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Opening Up, Decoupling, No Competitors Yet: JD Logistics is Aiming Beyond Logistics

Editor’s Note: A version of this story was published in Chinese on LatePost. The story gives us an in-depth understanding of how JD Logistics stands apart from its competitors, and what lies ahead for the company. This is an abbreviated version of the translation.  

After its recent listing on the Hong Kong Stock Exchange, JD Logistics (2618.HK) now ranks second only to Kuaishou (1024.HK) in terms of capital raised in Hong Kong stocks since the start of 2021. Once an arm of China’s largest retailer JD.com, JD Logistics now has a market capitalization of more than HK $250 billion (US$77.6 billion), surpassing Zhongtong, the largest express delivery company in China, and second only to SF.

Among JDL’s greatest supporters are two high-profile investors who believe in the company’s mission: Masayoshi Son, the founder and CEO of Softbank Corp. Group, which runs the SoftBank Vision Fund worth more than US $100 billion; and Cathie Wood, founder of ARK Fund, which has long held heavy positions in technology stocks. In China, Wood is often referred to as the “female Warren Buffett.”

What do Son and Wood see in JD Logistics, which over time has become increasingly difficult to define? Some may say that is the company’s capacity to think far beyond logistics that sets it apart from its competitors.

Resisting comparison

When JD.com began building its own logistics network 14 years ago, it primarily aimed to ensure that products ordered from the e-commerce platform arrived safely on customers’ doorsteps. At the time, JD was focused on selling products that were attractive targets for theft, including computers and cellphones. The need to guarantee safe delivery was essential for building trust with JD’s customers, who were still acclimating to the burgeoning e-commerce industry—and also enabled the company to control its own logistics without depending on third-party contractors.

By 2010 this had become one of JD’s core differentiators from its competitors: fast, safe delivery. The company soon launched same-or-next day delivery service, which enabled customers to place orders in the morning, and receive their parcels in the afternoon of the same day. JD made the impossible possible, and set the benchmark for fast, safe logistics services.

JD has invested a significant amount of money in building integrated supply chain services. Today the company operates over 1,000 warehouses, including 32 large intelligent logistics parks, “Asia No.1.”. While JD Logistics’ peers are either relying on adding more human labor and cooperative (external) warehouse networks, or relying on heavy assets such as purchasing aircrafts, JDL has created a different road through the use of advanced algorithms enabling the company to plan and stock smarter, delivering from warehouses closest to customers to ensure the fastest delivery possible.

Since 2017, JDL has operated as an independent sub-group providing services beyond JD.com—opening up its own efficient logistics infrastructure to provide customized solutions for leading enterprises across a wide range of industries. This move has made it possible for JDL to travel its own path in the years since then, resulting in its IPO earlier this year under the leadership of JDL CEO Yu Rui.

Resisting comparison

While those who are less familiar with JD Logistics might assume it is simply a smaller version of SF, JDL resists comparison. Today it provides 190,000 corporate customers with services including warehousing, store distribution, after-sale return, exchange of goods and other solutions and logistics services. JDL can now be seen as a consulting firm, not only providing supply chain solutions, industry analysis and matching supply chain planning, but also participating in overall business plans to help clients achieve revenue growth. If a traditional logistics company provides standardized logistics services as a “Party B,” JD Logistics wants to be a “partner” of enterprises.

JDL’s client accounts are important revenue contributors, including fast moving consumer goods (FMCG) brands such as Nestlé, Unilever and P&G; apparel brands like Skechers, LI-NING, Anta and FILA; electronics; home décor brands such as IKEA and MUJI; home appliance brands such as Gree and Midea; automotive aftermarket enterprises such as Volvo; and fresh produce enterprises including Mengniu and Yili.

In 2020, nearly 47% of JDL’s revenue came from external customers outside the JD Group, and analysts predict that JDL’s income from external customers will account for more than half of its revenue this year. This will be achieved one year earlier than the goal put forward in 2017 by JD.com founder Liu Qiangdong, who stated that JD Logistics must decrease the proportion of revenue generated by JD’s platform to less than half in the next five years.

Ensuring that JDL continues to expand beyond “a company that only transports boxes” is JDL CEO Yu’s biggest priority. “We are certainly capable of continuing to do that, but we want to avoid ‘nei juan,’” (a term the New Yorker magazine translated as ‘involution,’ referring to the opposite of evolution). Yu is determined that JDL will continue to evolve.

Staying above the fray

Today, China’s express delivery market is brutally competitive—and while JD Logistics will continue to drive faster, safer, more efficient delivery, it has no interest in becoming involved in the price wars that have come to shape the market.

For example: The Pinduoduo-backed J&T Express has quickly dominated the market in little more than a year with extremely low prices, resulting in a continuous decline in the single ticket price of express delivery companies. Yiwu, which has the largest volume of express delivery in the world, dropped its lowest price to below RMB 1 yuan (US$ 0.15), driven by J&T Express’ aggressive strategy. Express service outlets have little room to make money.

Even SF Express, which has a focus on high-end customers, has fallen into the whirlpool of these price wars. In May 2019, SF made inroads into the middle-and-low-level market by offering the startlingly low price of RMB 4 yuan (US$ 0.62) to send 3-kilogram packages across the country. Although this resulted in SF Express grabbing some new market share, it is now facing significant financial pressure. This year, SF posted a RMB 989 million yuan (US$ 152 million) loss in the first quarter, its first since it went public 10 years ago. SF Chairman Wang Wei even apologized to investors at a shareholders’ meeting, and promised that such a loss would not happen again.

In this context, JD Logistics is determined to stay out of the whirlpool, with a unique strategy that prioritizes two essential ideas: “opening up,” and “decoupling.”

