JD.com wants to replicate 3 "JD.com"

Author | Zhang Chao Editor | Luo Lijuan

On June 18th, JD.com celebrated its 20th anniversary.

On that day, JD.com announced its "35711" dream to its 560,000 employees: in the next 20 years, the company aims to have three companies with revenue exceeding one trillion yuan and net profit exceeding 70 billion yuan, five companies in the Fortune 500, seven listed companies with a market value of no less than 100 billion yuan, and to contribute more than 100 billion yuan in taxes and provide over one million job opportunities.

JD.com CEO Xu Rong

At the JD.com Friends Reunion event held that afternoon, JD.com CEO Xu Rong said: "The '35711' dream marks the beginning of a new journey for JD.com, and all JD.com employees will work together to achieve it."

She also promised to lead all employees to study and formulate a "roadmap" on how to implement the "35711" dream step by step and turn it into a beautiful reality.

This is also the first time Xu Rong has publicly appeared and systematically disclosed her management ideas since taking office as JD.com CEO.

However, from the current financial performance of JD.com's listed companies, there are few companies that meet the requirements of the dream, and the burden on Xu Rong's shoulders is not light.

Choosing to announce the "dream" and goals to the public at the important moment of the 20th anniversary celebration undoubtedly sets a "military order." From now on, both Xu Rong and JD.com will face supervision from within the company and from all sectors of society. The weight of the "35711" dream is self-evident.

What is the core of JD.com's dream roadmap? Where does the confidence to propose it come from?

How far away is the "dream"?

In the full staff letter, JD.com defines the "35711" dream as "a journey full of hard work."

It is obvious that JD.com knows that achieving the dream is not a one-step process.

A review of JD.com's subsidiaries shows that there are currently four listed companies: JD.com, JD Logistics, JD Health, and Dada Group. JD.com's production and development and JD.com's industrial business have completed their spin-offs and submitted prospectuses to the Hong Kong Stock Exchange, bringing them one step closer to their listing goals.

However, from the specific content of the "35711" dream, business spin-offs and listings are clearly not the end point. JD.com also has clear indicators for the company's profitability and social responsibilities.

JD.com announces the "35711" dream

A market value of hundreds of billions, trillions of revenue, tens of billions of net profit, and tens of billions of taxes are all tests of the company's own operating and business continuity capabilities. According to the statistics of All-weather Technology, among the listed companies in the JD.com system, only JD.com Group's revenue in 2022 has reached 1.0462 trillion yuan, which is the first time the company's revenue has exceeded one trillion yuan since its establishment nearly 20 years ago. JD Logistics, ranked second, has a revenue of only hundreds of billions, with a revenue of 137.4 billion yuan during the same period. JD Health's revenue last year was 46.7 billion yuan, and Dada Group's revenue in 2022 increased by 36% YoY to 9.4 billion yuan, still hovering around the 10 billion yuan mark.

In terms of profits, among the four listed companies in the JD.com system, only JD.com Group's net profit attributable to shareholders in 2022 has exceeded 10 billion yuan, reaching 10.4 billion yuan. The others are either in a loss state or have only small-scale profits, and the overall situation is far from the net profit of 10 billion yuan.

Relatively speaking, a market value of hundreds of billions is still an easier target to achieve. JD.com Group's market value has exceeded $100 billion, and it is now more than $60 billion. JD Health's market value has exceeded HKD 150 billion, and JD Logistics is also gradually approaching a market value of HKD 100 billion.

In JD's business layout plan, the key is to develop around the supply chain.

In the internal letter, "supply chain" is one of the few words that repeatedly appear, mentioned six times in total. Especially in the strategic positioning announced, JD stated that it wants to be a "technology and service company based on the supply chain" and wants to use core supply chain technology to give back to the times.

In the specific implementation process of the "35711" dream, JD has established three directions for the next 20 years: sinking markets, technical services, and international business.

