by Yuchuan Wang

This past Chinese New Year has been unprecedented for Chinese people. Greatly impacted by the novel coronavirus (COVID-19) outbreak, people have been forced to stay at home to avoid infection. Markets, shopping malls and restaurants are all temporarily closed, while a surge in online orders – especially for fresh and instant food – has been seen across the country.

According to JD’s data, over 50,000 tons of fresh food were sold between January 20^th and February 13^th. Sales of meat and egg products increased by over 300% compared with the same period last year, while sales of frozen food and vegetables increased by 264% and 216%, respectively. From February 13^th to the 17^th, JD supplied 5 million bags of instant noodles to Chinese consumers. How could all these things happen?

 

When restaurants meet JD Fresh

Research from China’s National Bureau of Statistics shows that in 2019, 15.5% of the country’s restaurant revenues came from the Chinese New Year peak season, while 93% of China’s restaurants are currently temporarily closed due to the impact of COVID-19. But, it’s not only the restaurants that are suffering from the losses. Employees in the restaurant industry have also been forced to leave their positions.

Jindingxuan is a well-known Beijing restaurant chain opened 23 years ago, where Wei Han, a store manager, has served for 16 years. He didn’t go back to his hometown in Henan province during this past Chinese New Year holiday because he was expecting a busy holiday season like usual. Yet, the busy time didn’t occur, and instead, he received a notification about the temporary closing of his branch in Yizhuang, in the southeast of Beijing.

General manager at Jingdingxuan in Beijing, Mang Li says, “Many of our guests cancelled their reservations for the New Year’s Eve dinner. We have so far closed 18 of our 31 stores, and in our most popular Ditan branch, guest flow is less than 10% of what it used to be.”

While the flow to offline stores is disappointing, sales for ready-to-cook instant dishes is skyrocketing online. To help traditional restaurant enterprises get through this period, JD launched the “catering retail alliance” to enable enterprises to offer healthy and delicious packaged ready-to-cook or instant dishes across China through JD’s nationwide logistics network so that consumers can taste the original flavor from famous restaurants in their own kitchens. JD is also providing access to its C2M tools that provide big data analysis and insights to guide merchants to prepare and respond to specific demand by diverse communities, age groups, and even packaging preferences.

Jindingxuan’s ready-to-cook product: Braised Pork with Preserved Vegetable in Soya Sauce

According to JD’s data, sales of Jindingxuan’s ready-to-cook products during the epidemic increased nearly 300% in February compared with a month earlier. “We used to supply our ready-to-cook products to JD’s warehouses twice or three times a month. We are now delivering at least three times a week,” said Bing Qiu, Director of Marketing Department at Jindingxuan. “Although we have tried ready-to-cook food and e-commerce in the past, we did not regard it as the focus of our business. Impacted by the virus, our offerings have expanded by 50% to more than 30 categories.”

The same is happening to other industry players. From February 1 to February 17, sales of CP’s ready-to-cook products on JD increased 664% on a yearly basis. And the sales of the whole month of February are expected to exceed that of last November when Singles Day (November 11^th) sales was held. February orders for Xiaonanguo (a Shanghai classic chain restaurant)’s noodle product “Noodles Mixed with Scallion, Oil and Soy Sauce” were more than double the usual amount.

Affected by the epidemic, more and more restaurants have realized the importance of e-commerce and omnichannel. To date, over 200 partners have reached out to JD to join the alliance. Sales of related products have increased 450% from January 20^th to February 18^th compared with the same period last year.

JD not only opened doors of omnichannel to restaurants, but also created job openings for restaurant employees. After staying home for a week in his rented apartment in Beijing, Wei Han received some heartening news. JD.com launched a “talent sharing” plan, and Jindingxuan joined immediately. Under the plan, JD’s supermarket chain 7FRESH would hire short-term staff from restaurants, hotels, cinemas and other temporarily closed retail establishments.

Wei Han now is responsible for handling online orders at one of 7FRESH’s stores in Beijing. “This is different than what I used to do, but I am happy since I can still work and pay my bills,” said Han.

