Liu Qiangdong: Why Do We Have To Do Logistics For Huge Losses?

Jingdong CEO Qiang Dong Liu In recent days, the speech on "the master class" at the 20th anniversary China EU special event held in has not only elaborated the management theory of the inverted triangle model, but also revealed for the first time why the huge loss of the Jingdong is the core principle of logistics and logistics design.

　　 At most a year, it loses billions.

Over the past decade or so, I believe all of you should know that basically, among the most controversial companies in the entire Chinese Internet industry, the most controversial entrepreneurs, I believe they should be non Jingdong and I am. Since I got the first round of financing in 2007, I got 10 million dollars. By the end of the year, we decided to build our own logistics. After that, the market has all kinds of doubts. Some people say that it is very good. This is our core competitiveness. Some say this is the most foolish decision, and one day it will drag down the business.

So over the years, the constant heat in the market is the discussion of our various behaviors. In the next 1.5 hours, I would like to share with you alumni what exactly I think of my team in the Jingdong. What kind of thoughts, what kind of thinking and what kind of strategy are we based on?

We are now a listed company, and the financial statements of the company have been passed. At the most, the loss of about one billion yuan a year is very serious. At that time, many people asked me, are you sleeping? Are you not afraid? Actually, they are not afraid. Sometimes they also want to, if the enterprise fails.

I can sum up in one sentence that over the past decade or so, we have not changed for the outside world or even for our investors, so long as we think that what we do is valuable, profits must not be a problem. I do not believe that there is a business model in this world that creates a lot of value for your partners and creates a lot of value for your users. As a result, you fail and fail. If so, it must be our implementation problem, or our management team has a problem, not a business model.

Today, there are two charts and 00 scattered views on the Internet. I want to repeat here today. This is the strategic framework used by the entire Jingdong mall. We have used it for ten years, and we can find three to five different things every year. But whether it's the annual strategy or the medium-term strategy, we are all in this framework, and we have never left this triangle theory.

This inverted triangle is developing. We are developing from bottom to top. That is the team. This is why the company is willing to cooperate with our alma mater today and train our top management team. Therefore, team training, team selection and personnel training and motivation are always the most important things for us. Any company must be a team and fail because of your team.

In the past, when many people fail, they say that policy changes, market changes, changes in consumer demand, technological development, and so on, have led to failure. They are all blunting, and ultimately they are not human. Take two examples, one is IBM, IBM found that PC does not make money, the real should be from the system software and services, that age sold PC or profiteering, when IBM sold PC is still in a time of profiteering, it has been discovered, so the transformation of software and services, laid IBM another 20 years of brilliant success.

The negative example is Kodak, Kodak's traditional camera, Kodak's boss also said this sentence, this is what Professor Zhong said in class, he said that in this world, I only found one kind of thing profit is higher than our Kodak, is the narcotics, said that the world only has the drug dealer's profit to be higher than ours, when said this sentence is very proud, very proud, each enterprise when you go to the successful time, especially when reaches the peak, behind is the downhill road.

So the most fearful thing for a company's founders and managers is that at the peak, your profits are very good. You are the heroes of the world. Wherever you go, you respect and admire.

Kodak is also the first invention of digital camera in the world. We must not think it was invented by Canon or SONY. It was invented by Kodak. If I did this, the profit after the drug would be gone, and he would have a conflict with him. The result was that the enterprise would go bankrupt. If it had been able to keep up with the digital wave, it could still earn a lot of money today. The company could still exist, and you had revenues, cash flow, profits, and new technology.

In the process of developing digital cameras, Kodak has more opportunities to find more business models to maintain the development of its own company. Is the technology changed? In fact, Kodak's team has problems, and its strategic choice is contrary to the interests of consumers. This is also the value I have repeatedly emphasized. You must not be contrary to the interests of consumers in any choice you make. Your purpose can not be so noble. Your purpose is to make your business survive and profit, so that employees can live in dignity and allow the industry not to fail. However, all the things you do can not violate consumer value based on your need for survival and the need to make money.

