MBA (FULL TIME) 2018-20

Supply Chain Management

TERM – V

Group Assignment on
‘Supply Chain and Distribution Network of Alibaba’

Submitted to: Prof. Praneti Shah

Submitted By: Section B
Shainil Vyas (181157)
Disha Vyas (181317)
Hardik Kothari (181318)
Himani Trivedi (181420)
Princy Jain (181438)

Batch: MBA – FT (2018-20)

Date of Submission: 24th October, 2019

Contents

List of Figures ............................................................................................................................................... 2

Part 1 ............................................................................................................................................................. 3
E-Commerce and Supply Chain.................................................................................................................... 3
Profile of the Company ............................................................................................................................ 4
Snapshot of the Website .......................................................................................................................... 5
List of Products Available on the Website............................................................................................... 5
Traditional Mediums of Supply Chain ..................................................................................................... 6
Part 2 Practical Implementation .................................................................................................................. 7
1 Traditional and Online Distribution Network of Alibaba ..................................................................... 8
2.1 Responsiveness Strategies of Alibaba ............................................................................................. 10
2.2 Inventory and Supply Management for Last Mile Delivery ............................................................ 12
Offline Expansion ................................................................................................................................ 14
International Business......................................................................................................................... 15
3. Warehouse Management and Transportation Tie Ups .................................................................... 16
4. Advancements in the Operations through Online Supply Chain ...................................................... 21
5. Role of Technology in Supply Chain of Alibaba ................................................................................. 26
6. Cost Optimization Techniques used by Alibaba ................................................................................ 27
7. Innovations used by Alibaba .............................................................................................................. 28
Part C Analysis and References .................................................................................................................. 30
Challenges to Online Medium ............................................................................................................... 31
Comparative Analysis of Traditional Medium and Online Medium ..................................................... 33
References .............................................................................................................................................. 35

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List of Figures

Figure 1: Alibaba Business Model ............................................................................................................. 4

Figure 2: Website ........................................................................................................................................ 5
Figure 3: Categories .................................................................................................................................... 5
Figure 4: Traditional Medium of Supply Chain ...................................................................................... 6
Figure 5: Supply chain distribution network of Alibaba ........................................................................ 8
Figure 6: Distributor storage with carrier delivery ................................................................................. 8
Figure 7: Alibaba Network ...................................................................................................................... 12
Figure 8: Business Model of Alibaba....................................................................................................... 16
Figure 9: Supply Chain Lessons from Alibaba ...................................................................................... 22
Figure 10: Cost Optimization Techniques .............................................................................................. 27
Figure 11: Payment Mode ........................................................................................................................ 29

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 Part 1

E-Commerce and Supply Chain

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Profile of the Company

Alibaba Group Holding Limited is a Chinese multinational conglomerate holding

company specializing in e-commerce, retail, Internet, and technology. Founded on 4 April 1999
in Hangzhou, Zhejiang, the company provides consumer-to-consumer (C2C), business-to-
consumer (B2C), and business-to-business (B2B) sales services via web portals, as well
as electronic payment services, shopping search engines and cloud computing services. It owns
and operates a diverse array of businesses around the world in numerous sectors, and is named as
one of the world's most admired companies by Fortune.

Alibaba is the world's largest retailer and e-commerce company, one of the largest Internet and AI
companies, one of the biggest venture capital firms, and one of the biggest investment corporations
in the world. The company hosts the largest B2B (Alibaba.com), C2C (Taobao), and B2C (Tmall)
marketplaces in the world. Its online sales and profits surpassed all US retailers
(including Walmart, Amazon, and eBay) combined since 2015. It has been expanding into the
media industry, with revenues rising by triple percentage points year on year. It also sets the record
on the 2018 edition of China's Singles' Day, the world's biggest online and offline shopping day.

Alibaba was founded by Jack Ma, in the year 1999 and with the success of Alibaba.com he
diversified its business into different categories.

