The final part of this month's management briefing, looking at the logistics landscape in the BRIC markets, focuses on China.


China has a booming e-commerce sector, and growing online drinks retailers are building more warehouses nationwide. They need to balance ‘just-in-case’ and ‘just-in-time’ demands and also the need for flexibility versus low inventory. Negotiating these logistical pressures is vital in this huge yet highly fragmented market.

For example, Shanghai-based Yihaodian, one of the largest online retailers in China and now owned by Walmart, is expanding its supply chain network to smaller cities, even down to those regarded in China ‘third tier’ or ‘fourth tier’, with between one million to five million people. So far, it already has warehouses in major cities such as Wuhan, Guangzhou, Shanghai and Beijing, and has set up about 200 distribution stations in 40 cities nationwide.

Yihaodian’s rival, Beijing-based 360Buy, also said a “good amount” of recently acquired financing of US$700m (from foreign investors including the Ontario Teachers’ Pension Plan in Canada and Saudi Arabia’s Kingdom Holding Company) will go to strengthening its countrywide supply chain network across the country.

To read the SWOT analyses of the other three BRIC markets, click here.

Both Yihaodian and 360Buy sell a variety of soft drinks and alcoholic drinks, including imported sparkling water, juices and wines. 

Alex Yap, senior director of manufacturing strategy at JDA, the Arizona, USA-based supply chain software provider, stresses how Chinese online retailers must manage fast changing inventory, while understand shifting consumer preferences, so “supply chain strategies fulfil orders in profitable manner.”

The Chinese government is encouraging manufacturers and third party logistics providers to adopt sophisticated technologies such as radio frequency identification (RFID) tracking systems, the internet of things, and cloud computing, under a recently issued guideline from China’s ministry of industry and information technology (MIIT).


Although the Chinese government is determined to modernise China’s logistics industry, it will take time. For example, while China is encouraging companies to adopt electronic product codes, fundamental for using RFID and the internet of things, many products still do not even have a bar code. In February, the government of the Jiangxi province in south China issued a regulation demanding all products sold by local retailers carry barcodes. 

China also lacks pallet pooling, the highly efficient, low carbon system widely adopted by manufacturers and retailers in western countries. One problem is China does not have a national standard size for pallets, limiting their use, according to the Beijing-based China Federation of Logistics & Purchasing.

Today, pallet pooling is only used by some large retailers in China, such as Walmart, Tesco and Shenzhen-based China Resources Vanguard, working with major service providers such as Chep and Loscam.

The growing demand for fresh juices in big cities such as Shanghai and Beijing has put huge pressure on cold chain logistics, which is still underdeveloped though a lack of “regulation, third party cold chain logistics and infrastructures, including refrigerator trucks and warehouses,” said a spokesman at the Shanghai Transportation Trade Association. 

Shanghai, however, is one step ahead. The city in 2007 introduced the country’s first regulation imposing standards on cold chain logistics, requiring mandatory compliance from local logistics companies by 2015. 


Global cold chain service providers know there are opportunities in China. For example, in February New Jersey, US-based Preferred Freezer opened a refrigerator warehouse of about 40,000 square-metres at Tianjin port, a key north China port. This dovetails with Tianjin’s five-year local logistics industry development plan, which includes establishing a regional cold chain distribution network covering Beijing, Tianjin and Tangshan cities, and Hebei province.

Chinese drinks manufacturers and logistics companies are increasingly willing to invest in technologies for high performance, crucial especially for ensuring soft drinks can be sold at a low price while maintaining quality, said Jeff Kao, managing director at consulting company Accenture’s China operation.

“Key investments have been put into areas needing visibility, standardisation and control with prioritisation which normally starts with business process reengineering and foundational ERP [enterprise resource planning] implementation,” he said.

For good practice – see Hong Kong-based Swire Pacific (SP), a major supplier of Coca-Cola carbonated drink within mainland China and Hong Kong.

Using JDA’s advanced plan system, SP manages an extensive manufacturing and distribution network across China, including eight bottling factories, 11 carbonated drinks manufacturers and 450 distributors.

“Integrated business planning, which allows decision makers to engage in developing strategies including new product introduction, pricing and bottom-line profitability, is a step up from the traditional sales and operations planning, which largely focuses on balancing demand and supply,” stressed JDA’s Yap.


Counterfeiting and food safety problems are two major challenges facing China beverage logistics. In February, the Beijing Municipal Public Security Bureau seized 6,060 bottles of counterfeit branded Chinese spirits, including Maotai and Wuliangye, valued at CNY5.37m (US$848,435).

Counterfeiting also is threatening Chinese wine importers. In August last year, Shanghai police seized more than 4,000 bottles of fake Lafite, the most popular wine among wealthy Chinese who are willing to pay CNY8,000 (US$1,263.9) for a bottle.

Stealing authentic wines and rebottling them with cheap wine is widespread, and in this case using sophisticated technologies in supply chain management can indeed help, said Accenture’s Kao.

"For example, technologies of the internet of things should help deter illegal actions during transportation,” he said.

China is making enormous effort to boost its battered reputation on food safety, but scandals never fade away. In December, a lemon-flavored carbonated drinks made by an Anhui province-based manufacturer were reported to have contained excessive amount of sodium cyclamate, according to China’s general administration of quality supervision, inspection and quarantine.

“Cost efficiency and quality control are two important factors for a high performance enterprise and can only be achieved by integrating all key modules of an enterprise,” said Accenture’s Kao.