Kodak violates the consumer value, it chooses its own profit, and the digital camera is destined to be low profit. Its choice is different from that of consumers. Consumers choose digital cameras more convenient, simpler, can be edited, can be stored forever, do not need to print, and can be shared with others at any time. They are all traditional cameras can not do, so it is doomed to fail when an enterprise's interests and consumers' interests are conflicted.

Or in a word, I think the whole world, no matter what kind of country, under what kind of social environment, under what kind of legal and cultural environment, the failure of an enterprise is just because your team is not good, there is no other factor, all other factors are borrowed. Based on this, we Jingdong should be most concerned about, the most time should be spent, the most should be done at any cost, that is, the team, you spend a lot of time. On the basis of achieving a team, we now focus on building two logistics, IT and financial independence.

　　 Why do we do logistics?

Here, I would like to introduce why Jingdong companies do logistics. Some people say that logistics is very simple to ensure user experience. I can tell you a few figures. In the first quarter of 2014, 70% of our self orders were delivered to consumers on the same day or second days. In the first half of this year, we increased speed in three to six cities. We hope that more orders will be sent to consumers within 24 hours.

But if only for the user experience, can not do so, how can it be done? 700 cities in the whole country, each city Dou Jian, a huge warehouse, how much can be prepared, the shipment is all in Shun Feng, and the SF is very expensive. The consumer has orders at any time, plus the fast delivery speed of SF, and the user experience is not good. It may be better than today's Jingdong, but it can be successful. Obviously, it can not be successful, because your cost is unsustainable, your cost is out of control, your efficiency is not good, because there is no more goods to be prepared, more cash flow is needed to prepare a large quantity of goods.

There is a basic concept that half of our students do not understand, that is, cash flow. A profitable company may go bankrupt. A company with a loss of cash flow may not go bankrupt. Many students did not understand it at that time. The 700 warehouse is inefficient, and 500 billion is not enough for you. Therefore, Jingdong creates logistics system, our front-end in order to provide customers with the best experience at the same time, our backend has great demand, that is, we hope to reduce the entire logistics cost.

We build ourselves. logistics When we saw a huge opportunity for China, the opportunity was based on three reasons. First, China had no UPS and no Fedex, so it gave us the opportunity.

Second, China's logistics cost is extremely high. By the year 2013, our country has also announced that last year China's logistics cost accounted for 17- 18% of our GDP. In fact, you can equate it to wastage, which is equivalent to waste. In the case of the small profits of our country's enterprises, European 6-7%, Japan 5-6%, people's logistics cost is 10% lower than ours.

Third is the service, because China over the past few years, our express development is very fast, but the quality of service is relatively low, franchisees and group companies in fact, the interests are violated, the interests of the two are not consistent, the franchisee hope to receive more, because the courier company to express the settlement, delivery is an obligation, the recipient is to make money.

Therefore, the development of China's express delivery has become a franchisee mode. To express delivery as a huge potential service, I have analyzed all kinds of situations. In the long run, all the service sectors in China are not optimistic, and this gives us a chance.

Shang Dao coffee in almost three years and five years, almost every city has its own, the boss has been collecting the franchise fee, but there are thousands of people in China in five years. But so far, Starbucks has not been made to China. Do you see Starbucks joining in? Very few McDonald's join us. Very few, so if all the service industries join in, the initial development speed is very fast, you can earn a lot of money, but this business mode in China, today there is one, no, tomorrow there will be another one, and it will be against the interests of consumers.

I think China's service industry in the next twenty years, we will usher in a great opportunity to adhere to self run, for example, you do a coffee shop, from the first shop, it may take 10 years to open 500 stores, if you join, you may join thousands of stores, more than 10000, so there are many many opportunities.

Based on these three points, the service is not good, the cost is very high, China does not have this kind of express, so we have the opportunity. After we did it, the Jingdong logistics mode has gone one step further. Our Jingdong is not doing the express company, the reason is very simple, because I design the idea is different.

　　 Core design: reduce the number of goods handling.