Figure 1: Alibaba Business Model

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Snapshot of the Website

Figure 2: Website

List of Products Available on the Website

Figure 3: Categories

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Traditional Mediums of Supply Chain

Figure 4: Traditional Medium of Supply Chain

Alibaba is a market space which provides a platform to the different sellers specially from MSME
sectors to sell their product by providing them the required buyers. Alibaba group has diversified
their portfolio and they have their presence in B2B, B2C and C2C market their by competing with
the likes of e-bay and Amazon. So the manufacturers and whole sellers directly sell to Alibaba.com
which in turn is brought by small retailers as well as branded retailers and they sell it on other
platforms of Alibaba group such as Tmall.com Taobao.com etc. The buyers now have the
opportunity to buy from Alibaba.com directly or through any of the mediums mentioned in the
above diagram.

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 Part 2
Practical Implementation

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1 Traditional and Online Distribution Network of Alibaba

Figure 5: Supply chain distribution network of Alibaba

Product flow (Selling) Information flow (Buying)

The traditional model which is closest to distribution network of Alibaba is Distributor storage
with carrier delivery.

Figure 6: Distributor storage with carrier delivery

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Suppliers

sellers sellers sellers sellers

Alibaba ALIBABA

TAOBAO Tmail Aliexpress

Subsidiaries

Customer Customer Customer Customer

Consumers/

End Users

Goods flow

Information flow

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2.1 Responsiveness Strategies of Alibaba

These days’ e-commerce businesses are adopting smart and collaborating technology to emerge
successfully in the competitive and constantly changing market conditions. Smart business
emerges when all players involved in achieving a common business goal—retailing, for example,
or ride sharing—are coordinated in an online network and use machine-learning technology to
efficiently leverage data in real time. This tech-enabled model, in which most operational decisions
are made by machines, allows companies to adapt dynamically and rapidly to changing market
conditions and customer preferences, gaining tremendous competitive advantage over traditional
businesses.

Ample computing power and digital data are the fuel for machine learning, of course. The more
data and the more iterations the algorithmic engine go through, the better its output gets. Data
scientists come up with probabilistic prediction models for specific actions, and then the algorithm
churns through loads of data to produce better decisions in real time with every iteration. These
prediction models become the basis for most business decisions. Thus, machine learning is more
than a technological innovation; it will transform the way business is conducted as human decision
making is increasingly replaced by algorithmic output.

Ant Microloans provides a striking example of what this future will look like. When Alibaba
launched Ant, in 2012, the typical loan given by large banks in China was in the millions of dollars.
The minimum loan amount—about 6 million RMB or just under $1 million—was well above the
amounts needed by most small and medium-size enterprises (SMEs). Banks were reluctant to
service companies that lacked any kind of credit history or even adequate documentation of their
business activities. As a consequence, tens of millions of businesses in China were having real
difficulties securing the money necessary to grow their operations.

At Alibaba, we realized we had the ingredient for creating a high-functioning, scalable, and
profitable SME lending business: the huge amount of transaction data generated by the many small
businesses using our platform. So, in 2010 we launched a pioneering data-driven microloan
business to offer loans to businesses in amounts no larger than 1 million RMB (about $160,000).
In seven years of operation, the business has lent more than 87 billion RMB ($13.4 billion) to

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nearly three million SMEs. The average loan size is 8,000 RMB, or about $1,200. In 2012, we
bundled this lending operation together with Alipay, our very successful payments business, to
create Ant Financial Services. We gave the new venture that name to capture the idea that we were
empowering all the little but industrious, antlike companies.

Determining how much to lend and how much interest to charge requires analysis of many types
of data generated inside the Alibaba network, such as gross profit margins and inventory turnover,
along with less mathematically precise information such as product life cycles and the quality of a
seller’s social and business relationships. The algorithms might, for example, analyse the
frequency, length, and type of communications (instant messaging, e-mail, or other methods
common in China) to assess relationship quality.