Xu Ran pointed out at the JD Friends Reunion event that the sinking market should focus on two aspects: "extremely low prices" and "rich supply-side". "In JD's view, low prices are a systematic comprehensive ability, and its foundation lies in the supply chain. Behind the low price is based on lower operating costs and higher operating efficiency in the supply chain."

Regarding the technical service strategy, Xu Ran introduced that JD is accelerating the application of supply chain digital technology in various industrial-related scenarios around the supply chain scene. Regarding the international business strategy, she said that JD will use the improvement of the supply chain infrastructure as a fulcrum to deepen the construction of overseas supply chain capabilities.

Overall, JD's core for realizing the next 20-year dream and expanding its territory still relies on the supply chain capabilities built over the years.

The Past and Present of JD Logistics

The construction of JD Logistics' supply chain can be traced back to the customer service and logistics team established by JD in 2007.

At that time, China's e-commerce market began to take shape, and the four-year-old Taobao's sales exceeded 40 billion yuan, and JD.com's business also developed significantly. However, the corresponding delivery and distribution services were obviously lagging behind the development speed of e-commerce, with slow delivery speed, high package damage rate, low delivery timeliness, and poor attitude of couriers.

Poor service also lowered the transaction rate of e-commerce. In order to reverse the situation, Liu Qiangdong decided to personally intervene-not only to cut into the high-investment market of logistics against all odds but also to persuade investors to use the funds obtained from financing to build logistics networks in Beijing, Shanghai, and Guangzhou. At the beginning, the team had only over 200 employees, and their main focus was on building the basic logistics warehouse and distribution network. From 2011 to 2013, JD.com received financing every year, but most of the funds were used in logistics, with a total investment of over 8 billion yuan. Zhang Li, the person in charge of JD.com's logistics supply chain planning, joined the company during this period.

"At that time, the company only had warehouses in seven places across the country," Zhang Li, who joined the company in 2012, recalled JD.com's supply chain capabilities over a decade ago. She said that compared to then, the logistics order scale and warehouse distribution network construction were "not on the same level."

She was particularly impressed by a large promotion in 2013 when everyone on the team was looking forward to breaking the one million order mark. "We were all sitting in the Beichen conference room refreshing the order page, hoping to break one million orders. Unfortunately, we only reached around 996,000 to 997,000 orders that day."

Over the past decade, JD.com's logistics has gone through four important stages: from 2007 to 2012, building the basic warehouse network and establishing seven regional center warehouses; starting in 2013, building a secondary warehouse network and launching the "Jisu Da" service to bring goods closer to users and provide faster delivery services; then expanding its business and building "new channels" outside the conventional 2C logistics network, such as bonded warehouses and cold chain warehouses, and putting the highly automated large-scale intelligent warehouse "Asia No.1" into operation; in 2017, JD.com's logistics was spun off from JD.com Group to operate independently and serve external customers.

According to the financial report, JD.com's external customer revenue reached 89.1 billion yuan in 2022, a year-on-year increase of 50.8%, accounting for nearly 70%. This momentum is still continuing. In the first quarter of this year, its revenue from external customers reached 25.52 billion yuan, a year-on-year increase of 34.3%.

In 2020, industry insiders analyzed that JD.com's daily order volume had reached 20-30 million. Although JD.com's logistics has not disclosed its latest daily order scale, the changes in its logistics supply chain capabilities in recent years have also been fully reflected in efficiency.

As of December 31, 2022, JD.com's logistics operates more than 1,500 warehouses, over 18,000 distribution stations and outlets, and has more than 290,000 self-employed couriers, serving more than 20,000 merchants on the JD.com platform.

JD.com Kunshan "Asia No.1" Warehouse Phase 2

During the recent JD.com 618 promotion, as a package from the second phase of the "Asia No.1" intelligent industrial park in Kunshan, Jiangsu Province, came off the sorting center, JD.com's "Asia No.1" warehouse received its 10 billionth intelligent package. It is understood that JD.com's dozens of "Asia No.1" parks are located in more than 20 provinces and cities across the country, and have built a multi-level supply chain infrastructure network in coordination with over 1,500 warehouses nationwide. In Zhang Li's view, JD Logistics is entering its fifth stage of development: shifting from focusing on offline infrastructure construction to building a warehousing and distribution network that revolves around linking inventory and connecting online and offline consumption channels to achieve more intelligent and efficient delivery.

