Just when you thought that the supply chain management and transport logistics sector was saturated and not worthwhile investing in, a Chinese online retailer moves into this massive package-delivery service market, harnessing their SCM systems to maximise returns on their IT investment. Not put off by the competition from the many other private express parcel transportation logistics companies, according to Jennifer Smith of the Wall Street Journal, the company is seeing the value of a lucrative business to complement existing operations, despite immediate economic slow-down. The company is taking the long term view of an upward market trend in deliveries.
JD.com, retail rival to the massive AliBaba, netted $17.7 billion in the second-quarter of 2018. No doubt, the company hopes to capitalise on cost savings of bringing its logistics in-house, while building on its technical expertise and offering its logistics network for consumers and businesses needing parcel shipments, independent of products sold on their online platform. Effectively, this adds another revenue stream to already healthy revenue streams.
The company offers an app to customers to organise deliveries, or alternatively, they can post pickup requests via the South Asian social-messaging app, WeChat.
Like many transportation and logistics management companies, the company is currently targeting densely populated cities, such as Beijing, Shanghai and Guangzhou. Individuals and organisations will, for the time-being, be able to send their items domestically only, but the retail-come-delivery company intend to expand their courier service to cover residential and business deliveries between two points in mainland China. It’s remains to be seen if they eventually seek to take a greater share of the overseas shipping market, given the complexities of supply chain automation in exports.
Expansion into deliveries is a logical business expansion that helps them maximise returns on existing resources, such as their warehouses and fleet vehicles already used to move e-commerce goods. “This marks the next step in leveraging the nationwide logistics network that JD has built over the past decade,” said Zhenhui Wang, Chief Executive of JD Logistics.
Room For More With Powerful Supply Chain IT Systems
The company claims they can reach 99% of the population and successfully delivers over 90% of website orders in one day or less. This makes them confident of taking a slice of this economic powerhouse’s current logistics market leaders.
JD.com will be competing with companies like China’s ZTO Express Inc.and SF Express, as well as bigger express parcel carrier companies such as United Parcel Service Inc. and FedEx Corp. JD.com and Alibaba have been increasingly competing in logistics capability, as each fight for market dominance in the world’s second-largest economy.
Amazon.com Inc. too is preparing to launch their own business delivery service in the U.S. The behemoth has already invested heavily in branded trailers and air cargo operations, boosting its extensive network of distribution centres. JD.com, however, will rely less on outside carriers for package deliveries than its American counterpart.
It’s possible that JD.com’s huge revenue growth may be subsidising some interim losses as the company invests in highly automated warehouses and other technology.
Certainly, to compete with Alibaba, who are owned by logistics company, Cainiao Network, long-term thinking by JD.com is necessary, which means capitalising on their sophisticated SCM systems.
Alibaba bought a nearly $1.4 billion stake in express-delivery firm ZTO in May and they too have plans to invest billions in technology in order to brings its logistics operations into maximum capacity and profitability. Alibaba relies on outsource carrier companies, including ZTO and SF Express, (China’s biggest package-delivery business).
JD.com’s strength lies in its supply chain IT systems and extensive distribution network, which currently includes:
- 15 logistics sites,
- over 500 warehouses,
- almost 7,000 delivery and pickup stations,
- 250,000 delivery vehicles, some of which are partner operated;
- air freight is outsourced to commercial airlines;
- the company also deploys drones in remote areas of China.
Certainly, both companies are leading the way in demonstrating the power of supply chain IT systems that effectively co-ordinate complex business models.
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