Alibaba’s data scientists are essential in identifying and testing which data points provide the
insights they seek and then engineering algorithms to mine the data. This work requires both a
deep understanding of the business and expertise in machine-learning algorithms. Consider again
Ant Financial. If a seller deemed to have poor credit pays back its loan on time or a seller with
excellent credit catastrophically defaults, the algorithm clearly needs tweaking.

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 Figure 7: Alibaba Network

2.2 Inventory and Supply Management for Last Mile Delivery

Alibaba owns a logistics company called Cainiao Network (formerly known as China Smart
Logistics), a company formed by Alibaba in partnership with four other major Chinese package-
delivery companies in 2013. Cainiao Network can support the delivery of 47 million packages per
day, and it covers 224 countries and regions globally and 2,800 districts and counties in China
(Alizila, 2016). However, rather than deliver packages itself like Amazon’s delivery network,
Cainiao Network operates a logistics data platform that uses data insights and technology to
improve the capacity and capabilities of its package delivery partners, whose philosophy is
analogous to that of Alibaba’s e-commerce business.6 Another difference between Amazon Prime
and Cainiao Network is that the latter does not have a membership program with exclusive
benefits, so it is not as effective in cultivating loyal customers, although it requires much less
financial investment to provide fast delivery. Alibaba holds a controlling interest in logistics
operator Cainiao, which was set up in 2013 and is a collaboration including warehousing, trucking

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and the last mile. It’s essentially a massive, asset-light, data-sharing platform, with Alibaba owning
very little of the infrastructure.

One of the prime drivers for the creation of Cainiao was to ensure capacity for Alibaba deliveries,
but Alibaba and Cainiao depend on all the carriers, such as SF, ZTO and YTO. It now has over
two million delivery drivers in the network.
Alibaba is pushing warehouse automation in an effort to reduce costs. Labor costs are growing in
China, albeit from a low base. This, combined with low birth rates, means that, as in the West,
there is growing pressure to automate.
Alibaba uses the Hive Box network extensively, as this is a key component of first-time and same-
day delivery. With its eyes on improving logistics for its ever-expanding global plans, The Alibaba
Group is exploring a partnership with Hangzhou-based logistics firm Best Logistics Technology
Company, with a specific goal of developing cloud-based logistics services, according to Beijing-
based newspaper The Economic Observer.
It’s not as though the two companies are not acquainted. Best Logistics said 80 percent of its
business turnover stems from Tmall, the online retailer owned by Alibaba, and more than 3 million
of the orders placed with its cloud computing technology-based services are generated at Tmall,
the report said.

“Best Logistics is building an operational model for a cloud order fulfillment center (OFC), which
is based on cloud computing technology and the integration of online and offline services,” the
story said. “The model is expected to establish Best Logistics’ dominance in the industry if it is
able to command more than 70 percent of orders from e-commerce companies.”

The logistics company has launched five rounds of fundraising, receiving US$15 million from
Alibaba Group founder Jack Ma and Terry Gou, who is the chairperson of Taiwanese electronics
giant Foxconn, the story said.

During all of this, Best Logistics is also preparing to go public, the story said: “The logistics
company operates in the supply, fast freight, express delivery, cloud platform and finance sectors,
with the cloud platform sector being the most threatening for the market, which is termed by the

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company as Cloud OFC,” it noted. “Currently, Best Logistics’ Cloud OFC has entered strategic
alliances with 300 logistics firms, which are reliant on the cloud platform to boost their business.”

The stakes are getting higher as new businesses investment reaches record amounts. According to
Dealogic, Alibaba and its subsidiaries last year announced 51 deals worth $21bn, as the group
expanded its footprint into logistics and brick-and-mortar retailing, which included taking control
of logistics firm Cainiao, and acquiring a $2.9bn stake in hypermarket operator Sun Art. The pace
is even quicker this year: So far, Alibaba is the world’s eleventh most active deal-maker that
splashed another $35bn in new investments — an amount ranking it ahead of private equity
managers Blackstone Group and Carlyle Group, Dealogic data shows. This includes a $9.5bn
acquisition of food delivery service Ele.me, as the company seeks to integrate online and offline
shopping, partly by utilizing Ele.me’s vast delivery network to meet its commitment to sending
purchases directly to consumers within 30 minutes. The company also recently acquired Pakistani
e-commerce platform Daraz, in a bid to increase its presence in South Asia as part of its global
expansion strategy.