Wei Han working at a 7FRESH store

“It is JD’s responsibility to work with partners and help them and their employees get through this hard time,” said, Chunhua Cao, head of human resources at 7FRESH. More than 100 short-term employees like Wei Han are already working in 7FRESH.

 

Unsalable？No such thing!

The agricultural industry also faces significant challenges.

While the epidemic has awakened pent up demand for online shopping across the country, many farmers and agricultural enterprises face the dilemma of not being able to get their crops to end consumers.

“Strawberries were sold at RMB 30/kg before the Chinese New Year holiday. After the outbreak, we lowered the price to RMB 6/kg but we still lacked sales channels. My strawberries were nearly left to rot in the field,” said Qingmei Duan, a strawberry grower with over 10 years of fruit farming experience in Liaoning province in northeast China.

Dandong, where she is based and a border city to North Korea, is the largest strawberry production and export base in China, with an annual yield of over 200,000 tons. While the epidemic developed and increasingly strict protective measures were implemented, Duan’s dealers from other provinces were unable to come this year. At the same time, many local markets were closed due to the virus. “Offline channels, which used to account for 80% of my strawberry sales, were suddenly cut off,” she disclosed.

In addition to strawberries in Liaoning province, many other products including mangos from Hainan, apples from Shaanxi, oranges from Sichuan and flowers from Yunnan were struggling to find sales channels.

“Since the outbreak, there have been transportation restrictions across China, putting pressure on the delivery of agricultural products,” said Yishen Tang, head of JD Fresh. “The extended holiday intended to curb the spread of the virus also makes it difficult for dealers to purchase from farmers who have limited manpower. At the same time, many of the local sales channels such as markets have been temporarily closed. This complicated situation has led to nationwide fresh produce potentially becoming unsellable.”

According to iResearch, a market research and consulting company in China, traditional markets accounted for 56.1% of China’s fresh food sales channels in 2018, while e-commerce only takes a small bite with 4.1%.

As one of the pioneers in fresh food e-commerce that operates a global supply chain and nationwide cold chain network, to address this pressing issue, JD launched the “National Fresh Produce Green Channel” on February 10^th, leveraging its strengths in supply chain, logistics, operations, marketing and more. Open to both existing and potential partners of JD, the initiative provides 25 supportive policies to merchants, including fast enrollment, extra traffic, discounts or fee-free use of the platform among a host of other benefits to bring fresh produce directly from farm to table.

So far, JD has received thousands of requests from farmers and agricultural enterprises and helped them sell over 3,900 tons of agricultural products that were impacted by the coronavirus. In just two days,  helping over 30 local farmers get through the hardship and earn more money.

Seventeen years ago, a small outlet in Beijing’s Zhongguancun area started transformation, from brick and mortar to an online retailer because of SARS (Severe Acute Respiratory Syndrome), when the epidemic also stopped people from going outside and halted footfall at offline stores. That small outlet has become JD.com. Will the novel coronavirus change people’s shopping habits for fresh food over the long run? Will cold chain logistics leap forward in scale? Are we on the cusp of a major revolution for fresh food e-commerce? The unexpected arrival of the coronavirus raises many questions for decision makers.

“We’ve seen many agricultural production bases become increasingly aware of the significance of e-commerce due to the virus outbreak. We expect the scale of e-commerce companies’ sourcing directly from farms to further rise,” concludes JD Fresh’s Tang.

 

(yuchuan.wang@jd.com)

by Rachel Liu

On March 6, 2003, the first case of SARS (Severe Acute Respiratory Syndrome) was reported in Beijing. JD Multimedia, an offline company that mainly sold magneto-optical products in Zhongguancun, Beijing found itself in trouble. As customers dared not to go out to shop in the malls, the retail industry suffered a heavy blow, and in just 21 days, JD Multimedia lost more than eight million RMB. Certain that things could not continue this way, the company started to sell products through online postings. It was a huge success, and, in 2004, JD became a 100% online retail company.

In January 2020, COVID-19 (the “coronavirus”), a highly contagious virus believed to be similar to SARS, struck China. JD.com is already the largest retailer in China, online or offline and in a very different position than it was in in 2003. The company is now able to use the massive scale of its retail business, mature supply chain and logistics capability to support the fight against coronavirus.

