by Tracy Yang

While e-commerce giants, logistics companies and technology icons are drawing the battle lines to gain the approval from the US government on commercial application of autonomous devices for last-mile delivery, China is already ahead of the game. This is true for applying drones and autonomous delivery robots into daily operations, and can even be seen in waging the war against COVID-19.

As China’s largest retailer, JD.com has arguably won the hearts of Chinese consumers who know the company because of its commitment to authenticity and fast delivery. The outbreak of SARS 17 years ago led to the development of China’s e-commerce industry, among which JD took its business online and developed industry leadership since. JD has always put customers first, which drove the decision to invest significantly in building up its own logistics network more than 10 years ago.

Not many people were as forward-looking as JD’s management team, especially its founder Richard Liu, was at that time. However, JD Logistics has successfully transformed from being a cost center to a profit center. Currently, JD boasts a nationwide logistics network in China and provides the same and next day delivery service to Chinese consumers as a standard service, which no other e-commerce company in the world can possibly match.

JD is always looking to the future and continues to explore the next generation of logistics, and has leveraged its technology innovation to make drone and autonomous delivery robots be applicable for commercial use. The technologies are quite mature, although the application is not yet available at a large scale.

Drones to the Rescue – in the Air

JD started to use innovative drone technology to reach consumers in some of China’s hard-to-reach remote areas during the Singles Day (November 11^th ) sales festival in 2016. The service was available in four rural locations including the outskirts of Beijing and the provinces of Jiangsu, Shaanxi, and Sichuan. JD understood it was the first e-commerce company in the world to put drone technology into this kind of commercial use.

The drone infrastructure was developed by JD X, JD’s research and logistics innovation lab, which is focused on developing smart logistics solutions to make the passage of goods from warehouses to Chinese customers ever quicker, cheaper and more efficient.

Although JD’s fast delivery is impressive to Chinese consumers, in the more remote areas where the terrain is complex and infrastructure is poor, last-mile logistics can be challenging. This can make the overall online shopping experience more difficult and less satisfying.

The JD Drone program was born to address this challenge. It has been designed as a cost-effective, scalable, safe and reliable way to bring new opportunities to remote rural communities in China that are currently underserved by the e-commerce industry. The program works by dispatching orders from regional delivery stations to the entrance of the village. Local partners will then distribute the orders directly to customers.

JD drones have been used in emergency relief efforts for several years. In July 2018, the company deployed a team of drone engineers as well as drones and ancillary vehicles to support the Beijing municipal government’s storm relief efforts, which was JD’s first disaster relief effort using drones following its establishment of China’s first nationwide drone rescue team two months earlier.

JD drones have played an important role in supporting the fight against COVID-19, including delivering the daily necessities to Chinese consumers as well as assisting several major cities in China to provide protective measures when more people return to work after the Chinese New Year holiday.

 

Dongyuan Xincun, a community in Dalad Banner county in Inner Mongolia, was deeply impacted by COVID-19 and closed from Jan 28^th to Feb 19^th. There are 36 buildings in this community and around 800 families who had to stay at home to avoid cross-infection. Two days before the community was open, JD’s drones helped them to disinfect the community, which is both a safer and more efficient approach. No human labor was needed, and it significantly reduced the risk of cross-infection. The drone can carry disinfectant weighing 10kg and flies within a radius of 5 kilometers.

JD drone abilities in spraying disinfectant successfully relies on previous experience in plant protection programs, which require drones to fly fairly low and spray pesticides. When spraying the disinfectant, atomization will be less but the spray will have wide cover.

Hang Ba, the Head of JD’s Drone Program said, “In terms of technology development and scenario application, JD drone is taking the leading position when exploring the possibilities of putting drones into commercial use. In addition to the daily operation in the rural areas in China, we will focus on empowering other partners with our technology capabilities and helping them address the challenge of higher cost in manpower in the logistics industry.”