Offline Expansion

Alibaba made an even more significant transformation. It launched over 20 Hema Fresh stores in
Beijing and Shanghai, which provide imported seafood, meat, fruit, and vegetables for high-end
customers. The strategy is intended to bring a seamless shopping experience to customers
regardless of whether they are on a desktop, mobile device or in a brick-and-mortar store. Cheung
(2017) provided a detailed picture of the operation of this new retail model: Hema shoppers are
encouraged to download the store’s mobile app, which is connected with Alibaba’s other products,
including the marketplace Taobao.com and the mobile digital payment Alipay. In-store customers
can use the app to scan a product barcode to receive information or recommendations for related
products. Once done with their shopping, customers can check out using the app. Since the stores
also double as fulfilment centres, shoppers within a roughly 3-km radius of a store can also make
purchases remotely using the app, and then have goods delivered within 30 minutes. Alibaba uses
data collected on these shoppers and their app usage to build a more personalized shopping
experience, as well as to improve its understanding of a consumer’s online and offline journey.
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Thus, Alibaba’s business model is transitioning from a pure network orchestrator to a hybrid of
network orchestrator and asset builder. As traditional retailers are facing threats from e-commerce
companies, Amazon and Alibaba have made it clear that they want a larger share of consumers by
integrating online and offline services. In their domestic markets, we see a large number of
investments, partnerships, and acquisitions of grocery chains, and this might be a start of more
diverse offline initiatives. Both have made moves in healthcare – Alibaba has an online drugstore,
Ali Health, and Amazon has formed a not-for-profit healthcare company recently. Armed with
vast amounts of consumer data in their arsenals and advanced tech capabilities, they are in a good
position to experiment and adapt to the brick-and-mortar drug stores and insurance companies.

In addition to the Hive Box lockers, Alibaba has something like 50,000 PUDO points across China,
which add flexible capacity at peak and require lower fixed costs.

commitment to next-day delivery in rural areas. More than half of China’s 1.3 billion population
lives in rural areas, offering huge potential. The goal is to deliver to any destination within 48
hours.

International Business

The scope and scale of Alibaba’s international business are more limited. Alibaba only had two
platforms for international and cross-border commerce by 2016: Alibaba.com, the wholesale
marketplace for global trade; and AliExpress, an international marketplace for consumers around
the world to buy products and services directly from sellers in China. Also, the net sale of Amazon
International was 40 times greater than that of Alibaba International. Although its first website,
Alibaba.com, started with the goal to build connections among buyers and sellers across the globe,
so far it has only managed to connect Chinese buyers with global sellers. In 2016, the revenue
from international e-commerce accounted for 7.5% of the total, almost 75% less than its domestic
revenue.

In the short term, Alibaba’s primary focus is likely to be maintaining its competitiveness in the
Chinese domestic market. However, it makes no secret of its global aspirations. Alibaba
announced a long-term goal for the global market in its annual report (2017): serving two billion
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consumers around the world and supporting 10 million businesses to operate profitably. To expand
its presence in key markets and serve international customers, last year Alibaba proposed building
a global commerce platform, World e-Trade Platform (eWTP), which aims to eliminate barriers to
commerce to promote free trade and help businesses and consumers everywhere participate in
cross-border trade. Rather than being faraway, a head-to-head competition between Amazon and
Alibaba is right around the corner in the e-commerce market in Southeast Asia.