Three links, one well, or Shun Feng, and what it is pursuing is how to make the goods flow quickly, which is how to send a piece of goods from Beijing to Shanghai, and it is also cheaper. Three way one logistics design is like this. Its mode is receiving goods at each point, and every point is being delivered, so the network is very complicated. The logistics mode of Jingdong is very simple. We are sending customers from warehouses to consumers. Between our points and points, Shanghai's distribution stations and Beijing distribution stations have no 10 Fen relationship. Shanghai's distribution station will never send a shipment to Beijing's distribution station, and three stations, one Da and many SF stations are related.

Moreover, we are warehousing and distribution integration, we build more and more warehouses, and goods are getting closer and closer to our consumers, which leads to the shorter and shorter distance of our goods moving. Therefore, the speed is faster and faster, and the cost is also getting lower and lower. Therefore, it is a positive cycle, and the larger the scale, the more obvious the logistics is.

Take a few figures to share with you. We announced the quarterly earnings of the company. We can find that the logistics cost of Jingdong mall accounts for 5.8% of our sales revenue. Last year and the first quarter of last year and the first quarter of this year, it was almost 5-6%.

Let's give you an example. The operation flow of traditional trade circulation industry or courier company is: the Lenovo librarian divides the product into the storehouse, then supplies it to Zhongguancun or Shanghai Pacific Computer City, and businesses often stir fry it, move it here today, move there tomorrow, each item from the factory gate to the end user, each item is handled at least 5 times.

According to tradition Commerce According to our estimation, the average throughput is more than 8 times, which is why the logistics cost is so high. Can you make big money if you change hands five or six times? Therefore, the entire logistics industry, all participants do not have much benefit, everyone is bitter ha ha.

The core of Jingdong's logistics design is to reduce the flow of goods, and even if we don't produce them, we will tell you that we have 36 warehouses for Jingdong. We have to tell you how many goods we send to each of our warehouses, from the factory to the more than 80 storehouses. The second move is to move from the warehouse to the consumer's home. There is no agent or distributor, and no move from the storeroom to the storeroom. Each move is cost effective. Every move is lossy, and it takes time. It is precisely because we are carrying less times that the cost is very low, because we directly arrive at the end consumers, so our operation efficiency is also very high. Use another sentence.

Let me give you an example. According to our public earnings report, last year we had 32 days of inventory turnover. What level is this?

We compare with friends, they are also listed companies, their inventory turnover days are 70-90 days, we only have 32 days. Don't forget, the management difficulty is different. When they do 70-90 days, they only manage 10 thousand kinds of SKU (product inventory), while the number of SKU managed by Jingdong is over 2 million.

Their average account period is more than 140 days, which means more than 140 days to get the money, and the funds can only turn two times a year. And Jingdong mall last year we only account for 39 days. 39 What does Providence mean? It means that its cash turnover can reach more than ten times a year, and the efficiency of the whole industry is up.

Let's take a look at our operating cost ratio of 10.3%. If we throw away the low end of general merchandise (because of its high rate), it may reach 15-20%, and the cost brought by technology. If we put these aside, our annual comprehensive operating cost rate is only about 8%.

What is this concept? China is now the two largest home appliance store. Now the rate of charge is 16-17%, we only have 8%, that is, we are 50% lower than it. How can we do it at a low price? If the profit is changed to low price, this business mode must be sustainable, so how to achieve low price, Jingdong's pursuit in more than 10 years is to reduce its own cost.

To put it plainly, the same thing that costs you 17 yuan, I only have 8 yuan cost, we still have to change consumer habits, but only in China can allow countless Internet users to buy electricity on the Internet, in fact, the entire Chinese consumer industry has created a business model that even developed countries do not have.

I have been talking for so long that I just want to tell you why a company will lose money. You will have doubts. Sometimes you will be afraid of failure, but you can still persist. Finally, you will find that low price comes from cost control and cash flow comes from higher efficiency.

So for the second time, we aim to reduce the flow of goods, which is the core demand of Jingdong's design logistics. Different designs lead to different values for the society, and more future express companies, personal belongings, personal belongings, or moving houses and so on, have great value, but real business.

Finally, I suggest that we must make the goods closer to consumers, reduce transportation costs, reduce the number of transportation and enhance the efficiency of the industry chain through this way of warehousing and distribution.