Autonomous Delivery Robots Meeting Needs – on the Ground

It was a dark evening in Wuhan on February 6^th. The street was quite empty, and there was almost nobody out, which is the normal state of affairs in this city since the outbreak of COVID-19. JD’s autonomous delivery robot was seen moving from JD’s Renhe delivery station to Wuhan Ninth Hospital, which is the designated hospital for the treatment of patients suffering novel coronavirus pneumonia in Wuhan. After less than five minutes, some daily necessities were delivered to the hospital, which previously were hand deliveries, delivered by JD Logistics couriers.

 

Jianbin Zhou is a courier from JD Logistics, who has been working during the Chinese New Year holiday and the epidemic period. He said, “Currently JD.com has sent over the autonomous delivery robots to Wuhan, which could help with the delivery to the hospitals and communities in Wuhan. It can better protect the couriers and the consumers.”

Due to the support from engineers in the JD X department under JD Logistics and through the processes of collecting the data for mapping, running tests from cloud, updating the hardware and software of the autonomous delivery robots as well as training the couriers, it took around five days to complete the first order through JD’s autonomous delivery robot in Wuhan. In fact, JD’s autonomous delivery robots started to be involved in daily operations in January 2019, which laid the solid foundation for the quick deployment in Wuhan in such a limited time.

At present, there are two daily routes for JD’s autonomous delivery robots in Wuhan. One is from Renhe station to the Ninth hospital, which also reaches a community in between. The other route is the delivery to two communities in Wuhan. Currently around 50% of the orders in these two daily routes can be delivered by JD’s autonomous delivery robots.

Featuring high reliability and stability, JD’s latest autonomous delivery robots can deal with bad weather, night driving and other conditions. They are also equipped with a simulation system, which can stimulate real road conditions to test the robots in real scenarios. Engineers can update the algorithm quickly based on the test results and keep optimizing the system as needed.

Qi Kong, Head of Autonomous Driving at JD Logistics said, “JD.com has taken a leading position in putting autonomous delivery robots in real scenarios, and our support to Wuhan is a great example. During the epidemic period, when it’s recommended to maintain no human contact, the two daily operation routes in Wuhan is accelerating the process for local consumers to adopt the new technology.”

JD has launched two smart delivery stations in the cities of Changsha and Hohhot, strengthening the e-commerce giant’s autonomous logistics capabilities in early 2019.

The stations are carrying out R&D, testing and personnel training to solve issues related to last mile delivery. JD’s delivery robots can be loaded with up to 30 parcels before autonomously delivering them to a site within a 5-kilometer radius. The vehicles can plan routes, avoid obstacles and recognize traffic lights. Running at full capacity, the delivery stations, operating with a half-half split between robots and couriers, can deliver up to 2,000 packages a day.

Due to the outbreak of COVID-19 in China, these “contactless” logistics solutions have attracted public interest. Drones and autonomous delivery robots can not only drive results without the risk of human contact but also help enterprises improve efficiency and reduce cost. But, it can only do so when the applications are available at scale. There is no clear outlook for when autonomous technologies will be available as such. There are still challenges ahead, like clear industry standards and policies, the stability of high-speed networks, battery charging solutions and so on. However, the outbreak of COVID-19 indeed puts these technologies under the spotlight and is causing enterprises to rethink how much they should invest to further develop these technologies.

People here at JD.com believe that drones and robots will have a huge market tomorrow. Tomorrow will come for sure.

 

(tracy.yang@jd.com)

 

by Brad Burgess

It’s only been a month or so since the COVID-19 outbreak, but it feels like it’s been much longer. As I write this, I sit inside the comfort of my home in Shanghai, where I often pick up my phone and place an order at the touch of a finger. If I want to, I don’t even need to step outside my community at this time. Smart businesses are finding ways of surviving through these trying times. Before today’s delivered lunch, I note McDonald’s “put your heart at ease” tags highlight the temperature of the kitchen staff, cook and delivery person. If that doesn’t curb anxiety while easing hunger, I’m not sure what does.

