New retail promotes the reconstruction of supply chains in China's logistics industry

14 September 2018

The trends of rising consumption and the internet revolution in China have promoted the development of new retail business models, which has also given rise to a drastic change in the retail supply chain. New retail does not only impact the retail sector, as it is also accompanied by new manufacturing. This relies on a supply chain system that is connected by a new logistics model. The logistics system has shifted from standardised bulk handling to much higher degrees of differentiated sorting and handling that is more personalised and responds more rapidly to market demands.

Ten years ago, the business model of China’s logistics industry was one of franchise and direct operation. The services provided by logistics companies were usually single-function transportation, warehousing or package delivery. Today, the organisation of China's logistics industry is evolving towards collaborative sharing, and the logistics cooperation has been focused on the reconstruction of the supply chain. Logistics companies now provide diversified and integrated services to clients according to logistics scenarios and personalised customer demand.

New "supply hubs" have been established for joint distribution. A number of logistics companies have begun to work together and have established information sharing and co-creation platforms. For example, Pei County in Jiangsu Province went from six logistics companies operating independently to a common sorting and distribution centre, which created savings of 60% from space costs. The result is a significant improvement in overall transport efficiency, from the original six transports twice daily (12 times in total) to the current four times daily, which also generates savings of 30% in labour costs.

The physical retail supply chain and the e-commerce supply chain have been deeply integrated and transformed, realising online and offline real-time inventory information sharing. In the past, products were placed in warehouses and dealers' counters. Today, goods are no longer stored statically in warehouses, but flow throughout the supply chain. The warehouse inventory cycle is getting shorter and goods in sorting centers now hit the road within one or two hours.

Professor Yanhui Li
School of Information Management, Central China Normal University