Opening up JDL’s technology to society

When JD Logistics first opened up its technology to external partners in 2017, it chose as its customers leading players in the fields of FMCG, clothing, 3C electronics, and more. Li Ning and Amway were JDL’s first two big customers, a choice that aimed at setting a benchmark in the industry.

JDL now positions itself as an integrated supply chain logistics service provider, offering clients a wide range of services in order to optimize the full length of the supply chain, including business consulting, sales forecasting, inventory optimization, replenishment, national network planning, warehouse management, transportation and distribution, and return and exchange of goods. This means that JDL participates in clients’ decision-making process throughout the entire process, resulting in increased efficiency and lower costs.

In a highly competitive market, the difference between success and failure can be determined by these kinds of small adjustments. As JDL’s chief strategy officer Bing Fu once said, “Many clients are anxious, as they know it’s an era of intense competition in which all factors matter—a single good marketing campaign or product won’t be enough.”

One example of JDL’s value is its partnership with Skechers, which began in 2019 and has resulted in shaving five hours off the average delivery time for all of the shoe brand’s e-commerce orders in China. “We have designed a full-network planning solutions for Skechers,” said Feng Gao, head of sales development at JDL.

Initially, Skechers contracted JD only to cover a range of delivery services. After a year of cooperation, the two companies were confident in the value of the partnership, and expanded the cooperation to cover Skechers’ warehouse management and omni-channel operation of their warehouses in southern and eastern China, including Skechers’ biggest warehouse in China.

“This is a process to build trust,” Gao said of the gradual expansion of the partnership, which continues to thrive today. Willie Tan, the executive officer of Skechers Greater China, Southeast Asia and South Korea, joined other representatives (including a JDL six-axis robotic arm) to ring the gong at JDL’s IPO celebration on May 28, 2021.

As the market evolves, so have client demands. For example, brands now feel compelled to update products more frequently to maintain a connection with customers. Many companies are increasingly focused on customer insights, premium product design and marketing promotion, and are more aware today about the value of working with partners on supply chain.

In contrast with some consulting firms that only provide short-term solutions, JDL is focused on offering successful solutions that will continue to be optimized as the market changes. As a result of the company’s industry know-how, it is positioned to offer superior services and a deeper understanding of how industry changes will impact supply change, compared with a strictly logistics-focused company.

As such, JDL’s partnership with Skechers doesn’t simply offer a logistics service solution, but more of a revenue growth solution, according to Gao.

Reshaping attitudes

In 2020 Chinese tech publication LatePost published a report about JD Logistics’ progress in opening up over the previous three years, noting that the most difficult hurdle was to reshape the thinking of JDL’s 200,000 employees. The key was to transition from the operational attitude of serving retail, to focusing on the perspective of customers.

JDL CEO Yu has long known the significance of reshaping organizational attitudes. Before he took the helm as CEO of JDL, he served as JDL’s CHO (chief human resources officer) for about two years. During that time, he laid the groundwork for JDL’s current direction, formulating a new strategy based on the core idea that if a company wants to ensure high-quality growth, it must first think strategically. More specifically, in order to achieve success a company must embrace systematic organizational restructuring, while continuing to drive progress in terms of talent and culture.

One fundamental idea that Yu has introduced at JDL is “decoupling,” a term that refers to the practice of creating flexibility by making the features of a system more independent from each other. Yu’s decoupling strategy has helped the company address the need for less comprehensive, simpler (and more affordable) services for smaller companies, while maintaining and growing JDL’s business with large enterprises. By separating the company’s business practices into modules, clients can be offered different module combinations according to their needs, offering a wider range of choice and flexibility.

In Yu’s view, implementing this decoupling strategy has been a harder process than the company’s decision to open up its technology to clients in 2017, he said.

“Our decision of opening up was a choice to move forward, but as long as you’re running, you still need to figure out your next location—and that can be the tough part,” Yu said.

Since introducing the decoupling concept, Yu has organized various management training sessions. One such session hosted by JDL employee Jade Wang outlined the process of decoupling JDL’s development of cloud services, which starts from the decoupling of computing, storage, operations and more in order to offer individual services that can be combined to satisfy clients’ individual needs.

Yu proposed a thought exercise: What if one of JDL’s regional distribution center (RDC) was removed? The RDC is an important element of JDL’s warehousing and distribution services, with over 300 RDCs in seven regions across China. If JDL’s system had already been successfully decoupled, then it could do without its RDCs. The question provoked further discussion about how JDL might continue its decoupling process.

Looking ahead

Yu believes that supply chain enterprises must undergo three phases of development. Enterprises in phase 1.0 are mainly relying on manual operations and operations management, and receive clients’ demand passively; and 2.0 will start to participate in the decision-making process of clients. They examine all the intermediate processes from the panoramic view of the whole supply chain, improve efficiency and lower costs; and enterprises in phase 3.0 will adopt a model that is similar to the cloud service, and can be decoupled and re-combined flexibly. Yu believes that JDL has entered 3.0.

As JDL continues to evolve, Yu intends to steer it in the direction of a cloud service, he said. If asked for a specific reference for what JDL may look like in ten years, one might understand JDL as the “Chinese supply chain version of AWS,” he said. (AWS, Amazon Web Services, is a subsidiary of Amazon offering cloud computing platforms and more.)

The foundational layer of a cloud service attempts to gather all services together to provide cloud users with storage, computing and other resources. Corresponding to JDL, the infrastructure of supply chain will cover warehouses, employees, freight capacity, technology, data and other resources—all of which can be flexibly combined like LEGOs for clients to choose from, with a range of offerings including customized solutions and general industry solutions. Yu is confident in this direction, and in JDL’s ability to achieve this goal. “We are probably the most likely company in the world to make this happen,” Yu said. “All the companies I can see now are not our competitors.”

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