 

First there was SARS

Retail has been in JD’s blood from the beginning. In 1998, JD Multimedia, the predecessor of JD.com, was engaged in a classic offline business: stocking and selling goods, first wholesale, then retail. At that time, the market was full of chaos and corruption. At the stores in Zhongguancun, authentic goods and knock-offs were sold side-by-side, making it hard for customers to pick authentic and authorized products.

JD’s founder Richard Liu took a different approach from many sellers in Zhongguancun. The company only sold authentic products at reasonable prices. As time went by, it accumulated a group of loyal customers. After moving the business entirely online in 2004, it was the reputation of authenticity that attracted the first group of customers to JD. The retail model enables JD to work directly with brand partners to source products, and to store them in its own warehouses, meaning it has higher control of product quality and can guarantee authenticity.

In 2007, JD stepped further in building its own supply chain—establishing its self-built logistics system and realizing the integration of warehousing and delivery. Many people would think that JD and Amazon share many similarities. Both adopted a retail model, controlling the supply chain. However, the building of the logistics network is what makes JD standout in the Chinese market. Different from the U.S., at the time, China did not have a nationwide logistics system, and the logistics industry was highly fragmented. At that time, half of the customer complaints that JD received were logistics-related: some people complained that the delivery was too slow, while others said that the parcels they received were damaged. This is because rough loading and unloading was common for logistics companies, and the electronics products that JD sold could not withstand this kind of treatment.

To provide a better customer experience, Richard Liu decided that the solution was to build its own logistics infrastructure, including delivery service. It was a controversial decision since it would require a huge amount of investment. However, Liu insisted on forging ahead because he believed this was the only way JD could control the entire supply chain and continue to provide high-quality service. In 2010, JD launched a delivery guarantee called “211”, also referred to as same- or next-day delivery. It guarantees that if customers place orders before 11am, they will receive products the same day, and if they place an order before 11pm, they will receive them before 3pm the next day. No other e-commerce company in the world can guarantee this and it sets the standard for delivery service.

Today, JD operates the largest B2C e-commerce logistics network in China that covers 99% of the country’s population. It also has become China’s largest retail platform for PC and digital products; China’s largest home appliance retail platform and also owns China’s largest retail business, online or offline.

 

Now, here is the Coronavirus

When the coronavirus struck the country, a huge amount of epidemic protection resources and daily necessities were needed across the country, quickly. Many customers are reluctant to go out to stores and turned to e-commerce instead. The outbreak of the virus occurred during the Spring Festival holiday, when many manufactures and delivery companies were closed. However, JD was still able to supply 71,500 tons of rice, flour and grain, 27.25 million liters of cooking oil, 40 million bags of instant noodles, over 50,000 tons of fresh produce, 3 million cans of baby formula, 400 million pieces of diapers, 5.88 million bottles of liquid soap, 3.61 million bottles of disinfectant and 1.59 million packs of wet wipes from January 20 to February 13. JD also donated 100 million masks and 60,000 other items, including medicine and medical supplies to Hubei province. How was JD able to do this?

The answer is that the years of effort in building its own supply chain infrastructures made JD the only company in able to do this. The biggest challenge for an e-commerce company during the virus is to ensure enough supply of products and deliver them to the people in need as soon as possible. JD’s retail model ensures that it can collaborate closely with partners to ensure adequate supply of the mostly needed products and control prices to ensure they don’t rise. This is the eighth consecutive year that JD has operated its logistics network during the Spring Festival, enabling products to reach customers throughout the entire period, and this year, with the coronavirus, also enabling continuous supply to hospitals and medical organizations.

 

The brighter and broader future

The retail model and self-built logistics network is what makes JD unique in the Chinese e-commerce market, and it has proven to be valuable in improving customer experience and ensuring authenticity. It has also played an important role in the fighting against the coronavirus. Behind JD’s retail model and logistics network is a highly efficient supply chain management system. The biggest advantage for a retail e-commerce platform, comparing with a third-party merchants platform, is the backend supply chain ability, including the selecting of categories and products, inventory management, sales prediction and replenishment, price strategy and promotions. JD has defined itself as a technology and services enterprise with supply chain at its core.