McDonald’s delivery service during COVID-19

My residential compound has stringent measures that do not allow anyone to enter it. And, when I go to take a walk (which is becoming less frequent), I need to pick up a tag and have a temperature check by the security guard upon reentry. While these measures are tough, they are effective in preventing people from meeting and increasing the risk of communicable respiratory transmission.

Temperature checks for residents before returning to enter compound in Shanghai

Yet, this raises certain questions in my mind. If China didn’t have such a highly developed e-commerce and delivery infrastructure, would people be able to stay inside en masse?  At least for cities like Shanghai – and, in particular the district where I live which hasn’t had a new confirmed case in nearly two weeks – I think the answer is no. Though people are likely battling anxiety as much as they are cabin fever, we live in fortunate times. We have the choice to stay inside. I still remember SARS in 2002 and the public fear that ensued at that time with the lack of information that left many of us ill-equipped to handle it. The situation is far different today.

The only retail company in China that has its own end-to-end logistics fulfillment business, JD.com has been heavily involved in supporting the fight against the epidemic from the front lines to across its entire operations. JD is a company founded on making the most out of a crisis like we see today and developed at a specific point of time in the history of China’s development. Originally, JD was only a few offline retail stores selling electronics in the heart of China’s “Silicon Valley” at the time – Beijing’s Zhongguancun district. When SARS began to wipe out footfall at the offline stores, founder Richard Liu made a highly pragmatic and strategic decision to close the stores and handle customer needs online using the new tools available, such as bulletin board communication programs and Tencent’s QQ chat tool. Once the crisis was over, he saw the opportunity that going online afforded JD. And, the rest is history.

Well, not just yet. And, what does this all this have to do with counterfeits and business models?

If we take a step back in time to how China was back even before SARS to the roots of JD.com back in 1998, we’ll get a bit more clarity.

In Beijing back in the day, everything was negotiable and with few exceptions, nothing was sold at a fixed price. Strolling through market stalls in any given neighborhood was exciting. Shop keepers haggled with customers. I remember being fought for often – literally pulled this way and that by small shop owners who wanted to persuade me to buy their products at a good “friend price”. After making a few rounds, I often learned that the friend price was sometimes double the “walk away and come back price”.

While a trip at the market was entertaining for visiting tourists who had time and money to burn, imagine the difficulty and headaches this created for the normal Chinese customer. Part of the reason everything was negotiable was because real quality products were uncertain.

With negotiation the norm, fake products were so prevalent it was often hard to tell what was real and what was not. And, haggling seemed highly justified in this environment. Indeed, Chinese-origin fakes became the source of jokes from visiting tourists from around the world for years.

Now, cut to JD.com in 1998. Founder Richard Liu was a scrappy and hard-working entrepreneur who had a radical idea. He stubbornly believed that people didn’t want to haggle. What they wanted instead was to trust that their products were real. And, he also believed that there would be enough people who wanted real products that they would pay a set price for them, even if it was higher than some of the competition. He staked his business on it.

And, this is how the largest retail company in China – online or offline – was born. If you look at JD’s business today, you’ll notice it’s a highly complex organization made up several moving pieces. JD Logistics, its in-house logistics business, has been getting the most attention this past month with the COVID-19. JD also has a property business, insurance, technology, and many others.

But, in the very beginning, JD was mostly a retail company. And, retail fundamentals still apply. Retail companies buy product wholesale, handle inventory, and deliver to the customer. This is what JD did 20 years ago, and it’s what they still do today.

JD is unique from other retail companies in a few important aspects. It’s important to understand this because its core retail business model itself guards strongly against counterfeits.

JD made a highly strategic and unprecedented decision to begin developing its own logistics network to service its business. While this was a customer-centric decision, it was also prescient for its authenticity guarantee. Most customer complaints at the time were related to damaged goods. Sometimes in China, the only way to manage an outside vendor is to not to manage them at all but to do it yourself. And, that’s precisely what JD did. Providing end-to-end logistics was the only way that JD could guarantee a higher quality customer experience. With over 700 warehouses in China and over 220,000 staff, there is no question that this is an asset-heavy model. But, it’s the bone and marrow that has led to healthy growth over time. Since JD controls the entire supply chain, they decide how people sell on it and cut out a lot of the unnecessary fat.

