JD stays well-stocked to help its supply chains keep pace
When it comes to social improvements made possible by tech, online shopping is a big one. People can order just about whatever they need to be delivered within days (or hours in some cases!) right to their homes. JD.com is one company that offers a huge range of products to customers all over China.
With the 618 Grand Promotion in June (6.1-18.21), JD brought in a new record of over RMB 343.8 billion yuan (US$53.14 Billion) for the products sold during the first half of the month. This company has made a major impact in the way Chinese consumers are able to shop—delivering fresh produce, electronics, medications and more via JD’s own couriers.
Originally established in 1998 by Liu Qiangdong, JD started to really take shape by 2003. At that point, JD founder Liu Qiangdong saw the SARS epidemic as a time to grow his business on a new platform—shifting gears to sell online. By the start of 2004, Liu was live on the internet and shifting to become an online-only storefront. Echoing this earlier development, JD.com met the challenge of COVID-19 in early 2020, continuing to deliver daily necessities, medicines and more during a period when other companies were facing logistics interruptions.
How JD Works Today
Within JD, there are partnering brands that are responsible for creating and shipping products to the JD warehouse. This supply chain is set up in such a way that it keeps goods in stock without being over-stocked. The company wants to deliver goods to customers as fast as possible and has made it the focus of a special team.
JD calls this the “Y” department—and it is responsible for ensuring stocks are kept filled as often as possible without bringing in more than the company can sell. Xiaolong Xia is one of the experts in the Y department that helps lead the supply chain initiative. He previously worked at Amazon, where he learned a lot about how that business model worked. Before that, he worked at P&G after graduating from college.
He is the one that helps JD’s inventory turnover rate stay as low as possible. In 2021, JD’s inventory turnover rate was 31.2 days for the first quarter. This measures how long the average goods stay within the JD warehouse. The smaller the number, the fewer days the goods were stored in the JD warehouse. Keeping this number low means fewer overhead costs and less need for storage space. While the ideal turnover rate would be 0, it is unlikely to get down that low.
The Complexities of the Supply Chain
“For those of us working on supply chain, we simply want to predict two numbers for the future: ‘supply’ and ‘demand,’” said Xia. “Therefore, what we’re looking for is ‘stable supply and demand.’ The more stable the better, as it will be easier for us to predict the stock.”
But, it’s difficult to truly know what to expect in real-world purchases. Experts have to look at what the historical demand data shows and then incorporate the current influences they expect to factor into the equation. This plays into the quantity of stocking as well as the rhythm of re-stocking in an attempt to get that turnover number as low as possible.
Some of the easier products to get right include rice, cooking oil, flour and other staple products that have a steadier demand and remain easily in supply. Slightly trickier to pin down would be the fashion and cosmetics products that have a stable supply but fluctuating demand. Finally, there is the category that is trickiest to manage—with both an unsteady demand and unstable supply—which would include things like cell phones and gaming systems.
Using AI to Lift the Burden
To improve the forecasting process, JD’s team has established tech that acts as intelligent replenishment systems to manage the warehouse and help manage the 400,000 decisions made about stocking every day. The amount of work done by artificial intelligence (AI) makes up more than half of the daily supply chain work.
A generic model helps cover most scenarios with a variety of parameters to help guide the AI. Some of these factors include:
- Average delivery time
- Price impact factor
- Promotion impact factor
- Delivery satisfaction rate
- Delivery time requirement
- Inventory loss factor
The AI uses the historical data from these categories and others to modify parameters and create the supply chain actions needed to correctly manage the commodity in question. This is a valuable tool that helps the JD teams know how much to stock, when to restock and other crucial details for a smoothly flowing supply chain.
While the average social supply chain costs a company around 18% (adding to the retail cost of an item), JD is able to keep this supply chain cost down around 8%. This directly impacts the customer because they are able to benefit from the savings from the streamlined supply chain.
The Value of Solid Data on All Fronts
Data integration has been a big deal for JD. It is difficult enough to keep track of inventory and trends within the JD warehouse, but tracking the supply of other companies adds a whole other layer of complexity to the situation. Poor quality data only leads to poor quality reporting.
In 2020, Midea and Hisense were two of the companies that merged production data with JD to ensure they were able to meet production demands as accurately as possible. The real-time sales data and forecasting allows JD to adjust its preorders and inventory expectations so customers are better informed.
And, all of this change is driven forward by the fallout from the pandemic. “The pandemic may ultimately push the digital transformation of traditional enterprises 1-3 years ahead,” said CEO of JD Retail Lei Xu.
Rather than leave suppliers in the dark, JD has taken steps to support its partnering brands with improved supply chains and smart tracking. JD is able to help its supplying brands improve the accuracy of sales predictions based on historical data. JD can also optimize its nationwide warehouse network to support merchants, advising them where they can find ideal places to build or rent cost-effective warehouse space.
“It takes time to reach a point of integration between humans and the system. There’s no shortcut but relentless communications, fine-tuning and building acceptance,” Xia said. “Some merchants have a very quick learning curve, and they even hold competitions to encourage their workers to use the supply chain system, which gives them an advantage in the market competition.”
JD also helps partners by sharing shopping insights in a C2M (Customer-to-Manufacturer) model. This allows brand partners to create more marketable products for better sales and lower inventory turnover numbers. In an ideal C2M situation, products will be ordered before they are even made—creating no overstock and turnover rates as close to zero as possible.
At the end of the day, the goal is to make the shopping process as fast and valuable for everyone involved as possible.
The less time customers have to spend looking for the perfect product, the more satisfied they are. The less time a product spends in the warehouse, the higher the production scale and lower the cost for each item sold. The less time needed to oversee and manage these AI systems, the more workers can use their talent and intelligence to help in other important ways.