitability.”

“It may be that the retail industry used to be relatively low-key, but since the industry has drawn much greater attention nowadays, people started to become aware of the “sexy” aspect of retail. As a matter of fact, I feel that many of the things happening now have existed in the retail industry for many years. For example, multiple store formats were discussed as early as 18 years ago when I was doing strategic consulting at Roland Berger. ”

Wang and his team have already introduced three advanced store formats, or business models, to the existing 7FRESH brand. These include 7FRESH supermarkets, with an area of several thousand square meters mainly providing fresh food and an in-store restaurant area; 7FRESH LIFE, which is hundreds of square meters in size providing 24/7operations and meal solutions; and SEVEN FUN, targeting working professionals in large cities. It has opened over 20 stores across China in regions including Beijing, Hebei, Shaanxi, Guangdong, Sichuan, etc. It even launched a group buying service for community residents.

SEVEN FUN and 7FRESH Life in Beijing

 

Supply chain management

JD most recently announced that the company has positioned itself as a technology and service company with supply chain at its core. This capability which requires long-term investment and development has also become JD’s most competitive strength in the rapidly changing market.

Surely, the key undertaking for Wang is to shape the fresh food supply chain. “The length and depth of supply chain determines cost, efficiency and experience, which are the essence of retail,” he shares.  “Making the upstream and downstream smooth and shortening the supply chain are particularly important for 7FRESH to drive continuous optimization and development.”

Leveraging JD’s supply chain, 7FRESH is offering extensive and effective supply chain capabilities and methods for fresh food, such as its global direct sourcing program, worldwide buyer network, private labels, consumer-to-manufacturer program, plant factory (hydroponic vegetables) and block chain tracing platform, and others which are of great significance and value for the retail industry.

In addition, Wang and his team believe that the key to the future of retail is to consolidate best practices with IT. The system will help with standardization and technology will help with personalization.

He adds: “Most of 7FRESH’s systems are designed as SaaS systems so that they can be adapted easily and quickly. Thanks to digitization, JD’s 7FRESH supermarket is able to break even within one year and a half. It’s sales efficiency is three times that of a regular supermarket. Establishing 7FRESH is about exploring retail’s best practices, and we wish to share this excellence with the industry to make a positive impact and improve its capacity overall.”

 

Appendix: Wang’s perspective on retail

• Customer-oriented retail format optimization and innovation are the sources of a retailer’s growth.
• With professional management, establishing and focusing core competitiveness to meet the core values of target customers is an effective means to generate differentiation.
• Only by adhering to simple and standard retail principles can one expand the business rapidly, so as to give full play to the effectiveness of scale.
• Cost-efficiency is the key factor for retailers to win in the long run.
• Only by pursuing supply chain breakthroughs can one become the winner in the retail industry.
• Being good at leveraging core technologies (including management, hardware technologies, etc.) is a precondition for success.
• Successfully bringing about value transfer is the only way to become a leading retailer.

 

(yuchuan.wang@jd.com)

by Ling Cao

When the COVID-19 epidemic broke out, JD rapidly arranged its logistics network to transport medical supplies and daily necessities. The company also deployed drones and autonomous delivery robots to help on the frontlines. Behind the scenes, JD’s technology – a combination of big data and algorithms – plays an essential role enabling a highly efficient logistics network that is flexible enough to be applied for normal and emergency conditions. So, how is it done? What is the next step for technology development in the future? The secret may unveil itself in three aspects: Warehousing, transportation and delivery.

 

Warehousing

Looking from the top network design level, based on big data and algorithms, JD will design its fulfillment network layout to make sure it puts products closest to its customers. JD has a self-developed, integrated warehousing system, which can integrate all the software and hardware systems together, making sure they can work as efficiently as possible. Based on operations optimization algorithms, logistics simulation technology (which can simulate real scenarios on a platform) and machine learning, JD can achieve smart warehousing throughout the whole supply chain, including smart forecast, smart inventory management, smart scheduling and operations. To make it more user-friendly, all operations can be managed through both PC and mobile terminals.

Set optimizing the sorting process as an example. JD will deal with several million stock keeping units, or SKU, every day. How can the company make sure the sorting process is accurate and fast? Since 2007 when JD started to build its logistics network, the sorting process has gone from purely using manpower to being handled automatically by multiple machines. For example, JD developed an automated guided vehicle which can transport an entire shelf to warehouse workers, so that workers only need to scan products from the shelves. Previously they would need to walk all around the warehouse to pick up goods. The automated system can simultaneously improve both sorting accuracy and the efficiency.

Another innovation for the sorting center is that JD’s self-developed Internet of Things, or IoT-based plastic cargo bags (a bag used to collect multiple parcels in one place). Previously, due to the large size and volume of the bag and its content, as well as its irregular shape, the barcode on the bag will hardly be recognized by laser scanning devices or image recognition devices. But IoT based technology can help the bags automatically be recognized and sorted, with a sorting accuracy of 99.99%, improving operational efficiency by more than five times.