This is the business Chinese customers know JD for. It’s called 自营 in Chinese, or ‘self-operated’. This is JD’s first party business, where the company buys, stocks and delivers. And, customers love it because it’s a guarantee of quality and service.

Quality, because JD provides real brands and manages the supply chain for them. Service, because customers get what they are shopping for. They get it quickly and they can return it easily if they are dissatisfied. It’s really retail fundamentals, where JD is able to grow its business at economy of scale. Because it buys wholesale, it offers good prices for the product. JD – in turn – is able to sell to consumers at a good price. This first party – or what JD calls, 1P business, is unique. JD is the only e-commerce company in China that does it. Other companies who once criticized JD’s asset-heavy model are now trying to do the same. It’s both how JD is able to offer quality products and good service as well as how to grow in a fiercely competitive environment. And, eat into the market share of offline retailers.

“I only buy from JD. I don’t trust the others,” says Ms. Wu, a white collar professional and long-time customer of JD.com. She elaborates: “It doesn’t really matter what they (competitors) say. I really don’t buy it. I’ve been buying from JD for years, and I trust the products that I buy, and its great service. But, what really makes it special is the delivery. Being able to build a unique relationship with a delivery person is really wonderful and unique.”

The service she alludes to refers to JD’s door-to-door delivery. JD Logistics, its in-house logistics business which is now a separate business group since 2017, allocates JD couriers to ‘own’ residential compound areas. Customers see the same courier on a day to day basis and build a relationship with them. The couriers get to know the customers they deliver to, and can even take orders in addition to simply dropping them off. There’s a lot more JD could talk about in this business, but the key point is that owning the entire system allows a significant amount of control that is of benefit to brands and customers both.

Doctor Zhong Nanshan, the national hero who led China through SARS and today, offers his gratitude to JD Logistics.

This leads into another related point. The brand positioning of JD is somewhat on the higher end. Demanding Chinese consumers come to trust quality and are willing to pay the price for it. But, the people who can afford to pay this price are those who have higher income. Because China’s middle class is rising overall, this means the consumer base is growing. But, JD’s business is satisfying two unique groups of consumers. One is the existing JD consumer cohort who for years has chosen quality and has been willing to pay for it. This group is growing.

At the same time, there is another consumer cohort who is increasingly choosing JD, and this is the consumer from the lower tier city. These people have rising incomes, are increasingly savvy and are choosing to “trade up” in their brand and product choice. This is all great news for the company in terms of overall business development. But, equally important, as a wider group of consumers across China have more income to spend for the purchase of goods, they will inherently choose quality – and, authenticity, by extension.

JD Logistics courier in Beijing recently, braving the snow.

To summarize, when people talk about tackling counterfeits, there’s a lot they can say. But, more importantly, it’s key to understand the business fundamentals as well as JD’s corporate values to get a broader perspective on demonstrating how JD tackles counterfeits. From the first days of JD over 20 years, they were counter-culture at the time. they chose to sell quality at a set price. Then, as the business progressed, they decided to manage the entire supply chain of its business – the only retail company in China to do so – even to present day. Lastly, they continue to be well-positioned as Chinese consumers become both savvier and more demanding. This is part of why some may say JD is the “best kept secret” in the business.  And, it’s part of why people who understand its business will continue to invest in JD.

While this article seeks to provide a broad overview and set the stage, the next piece in the series will introduce what action JD takes to target counterfeits.  Stay tuned.

*”How JD tackles counterfeits” is a three-part series that tells JD.com’s story. This is part one, focusing on what makes JD unique in terms of its business model and corporate values. Part two will dig deeper into how JD guarantees authenticity by the actions they take.

 

(brad@jd.com)