According to Feng Gengzhong, Deputy Head of the China Society of Logistics, “China's logistics industry is becoming more tech savvy,” and the sector is transforming by embracing new digitized supply chain tools and solutions. Supply chain companies are getting on board with technologies like cloud-based systems, data analytics and artificial intelligence (AI) and using them to reshape supply chain operations. It has become a strategic imperative and the top priority for major logistics companies.
What is happening in China?
The Shaanxi government has already deployed unmanned aerial vehicles – drones – for local logistics networks; they have been in place since 2017. Meanwhile, logistics companies have been in the process of developing and deploying AI technologies, such as AI-based routing algorithms designed to deliver greater efficiency and significant reductions in annual operating costs.
Chinese enterprises are no different from anywhere else in the world in that they must focus on reducing costs and adding transparency and efficiency to their supply chains, and they are using digital to improve things. In a country where e-commerce is booming and consumers increasingly want to shop via their mobile devices, this makes sense: by the end of 2017, e-commerce accounted for around 70 percent of the 342.5 billion yuan ($53.6 billion) in total orders handled by China’s logistics industry.
China’s biggest companies have recognized that the future is in smart supply chains, with the likes of Alibaba investing over 100 billion yuan in its logistics backbone under the banner of Cainiao, its logistics affiliate. Further to that, Alibaba has also recently committed 4.66 billion yuan ($693 million) into courier company STO Express, with a view to exploring further potential logistics technology projects, express terminals and new retail logistics. The goal of the deal is to help Alibaba get closer to delivering products within 24 hours nationwide and 72 hours globally. Alibaba’s rival JD.com is also investing in smart logistics, concentrating on technologies like new energy vehicles, drones and driverless vehicles underpinned by cloud computing and big data, having committed around 10 billion yuan ($1.6 billion) to a smart logistics hub in Hunan Province's Xiangtan City.
What digital technologies are impacting China’s supply chain?
Chinese companies have now also recognized and embraced the potential benefits of IoT and AI to digitizing the supply chain. The ability to predict using AI tools, for example, is benefiting the meal delivery industry in the shape of Meituan. The company has digitized its delivery dispatch system using machine learning algorithms for parcel volume prediction and delivery route optimization, leading to them now getting up to 20 daily orders into consumers’ hands in an average of 28 minutes.
Data analytics tools are designed to give companies better and more accurate inventory management, and Chinese companies have implemented data analytics tools to do just that. Automated vehicles (AVs) are in play, too, with warehouses using autonomous forklifts, while China also leads the way in the use of drones to enhance last mile operations and is testing them for same-day deliveries and deliveries to remote areas of the country.
China has also already put in place standards for beyond line-of-sight (BLOS) drone operations and has committed to other technologies that will enhance supply chain operations: Premier Li Keqiang announced a scheme back in 2015, named “Internet Plus,” which was all about growing the use of technologies like big data, cloud computing and IoT in traditional industries, including supply chain.
IoT tools have been deployed, with devices and sensors recording and communicating data like energy consumption, heat levels and inventories, all of which help make the supply chain more efficient overall and also help eliminate human error. Significant investment has already been made in cloud computing, edge computing platforms and applications (ahead of 5G deployments), IoT solutions like autonomous vehicles, drones and robot sensors and also in supply chain management platforms.
Blockchain, the decentralized ledger technology, is also making a mark on China’s logistics sector, and unsurprisingly so. China’s supply chain is notoriously fragmented, with delivery trucks estimated to be traveling empty 40 percent of the time, and the market is made up of numerous small owner-operated firms often lacking the funds to invest in new technologies. Blockchain can help bring all these fragmented companies together, thanks to its ability to manage complex, multi-party arrangements using immutable decentralized ledgers and automated smart contracts. The potential for Blockchain in China seems huge: China Central Television, the country’s leading broadcaster, has stated that Blockchain’s economic value is “10 times more than that of the Internet,” while PwC research has forecast that China will be the world’s Blockchain leader by 2023.
Changing habits, changing technologies
China’s increasingly affluent middle class has prompted an increase in demand for online food and fruit purchases, which has meant the logistics industry has had to address the challenge of specialized packing and temperature requirements. Cold chain logistics (a temperature-controlled supply chain) is now a booming industry in China. According to a report by Research and Markets, by 2022, China's cold chain logistics market will be worth RMB512.9 billion, expecting a CAGR of 14.7 percent between 2017 and 2022. Digital technologies like AI, IoT and Blockchain can reduce operating costs and help the cold chain logistics industry efficiently track, manage and improve the supply chain.
China’s supply chain future: embrace digital or get left behind
China has ground to make up on other world-leading countries, though. According to the World Bank Logistics Performance Index (LPI), China ranked 27th globally in 2018, highlighting the ongoing trade logistics gap between developed and developing countries. According to PwC, these gaps have driven demand for third-party logistics (3PL) in APAC, with Asia Pacific companies seeking to reduce costs and improve reliability. This need to improve logistics performance and catch up with international competitors will drive uptake of digital solutions. Put more simply, digital tools will play a crucial role in helping Chinese companies transform their supply chain operations for today and the future.
According to PwC, 67 percent of APAC companies now “consider digital supply chain disruptive and important,” and 40 percent have already deployed technologies including collaboration tools and supply chain analytics. China needs to ensure that it remains at the forefront of these developments as supply chain and e-commerce become increasingly important parts of its economy moving forward. In such a complex market as China, working with a partner like Orange Business that can offer global ICT solutions, local know-how and cutting-edge supply chain technology expertise can be your best way forward.
To read about how Asia Pacific companies can transform their supply chains using the latest digital technologies, download the PwC report Building Connected Supply Chains. This white paper is also available in Chinese.