However, JD's plans and expectations for its logistics supply chain go far beyond this.

In the "35711" dream blueprint, JD Logistics supply chain is not only an independent goal to be achieved, but also the cornerstone supporting the development of many business sectors. JD Group's internal memo states that it hopes to achieve basic coverage of the global supply chain service and establish supply chain infrastructure in economies that account for 80% of the global economy.

According to GDP data released by various countries, the United States, China, Japan, Germany, and India will account for more than half of the world's GDP in 2022, while the top 25 countries and regions in terms of GDP will account for 84% of the global GDP.

This means that after JD Logistics' opening to the outside world, it will go abroad to more economically developed areas.

On the one hand, this is an inevitable choice for domestic logistics and express delivery market development, as companies seek further development and create a second "growth curve"; on the other hand, it is also to meet the urgent needs of domestic brands and factories going global.

However, most of these regions are dominated by the four logistics giants UPS, Fedex, TNT, and DHL, and it is not easy for Chinese companies to enter and occupy a certain market. In addition, differences in regional development levels and user consumption habits will also bring significant challenges to JD.

Yuan Mingjian, who joined JD in 2011 as a management trainee and has been working in logistics ever since, is now the head of warehouse hardware at JD Logistics X Business Unit.

He admits that in 2011, companies such as Amazon and DHL had very strong systematic capabilities, but China was still in a relatively early stage. In order to apply advanced foreign technology to JD's logistics supply chain, Yuan Mingjian and his team started the "Asia No. 1" project, with the mission of modernizing and intelligentizing JD's logistics.

Even in China, JD is facing challenges from multiple parties.

In addition to its old rival Tongda, Shunfeng and Jitu are also important competitors. Jitu, which has always been regarded as a "disruptor" in the logistics and express delivery industry, entered the Taobao e-commerce market with a 6.8 billion yuan acquisition of Best Express and recently acquired Shunfeng's subsidiary "Fengwang Holdings" to join forces with Shunfeng to challenge Tongda and JD Logistics, becoming an important force in China's express delivery industry.

Recently, Jitu has submitted a prospectus to the Hong Kong Stock Exchange to raise more funds. This undoubtedly adds more resources to the competition in the logistics and express delivery industry, but on the other hand, it also adds pressure to JD Logistics' supply chain.

An obvious signal is that JD Logistics is accelerating the improvement of internal organizational efficiency in order to usher in new changes.

In April of this year, "LatePost" reported that JD Logistics is undergoing a new round of organizational adjustments: establishing four independent business units for supply chain, express delivery, fast transportation, and international business. Prior to this, in addition to these four businesses, sales, products, and operations functions also had independent departments to support business development. After the adjustment, the above functional departments will be merged into the four major business units, eliminating the need for cross-department communication between them and improving collaborative efficiency.

JD Logistics has also cancelled the regional organizational model that was originally divided into seven regions. In the future, each province will become an independent operating unit, and the provincial leaders will have greater rights in business decision-making, management, personnel appointment and removal, and will report directly to the relevant business unit leaders at the headquarters.

This adjustment is also seen by the outside world as the implementation of JD's Big Boss management model, which is considered an important way to stimulate grassroots autonomous decision-making and organizational vitality.

Once upon a time, there was only one line on the wall of JD's office: "Fight, fight, only be the first!"

But in this rapidly changing era, new players enter every day, and new forces rise. Instead of striving to be the first, surpassing oneself and continuing to move forward may be more practical.

For JD, it is more important to deepen and strengthen its logistics supply chain capabilities, continuously strengthen its defenses, and achieve qualitative changes.