A good example is JD’s forecasting and replenishment system. The system integrates JD and brand partners’ information of products, such as life cycle, termination information, volume limits for sales events, and sales promotions that may impacts sales to improve the accuracy of forecasts. The integration of information on inventory and logistics information enables brands to complete replenishment automatically. JD had collaborated with Nestle to optimize the supply chain efficiency, and as a result, Nestle was able to improve the forecast accuracy to 85% and boost in-stock level to 95%. Starting from here, together with the technology-backed warehouse and logistics system, JD is able to constantly provide the most suitable products to customers at the lowest cost and highest efficiency.

 

 

(liuchang61@jd.com)

by Ella Kidron and Yuchuan Wang

 

What JD-Y revealed is the formula of how JD has become a game changer in this industry. Through its supply chain innovation, JD has made something extraordinary, ordinary.

 

The outbreak of COVID-19 in China has resulted in widespread difficulty across the country. JD has faced this head on, guaranteeing regular order placement and timely delivery services across China’s nearly 300 cities. The company has delivered 120 million products including 160,000 tons of rice, grains, meat and vegetables to its consumers during the outbreak.

Shen Zuojun (Max Shen), JD’s chief scientist for supply chain management, explains: “The sudden outbreak of COVID-19 presented four key challenges for JD’s supply chain to overcome: 1) A sudden change in product demand resulting in a structural imbalance between supply and demand, 2) A smaller logistics team than usual due to the Spring Festival holiday, as well as the pressure of closed roads across China, 3) How to ensure merchant credibility and prevent rising prices of epidemic control supplies, and 4) How to manage the challenges brought by the virus’ overall pressure on the economy and insufficient production capacity.”

Max Shen (fourth from right), and some members of JD-Y team in Silicon Valley, CA

 

Addressing the imbalance

The first problem is how to address the imbalance between supply and demand. Normally, JD would predict sales and prepare inventory based on historical sales so that inventory would be available where the predicted historical demand is. In general, the demand of masks and other epidemic supplies such as disinfectant and liquid soap, is typically low, so inventory in warehouses is also low. Therefore, upstream suppliers remain a relatively low level of production.

Following the outbreak, the demand for these products skyrocketed, and people attempted to stockpile. If JD were to allow people to stockpile freely, then these supplies wouldn’t be allocated sufficiently to meet the real demand. For example, if we are to allow just a few people in a province with a relatively low number of COVID-19 cases to stockpile all available masks in the market, then those masks might go unused sitting in people’s homes, while the epicenter in Hubei province remains in desperate need of these supplies.

JD courier prepares to deliver much needed goods to hospitals in Wuhan to support orders from patients and doctors there.

JD’s supply chain scientists used the SEIR model to forecast demand for epidemic supplies to prevent this from happening. The SEIR model assumes that people carry lifelong immunity to a disease upon recovery, and is used to estimate the number of patients, expected patients, and transmission path of a disease in order to be able to forecast the demand for epidemic supplies according to regional population size, and to control the demand to ensure that limited materials are distributed to the areas where they are most needed. At the same time, JD’s procurement team mobilized upstream manufacturers to increase production capacity and accelerate supply.

 

Ominichannel fulfillment

In addition, normally, demand for products like rice, flour, oil, etc. is generally higher offline. With the number of people remaining in their homes rapidly increasing due to the epidemic, this demand moved online. Relying solely on the inventory in JD’s warehouses to manage the sudden increase in e-commerce demand of these products would certainly not be sufficient.

To address this, JD-Y turned to its Omnichannel Fulfillment supply chain innovation program. When a consumer places an order online, the platform matches the order with offline supply closest to the customer in real-time, and then arranges for a courier to deliver to the consumer along the most efficient route.

