Sunday, June 22, 2014

ECOMMERCE ALIBABA CHINA LOGISTICS

From Forbes-- very interesting




Logistics & Transportation 904 views

Chinese e-Commerce Giant Gives More Details about its Logistics Capabilities in a New IPO Filing

 The Chinese e-commerce behemoth Alibaba Group Holding Ltd. released fresh insights on its logistics capabilities ahead of what’s expected to be one of the largest tech IPOs in history.  In an updated security filing on Monday, Alibaba included additional details, including new insights on its approach to logistics, that were missing in the initial documents filed in May.
Investors had, among other things, asked for more details on how the Alibaba was going to ship goods effectively based upon China’s underdeveloped logistics infrastructure.  In the initial financial document, Alibaba had mentioned that “China has an increasingly extensive and rapidly improving logistics infrastructure.”  Investors did not find this to be fully credible.
In Monday’s filing, Alibaba argues they have a good deal of control over 14 key logistics partners, who delivered 5 billion packages to consumers on behalf of Alibaba. “We believe orders from transactions generated on our marketplaces represented a significant portion of our logistics partners’ total delivery volumes in 2013.” They also work with logistics partners to develop solutions that are tailored for product categories that require special handling, such as perishables, frozen items, large appliances, home improvement products and furniture.
Further, recent investments they have made are improving the reliability of the deliveries.  In May 2013, they formed a joint venture with five major express delivery companies in China, as well as some firms specializing in real estate development (the real estate companies expertize is getting land grant contracts for the location of future logistics hubs).  The JV is known as China Smart Logistics and Alibaba has a 48 percent stake in it.
The development of a central logistics information system was one core driver of this venture.  The logistics platform connects sellers, buyers, and LSPs with the pertinent real-time information needed to improve service. The system is up and running.  Their express delivery carriers relied on this system to deliver an average of 13.7 million packages per day last year.
For consumers, the logistics platform provides delivery time prediction; real-time package tracking through both their website and mobile interfaces; self-service pick-up, where the buyer chooses a convenient location for pick-up from the participating network of convenience stores and other locations, allowing buyers to pick up packages at a time and place convenient for them; and logistics service evaluations, where the buyer can provide feedback on the logistics service, enabling sellers and logistics service providers to improve their services.
The platform also provides sellers with critical information: performance analytics on their logistics partners (including delivery performance), customer satisfaction ratings, and complaint statistics. Sellers can use a shipment fee calculator tool and then place shipment orders with express providers directly through the platform.
Logistics partners also get information from this proprietary platform that allows them to improve their operations.  The information includes key operating metrics (such as warehouse utilization rates), route planning data, and order volume forecasts. In short, their importance to their logistics partner and their logistics platform allow them to improve the quality of their fulfillment services.
But Alibaba believes that because of China’s underdeveloped retail sector, particularly in Tier 2 and 3 cities, they could grow very rapidly.   To support the expected growth, China Smart Logistics plans to build a network of key logistics hubs and warehouses across China. Its goal is to enable the delivery of over 100 million packages per day – up from the 13.7 million per day previously mentioned –  anywhere in China within 24 hours of an order being placed. That really is very ambitious, particularly considering that they currently “average” 3 day deliveries.  I put “average” in parentheses because while 3 days sounds pretty good for a nation like China, the word “average” can hide a long tail of much longer deliveries.
China Smart Logistics has prioritized a list of key cities where key hubs will be located. This was based on a detailed analysis that included the data they had access to from their logistics hub; economic data, such as population and GDP; forecasted e-commerce penetration rates; and an analysis of the existing logistics infrastructure. At this point they are in the process of developing hubs near 8 key cities.
Currently, if you compare Alibaba to Amazon, Alibaba is far, far more profitable despite being a much smaller company.  In part, this is because Amazon is aggressively building a network of distribution centers.  But the China Smart Logistics build out, of which Alibaba is a 48 percent owner, could be hugely capital intensive.  Alibaba is a fascinating company with terrific upside potential. But many investors might not be paying close enough attention to potential future logistics network expenditures.
TIANJIN/CHINA, 28SEPT08 - Jack Ma Yun, Chairma...
TIANJIN/CHINA, 28SEPT08 – Jack Ma Yun, Chairman and Chief Executive Officer, Alibaba Group, speaks during The Future of the Global Economy: The View from China plenary session at the World Economic Forum Annual Meeting of the New Champions in Tianjin, China 28 September 2008. Copyright World Economic Forum (www.weforum.org)/Photo by Natalie Behring (Photo credit: Wikipedia)

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