I recently got invited to spend three days touring JD’s facilities in Beijing and Shanghai – and to meet with senior management. As someone who has been a fanboy of JD for a long time, I literally jumped at the opportunity.
JD is one of the great China business stories. From its founding by Richard Liu as a small electronics booth in Zhongguancun in 1998, to their move into e-commerce as a response to the SARS crisis in 2003, to their unconventional move into delivery (and the massive investments required), it’s just a great story.
But what has always struck me as most fascinating about JD was the stratospheric expansion in their operations between 2010 and 2014, arguably the golden years of Chinese e-commerce. For those living outside of China, these were the years when we all started buying literally everything online. It was crazy. If you needed a pen, you went on 360buy (now called JD) and ordered a box. In a few hours, a delivery man on a scooter showed up with your $4 purchase. We all went e-commerce crazy.
And during this period, JD executed at a rate that should go in the record books. E-commerce sales in China were doubling every year. And from 2008 to 2013, JD grew from 300 to 40,000 employees. And then they increased to +70,000 in just another year. Today, JD has +120,000 employees.
At the same time, they were also frantically building out a national logistics infrastructure. They went from having virtually no delivery staff in most of China to having delivery stations in +1,800 of China’s 2,600 districts and counties. Also during this period, they promised same day delivery, something unheard of in the chaos of China. If you placed the order by 11am, you got it the same day.
And during all this crazy building and hiring activity, JD was also engaged in repeated price wars with Gome, Suning, Amazon, Dangdang, Newegg and others. It was a brutal game of who could be the most efficient and could therefore offer the lowest prices (which then let you grow market share and further lower costs). When the dust settled, JD had outrun and outfought virtually everyone. Alibaba is the dominant marketplace platform. But JD are the Spartans of Chinese online retail. They got to the top tier of B2C by being the most ferocious competitor.
So when Lori Chao and Ella Kidron of JD were kind enough to send me an invite, I jumped. I had a fantastic time. This is Part 1 of a three parts series about what I learned on the visit and from senior management. And I am working on a longer piece on some of the more interesting strategic questions.
But the short, two sentence version of the entire series is the following:
- JD has just finished a stunning expansion that has placed them at the crest of the Chinese e-commerce wave. They outran and outfought virtually everyone to get there.
- They are now facing an entirely new challenge, a complete modernization and disruption of Chinese offline retail.
If digital transformation is the next industrial revolution (which I believe it is), then retail is the industry that is going to be transformed first. And this is happening in China faster than anywhere else. It’s worth following what is happening with JD and China retail right now.
Ok. Here is my account.
Day 1: A Look at JD Robotics, Autonomous Vehicles and the Drone Fleet.
On Wednesday morning at 10am, I boarded a bright red and white JD bus (note: everything at JD is red and white) and our group headed to the JD robotics facility in the Yizhuang district in Southeast Beijing. Yizhuang is really kind of my place. It’s a beautifully laid out district with wide-streets, lots of business parks, and easy metro access. It’s also the place I escape to when tourists descend on Beijing during National Week and other big holidays.
The JD robotics Lab is a nondescript building in a research park (picture below). We had a great tour but unfortunately, no photos were allowed. So here’s my summary:
- The primary goal is to create the machines necessary for a fully automated fulfillment center.
- That means robots that can move the big palates, conveyor belts and elevators that can retrieve the shelved items, cameras that can identify items, and robot arms that can pick specific SKUs out of bins.
- These systems can be quite different depending on whether you are talking about logistics for small-to-medium items, large items (TVs, appliances, etc.) or cold chain (foods, etc.). JD divides its logistics along these categories.
I’m no engineer so I’ll stick to the business stuff. The goal is to dramatically increase efficiency and to have fulfillment centers that operate with only supervisors and machine maintenance staff. The first such center is set for opening in Shanghai in 2018. Here are the factoids that caught my attention.
- Items can be picked by people manually at a rate of up to 300 items per hour.
- In practice, items can be picked by parallel robots up to 2,000 items per hour. And in theory, they can go up to 3,000 items per hour.
- Items can be picked by 6 axis robots (necessary for more complicated items and cold chain) at up to 500 item per hour.
- JD is working on much larger robots that can lift 150kg.
- A fully automated warehouse should be 10x more efficient than a manual warehouse. JD’s warehouses are currently a mix of manual and automated functions.
So there are huge efficiency gains with automation. Another problem is that the company is simply growing too fast. They need to automate because they can’t just keep hiring more and more people.
Finished at the Robotics Lab, we piled back on the bus and headed to the new JD headquarters. This is really a spectacular facility. They moved in about two years ago and are already expanding from the first building to the full planned complex shown below. The facility will eventually contain the administration, JD Mall, JD Finance, JD Logistics and other functions.
At the HQ, we got to see their prototype autonomous vehicles.
These particular vehicles are for deliveries. My impression is that these are not for solving the last mile problem (which JD already has done). They are more about the wasted time at the point of delivery, when you must drop off the package or wait for the customer. It is still an inefficient part of the process. One approach is to use digital lockers, which you can increasingly see in residential units around China (see picture below).
These autonomous vehicles are currently in trials on the JD campus and at 4 college campuses in China. Putting them out in the real world is a much bigger challenge and there are lots of regulatory issues. Some factoids on these vehicles.
- Each vehicle can carry up to 100kg
- There are 8 lockers in which packages can be placed. These lockers then open for specific customers for delivery.
- The lockers are opened based on a sent ID number or facial recognition.
- Cost per vehicle is probably in the range of $15,000, but it depends on volume.
- Maximum range for each vehicle is a 5km radius.
JD is also working on autonomous trucks that can transport goods between their warehouses. And, of course, JD is working on drones.
Part of our group went to JD’s drone facility in Suqian, Jiangsu earlier in the week. Suqian is the hometown of Richard Liu, although it was a small rural village when he was growing up. His parents spent much of their time transporting goods along the Yangtze river so there is a nice symmetry with the fact that his drone fleet, also to be used to transport goods, is being developed in the same village that his parents used to transport by boat.
At this point, the stated purpose for these drones is for deliveries to inaccessible rural locations. The drones (in theory) can carry packages of 10-20kg with a radius of about 20km. Another mentioned potential use is for moving larger cargo between warehouses and fulfilment stations.
Ok. That was it for the first day and that’s it for Part 1. In Part 2, I lay-out what I think are JD’s game changers in Chinese e-commerce.
Thanks for reading, Jeff
I write, speak and consult about how to win (and not lose) in digital strategy and transformation.
I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.
My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.
Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.