{"id":20312,"date":"2016-11-18T17:47:20","date_gmt":"2016-11-18T22:47:20","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/alibabas-ambition-to-make-chinas-logistics-system-smarter\/"},"modified":"2016-11-18T17:48:55","modified_gmt":"2016-11-18T22:48:55","slug":"alibabas-ambition-to-make-chinas-logistics-system-smarter","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/alibabas-ambition-to-make-chinas-logistics-system-smarter\/","title":{"rendered":"Alibaba\u2019s ambition to make China\u2019s logistics system smarter?"},"content":{"rendered":"

As the largest e-commerce platform in China, Alibaba is twice the size of Amazon (Alibaba\u2019s 2015 GMV $486 billion). [a] Different from Amazon with self-owned logistics network, Alibaba acts as a EBay-like platform connecting sellers and buyers and only works with 3rd<\/sup> party logistics providers.<\/p>\n

As Alibaba rides on the booming trend of Chinese online consumption, challenges related to logistics started to emerge.<\/p>\n

First, Chinese online consumers are demanding more on quality goods and delivery service. Access to products and cheaper bargains are no longer enough. Issues of slower delivery and missing items became known as common risks to customers shopping on Alibaba. At the same time, Alibaba\u2019s biggest competitor JD.com, which self-build delivery teams, is gaining strong customer traction and now catches up to almost 15% of Alibaba\u2019s size thanks to its quality delivery.<\/p>\n

Second, while the rise of E-commerce led to the phenomenal growth of China\u2019s logistics industry, it also presented huge operational challenges. China\u2019s daily parcel delivery volume surpassed U.S. by 80% (57M vs. 33M) [a]. Alibaba alone contributed 57% of the total national volume every day. However, the timing of Alibaba\u2019s promotional events created huge spikes in delivery demand and often led to reported crashes at partners\u2019 facilities. One extreme example is the annual \u201cSingles Day\u201d sales event on Nov 11th<\/sup>; 2015 Singles\u2019 Day sales reached 360 million orders, up 30% YoY. [c] It led to significant burden on the logistics networks and often took weeks to digest the volume post sales. Partners also faced with shortage of space and personnel capacity and large amount of investments.<\/p>\n

\"screen-shot-2016-11-18-at-2-34-16-pm\"<\/a> \"screen-shot-2016-11-18-at-2-34-34-pm\"<\/a> \"screen-shot-2016-11-18-at-2-34-43-pm\"<\/a><\/p>\n

As a result, Alibaba established Cainiao Logistics Company \u2013 an asset-light, smart and data-driven logistics network company to solve the overage and complexity issues in China logistics. Instead of building its own delivery teams, Alibaba builds a centralized data platform that connects to its express delivery partners and pushes for technological innovations. So far, we have seen measurable impacts on efficiency improvements in overall logistics industry.<\/p>\n

    \n
  1. Launching central delivery system incorporating 20+ express delivery providers<\/strong>. Connecting a central platform to the backend of its delivery partners\u2019, Alibaba enables merchants with real-time information on delivery options, price, and time. It optimizes demand volatility through merchants\u2019 end. Alibaba also recommends smarter selections from its predictions of the supply and demand of that day.<\/li>\n<\/ol>\n
      \n
    1. Creating standardized E-shipping label.<\/strong> Previously, each of the 20 delivery providers used its own paper-based labeling systems, leading to higher labor time to sort and output\/input the data. Adoption of a universal E-shipping labels on Cainiao central platform has greatly reduced order processing time by 30% on delivery partners\u2019 end upon parcel pick-up[c]. Current adoption rate is 67% versus 5% 2 years ago [e].<\/li>\n<\/ol>\n
        \n
      1. Providing \u201csmart-routing\u201d data service to logistics providers.<\/strong> Previously, delivery companies simply aggregated the picked-up parcels into the nearest transfer warehouses and relied on sorting specialists (takes 6 months to train) to sort the parcels using memorized routing rules to the correct bins for the next transfer destination. Accuracy rate was 95%. Now, Alibaba\u2019s smart-routing data service provides suggestions on the optimal transfer points upon pick-up. It is based on analysis of real-time aggregated industry delivery data that is not accessible by any individual logistics company. Companies which use this service reported a 3% improvement in accuracy soring rate versus before [d] and reduction of delivery time.<\/li>\n<\/ol>\n
          \n
        1. Providing demand forecast to manage inventories at partners\u2019 warehouse.<\/strong> Studying consumer transaction data, Alibaba forecasts parcel demand volatility by time of the year and geographic location. It provides data intelligence to its logistics partners\u2019 to help optimize the inventory levels at different transfer warehouses and delivery nodes. Partners can also better plan on part-time labor hiring or temporary warehouse rental to deal with predictable upcoming spike in demand.<\/li>\n<\/ol>\n

          Post 2015 Singles Day event, it took only 7 days for all the delivery partners to deliver 240 million parcels versus 16 days for 2014. And no crashes of its partners\u2019 logistics warehouses was reported in the news [b].<\/p>\n

          Customers are happier with faster and trackable delivery on their mobile Alibaba app. Logistics partners are happier with better planning and improved operational efficiency. Alibaba now keeps its promise of providing the best e-ecommerce experience for all the stakeholders plus adds a new revenue stream \u2013 charging a % as service fee from its 3rd<\/sup> party logistics networks. But there are more to be done:<\/p>\n