For example, if a consumer in Beijing places an order for two large 5L bottles of cooking oil and a bag of rice in ordinary times, the products would come from a JD warehouse and then go to a JD delivery station near the customer’s home, from where they would then be delivered to the customer. With COVID-19, instead of relying solely on the stock in JD’s warehouses, the omnichannel fulfillment platform will calculate which brick and mortar store nearest to the customer has the items in stock, and then source the inventory from there instead. During the epidemic, tens of thousands of offline stores in hundreds of cities have worked with JD to fulfill customers’ orders, and the daily number of orders fulfilled through the program is nearly five times that of a normal day prior to the virus.

When Mr. Li came back to Beijing after the Spring Festival holiday and had to stay under quarantine in his home at the Xinkangjiayuan residential compound in Beijing’s Daxing district for 14 days, he was faced with the challenge of how to buy daily necessities during the period. JD’s Omnichannel Fulfillment program enabled Mr. Li to place orders on JD for snacks and drinks, which were then sourced from the Watsons store near his compound and delivered to him in just 30 minutes.

The Watsons store nearby Mr. Li’s compound

 

Network optimization

The second problem is logistics capacity. The epidemic occurred during the Spring Festival when some logistics workers were still on holiday. At the same time there were transportation restrictions and road closures which made transportation and distribution challenging. As a result, some warehouses were unable to supply the cities they used to cover, resulting in numerous delays in fulfillment. It is also challenging to transport goods from JD’s large regional warehouses to lower-level warehouses such as front warehouses close to cities with limited human resources.

JD-Y’s smart warehouse network platform addressed this issue. “Multi-echelon network hierarchical optimization” was used to analyze the status of JD’s warehousing network with the updated epidemic information in real time to calculate and reallocate inventory distribution across the network between cities and provinces. The platform also enables JD’s suppliers to deliver directly to JD’s front warehouses. During the epidemic period, hundreds of supplies have been supplied directly to JD’s front warehouses instead of going through the entire regional system. As a result of JD’s efforts, the online availability rate across the country was stabilized at over 95%.

JD’s automated warehouse ensures supply during COVID-19 period

 

Early-warning model

Another issue is merchant management. With the skyrocketing demand for masks, alcohol and other epidemic materials, some merchants took the opportunity to substantially increase commodity prices, while others attempted to provide false inventory quantities and were therefore unable to distribute products on time after customers purchased them, impacting user experience as well as the reputation of the credible merchants on the platform. It is extremely difficult to discover this type of speculative behavior manually. Based on intelligent forecasting and abnormal data detection algorithms, JD.com’s supply chain scientists launched a risk early-warning model, which identified more than 200 suspected abnormal price rises and overselling actions that the company was then able to address.

Finally, there are the challenges brought by economic pressure and insufficient industrial production capacity at a certain time in the future. During the epidemic, JD.com ‘s supply chain scientists are studying data on the impact of historical epidemic events, and combined with the data during the novel coronavirus, in order to forecast future trends of various industries. JD is using this information to actively communicate with suppliers and partners about the future situation, difficulties encountered, and planning and deployment, in order to develop the most effective recovery plan.

Some JD-Y’s 500-person team gathers at JD Headquaters in Beijing

A cemented mutual trust

Chen Lin, Vice President of JD said, “As the leading supply chain platform in China, JD will continue to open its resources and technical capacity to society to ensure the supply of commodities. We will also work together with the entire industry to support economic development and the resumption of production. “

“During the epidemic, we have further cemented mutual trust and cooperation with our partners. We believe that the concerted efforts across upstream and downstream industry players will certainly help us collectively overcome the difficulties and usher in a new wave of development,” he added.

Chen Lin (fourth from right), Vice President of JD and some members of the JD-Y team

Same- or next-day delivery is not easily achievable by any e-commerce company worldwide. In most places, this level of service is considered extraordinary. In China, however, thanks to more than a decade’s tireless effort, JD has created a situation where this level of service is now the standard, rather than an exception to the rule, and with no additional cost to the customer.

 

What JD-Y revealed is the formula of how JD has become a game changer in this industry. Through its supply chain innovation, JD has made something extraordinary, ordinary.

 

(ella@jd.com; yuchuan.wang@jd.com)