 

Transportation

It’s easier to do route optimization in a warehouse since the scenario involves a fixed space and is in a relatively unchanged environment. If we are talking about transportation and delivery on real roads, there are higher requirement for route optimization as the solution needs to consider the specific conditions of a particular road.

Powered by AI technology and big data, JD can achieve dynamic transportation route planning, which can connect the entire sorting process, from warehouse, to delivery stations nationwide, and to couriers ultimately. The whole process will be fast and organized.  For example, the system can recommend the transportation route and frequency based on analysis. Eventually, it can reduce unnecessary touch points in the transportation process, improving vehicle utilization rate by over 40%.

The COVID-19 outbreak put pressure on Wuhan’s supply chain. JD tested the risk through its “digital twin model”, which can simulate and forecast the real conditions, in order to better evaluate the impact on road closure of dozens of main roads in and out of Wuhan, as well as the indirect impact on hundreds of routes nationwide. Using the technology, JD made the emergency adjustment plan in a timely manner. For example, JD adjusted a new route planning solution in just several minutes, ensuring needed supplies reach to Wuhan as soon as possible, whereas other items that don’t need to be transferred via Wuhan can be detoured from other cities.

 

Delivery

For last mile delivery, one important consideration is that how to better set the delivery frequency for each delivery station in order to make sure orders can be achieved same day or next day, especially when there are multiple delivery requirements from customers, such as scheduled delivery.

JD’s technology combined traditional Operations Research (OR) with big data from couriers’ existing delivery routes, and enhanced the efficiency and accuracy from the strategy level. In this way, JD can work out the best margins for cost and efficiency. Set JD’s Yizhuang smart delivery station in Beijing as an example. There will normally be two time slots, one in early morning, and another in the early afternoon during which trucks with parcels will arrive from warehouses. Couriers only need to deliver parcels to customers two times a day. In this way, the station can meet JD’s promise of delivery speed while being cost effective.

The coordination of warehousing, transportation and delivery also guarantees JD can prepare and go through each big sales promotion without a hitch.

Set last year’s Singles Day (November 11^th) promotions as an example. During the promotion, 92% of first party orders were delivered same- or next-day, despite the mass number of orders from JD Retail and over 200,000 third party merchants (either external or on JD). The success is mostly because of JD’s accurate forecasting. The technology is based on a forecasting platform, which will mainly focus on three forecasting services, namely JD’s in-house inventory forecast, JD’s key accounts’ logistics order forecast, and importantly, JD’s logistics forecast middle platform, which can quickly respond to support all forecast scenarios.

Based on how many orders JD may deliver during a big promotion, JD will identify and allocate enough manpower, vehicles and other resources in advance to support the entire supply chain, ensuring a consistent customer experience even during peak times.

 

More scenarios

Beyond logistics, JD’s technology applied in logistics can also serve as a reference for other industries, such as leveraging machine learning for equipment fault prediction, which can be applied to other industrial device platforms.  Big data and IoT can help other industries, such as smart home and smart cities industries, explore and innovate.

 

Future prospects

Looking ahead, Jianqiang Yu, R&D development head of JD Logistics shares that the future trend for logistics providers like JD is making every single technology flexible, like building blocks, so that it can serve more partners beyond its platform, in addition to its own business.” He used a metaphor to further explain, “For JD Logistics, when building the architecture of the underlying data, it is like building a house, we prefer to use bricks one by one, rather than a fixed frame, so that we can easily make adjustments.”

Jianqiang Yu, R&D development head of JD Logistics

This is also a time when 5G technology is developing. Logistics will be the best scenario to apply 5G and IoT technology. JD is leading in the application of these technologies in the industry by launching its first 5G powered logistics park in Beijing ,where IoT devices can achieve functionality which would hardly possible via a 4G or Wi-Fi network. For instance, using image recognition technology to monitor and alert for risk within a park to improve operation safety.

JD has been investing and researching IoT devices and systems for usage in its logistics network since 2016, and deployed IoT devices in transportation, cold chain monitoring and within its logistics parks. JD has long led the application of IoT and 5G in the industry.

JD has long been investing in technology development, with its R&D department has more than18,000 personnel. In 2019, the company filed 3,651 patents application with China National Intellectual Property Administration.

Wenming Zhe, chief architect and head of the 5G applications program at JD Logistics said, “5G and IoT enable us to realize the connection of all things. Based on Big Data, AI and robotics ensures continuous improvements in the logistics industry in terms of quality and efficiency. Smart logistics which is characterized by ubiquitous connection, digitization and intelligence, is becoming the driving force of China’s logistics transformation.”

 

(ling.cao@jd.com)