In China, manufacturers and agricultural producers typically rely on multiple layers of distributors to help bring their products to the mass market because they often lack the distribution channels and marketing know-how to reach the end consumer.
Typically, merchandise is sent from the factories to main distributors, who store them in warehouses before dispatching to regional warehouses, and then on to retailers. A similar supply chain exists for agriculture produce, which makes their way from farms to wholesale centers before being trucked to regional wholesale centers to be distributed to local grocers and sold to consumers.
Such a multi-stage distribution model results leads to unnecessary energy consumption and emissions because of extended delivery distances, excess packaging and the operation of warehouses. By cutting the number of layers of distribution, we help producers save on transportation and storage costs and lessen the impact on the environment.
The traditional way: Farmers in Hunan Province sell their garlic to the local wholesaler at an average price of RMB 1per 500g. The wholesaler then sells the garlic to a regional distributor. The garlic passes through the warehouses of four different distributors before reaching the retail outlets in cities around China. By the time they reach the neighborhood grocer, the garlic is sold at RMB8 per 500 g. Each additional leg of distribution results in increased transportation, packaging and operational costs, as well as more pollution.
The new way: Consumers on Pinduoduo buy garlic directly from the farmers in Hunan through the platform. The garlic now makes it way directly from the farm to the doorsteps of consumers in the cities for the price of RMB2 per 500g –four times cheaper than the traditional way.
The result: A reduction in food wastage, materials used in packaging, and transportation tailpipe emissions from the burning of fossil fuels by vehicles transporting the shipment.
As part of our “going direct” strategy, we work with manufacturers across China to develop the Consumer-to-Manufacturer(“C2M”) initiative. We provide manufacturers with direct-to-market consumer insights to help them define and customize products, improve supply chain efficiency, and market directly to interested consumers.
Under the traditional retail model, developing a new brand and a new product often involves a lengthy process of market research, focus group testing, feedback through distribution channels and then large-scale production. Through our C2M model, factories can design and produce based on a large volume of user preference data, compressing the new product development process by 50%. The new products can reach the market in a timelier fashion and are more tailored to consumer demand.
In a nutshell, C2M flips the manufacturing-retail process on its head, turning the question from “how much can we produce” to “how much should we produce.”
As manufacturers become more attuned to consumer demands, they can optimize their own operations to improve procurement, optimize production, reduce inventory, and improve their cash conversion cycle. We see potential for our C2M initiative to help reduce resource wastage over the long run.
New Brand Initiative
We launched our C2M program in December 2018with the New Brand Initiative, with the aim of expanding our collaboration to 1,000 manufacturers by the end of 2020.
Under this initiative, we aggregate consumer preference insights and ask manufacturers to tailor-make value-for-money products for our platform. Many of the participants in this program are original equipment or design manufacturers (“OEMs” or “ODMs”) that are looking to diversify their export-oriented business but have had little access to the end-customer.
Pinduoduo does not operate its own fleet and our merchants rely on third-party logistics providers to deliver the goods purchased on the platform to users. To improve the efficiency of our logistics, we launched our own e-waybill system during the first quarter of 2019. The e-waybill system is integrated with those of all major logistics services providers in China, as well as the store management systems of our sellers.
The e-waybill system eliminates the usage of traditional paper waybills with multiple carbon copies. The e-waybill system also significantly reduces the likelihood of human error resulting in wrong delivery addresses. We are developing our e-waybill system into a logistics technology platform, with the aim of enhancing delivery efficiency, reducing carbon emissions and lowering costs.
Pinduoduo is investing in machine learning technology to optimize delivery route planning. We are working with our logistics partners to make deliveries greener and more efficient. More precise delivery route planning will also reduce the need for cold-chain logistics for certain fresh produce.
We are also investing in research and development of green packaging design and materials. Our objective is to eliminate excessive packaging by providing our merchants with more suitable and environmentally friendly packaging solutions, such as different sizes, green materials and biodegradable stuffing.