E-commerce in China: the mega-supply chain

Just last week, I wrote that China is simply too big to fail, no matter what the risks or hurdles. As if on cue, this week saw the biggest single day of e-commerce volume in the history of the world, which took place (no surprise) in China.

Alibaba, group owner of Tmall and Taobao – the Amazon and eBay of China – did a truly insane $5.75 billion in sales on 11 November, a year-over-year increase of more than 50%. At SCM World these numbers were no big surprise because earlier this year we published a case study on the 2012 version of this annual 11.11 mega-sale and could foresee the volume growth.

Still, the scale of activity demands attention as a harbinger of times to come.

Three takeaways from 11.11

1. E-commerce is even bigger than we thought. Remember in the early 2000s when Forrester Research was forecasting massive amounts of online sales in the future? Many scoffed at the time, but it is increasingly clear that it may have even been conservative. Official data from the US Census Bureau still reports the figure at just under 6% of total US retail sales, but for anyone in regular contact with retail supply chain strategists this tail is most certainly wagging the dog.

Manufacturers, meanwhile, are feeling the heat as retailers ask for ever more special treatment. Many are now going direct to consumers. The New York Times, for instance, reports that Nike, Adidas, Procter & Gamble, Unilever and Samsung have jumped on the e-commerce bandwagon heavily because consumers in remote areas of China often lack access to traditional bricks-and-mortar retail. How long before essentially all retail is at least partly driven by digital demand?

2. Event supply chains are a vital capability in the near future. Much of the teaching around supply chain best practices leans toward a flow mentality. Case studies abound of supply chain transformations meant to streamline replenishment in order to lean out inventories and keep shelves stocked. The fly in the ointment has often been promotions, new product launches or other one-off demand creation events.

11.11 is a mega-promotion. Alibaba was able to handle this massive one-day sale because it painstakingly built the capability in advance of game time. The supply chain was prepped with a staff of 800,000 people, 300 newly equipped distribution centres and 100 leased aircraft. The website handled 402 million unique visitors on the day and 152 million parcels were prepped for delivery.

The mentality is completely different and much more in line with the way Apple runs its supply chain, which is somewhat like a Hollywood studio launching a blockbuster film. Continuous improvement means little in such make-or-break situations.

3. Human-to-human collaboration will expand. Details in our May case study point to the vital role of people in making this mega-event a success. The organisation design at Tmall’s logistics department had three essential pieces: first was a team of analysts tasked to digest massive amounts of historical data in advance of 11.11 and then monitor real-time demand on the day. This team made judgment calls continuously to prep for and then troubleshoot through the big day.

Second was a team dedicated to co-ordinating with merchants, whose mandate was intensive personal communication with respect to order fulfilment in action. By working issues in real time on a personal level, trust was reinforced with a one-team attitude.

Lastly, dedicated Tmall personnel were stationed on-site at all logistics partner facilities. Here again, the critical ingredient was human accountability and perspective. Extending these lessons to collaboration efforts I’ve seen in the US and Europe reinforces the inescapable need for face-to-face teamwork across trading partner relationships.

The supply chain discipline is crystallising, but in the process seems to be moving away from the lean, well-oiled machine we had come to idealise with Walmart or Toyota around the turn of the millennium.

The path forward may be curving back on itself with a future looking something like the original military incarnation of supply chain: lots of people, fighting a battle for the ages focused on a single mission. The stakes are higher than ever.

Please contact me directly with any comments, questions or suggestions. I welcome your feedback.

Kevin O’Marah
Chief Content Officer
SCM World