3. Warehouse Management and Transportation Tie Ups

Figure 8: Business Model of Alibaba

In order to meet consumers’ ever-increasing requirements, Alibaba has been applying big data and
machine learning to optimize logistics processes including order prediction, warehouse
management, transportation and last-mile delivery. As an aggregator, Alibaba is able to leverage
network effect and collect massive amount of data from different sources, e.g. its major e-
commerce websites Taobao and Tmall. For instance, Alibaba analyzes data of all historical orders
to understand the demand for various products across different geographies in China. By machine
learning, it generates precise order predictions which help online sellers to pre-load their

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warehouses with certain amounts of inventories, so as to avoid blocking and starving during the
busy season of Singles’ Day.

From Day One, Alibaba has the aspiration of becoming the ultimate aggregator in the logistics
sector. In 2013, Alibaba launched Cainiao Logistics which has now become the largest unicorn
company in logistics industry through a series of acquisitions. On September 13th 2018, Cainiao
announced its investment in YiLiu Technology, an Internet of Things (IoT) company in the
logistics sector. Internet of Things (IoT) is a technology that attach tracking devices on vehicles
and goods to digitalize and visualize the whole logistical process. YiLiu Technology uses the IoT
technology to help cargo owners and truck owners to optimize routes, to dispatch cargo and
drivers, and to eventually digitalize the entire supply chain. By investing in YiLiu, Alibaba now
has access to logistics data of millions of Chinese trucks, which, once combined with Alibaba’s
existing data portfolio, will enable it to further identify opportunities of efficiency improvement
and cost savings.

This will not benefit Alibaba alone. The logistics industry in China is extremely fragmented with
millions of small-to-mid sized companies. This traditional industry has been suffering from low
efficiency and hard-to-manage costs. Cainiao aims to transform the industry with its possession of
data and technology, so as to decrease the logistics costs nationwide. “The manufacturing industry
will benefit from improving profitability if we are able to decrease the logistics costs to lower than
5% of GDP. This is what Cainiao and the logistics industry should do to contribute to the nation.”
Jack Ma, the famous co-founder of Alibaba, said so in a conference in May 2018

The realization of Alibaba’s logistics miracle is largely dependent on the low-cost labor in China.
As we can see from the picture above, deliverymen are critical to ensure that 100 million packages
can be delivered in 2.8 days. However, the labor cost in China has been on the increase in recent
years, which is why many multinational companies moved their headquarters and factories away
from China to Southeast Asian countries.

Industry-wide data sharing is critical for Alibaba / Cainiao to reach their aspirations. With larger
and broader data sets, Alibaba can have a better grasp of logistics optimization throughout the
value chain and improve their machine learning algorithm accordingly. But in the era of internet
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and connectivity, data has become the core assets of most companies, so it is unlikely for other
players to share their data with Alibaba willingly. Alibaba aims to become the aggregator of
logistics industry, but it is still the key competitor to other players after all.

• The Warehouse Management System (WMS) can work as stand-alone to optimize the
warehouse operations or work as a module by integrating with the greater Supply
Chain and Manufacturing solution. It uses intelligent dashboards and KPI monitoring to
provide visibility into and enhance Warehouse workflows. Common features include:

• Handle Receivings: The solution facilitates to create and views receipts and Bills of
Lading, receives Purchase Orders (PO), Return Orders (RO), accepts advanced shipment
notices (ASN), requisitions and vouchers. Unique barcodes are assigned in the inventory
for receiving each arriving shipment. Entire or partial shipments are received. Unique LPN
is assigned to each item. Item details such as serials, batch or lot numbers, weight, quantity,
dates are stored. Disposition codes are assigned to Return Order products to aid inspection.
Conflicting claims are highlighted. Shortage situation alerts are given and directions given
for Cross dock or regular storage options.

• Manage Put-away: When a receipt is closed put-away processes are auto-triggered. QC

zone and Storage receive their part of receipt. Check methods are defined for
inspection. Move request is created for items after inspection. Stack methods are defined
(FIFO, manual, automatic).

• Optimize Picking: Move or Relocate items against customer orders from Storage area to
picking area/bays. Order picking methods are defined (Picker to part, Part to picker). Items
are sorted according to customer orders. Transfer requirements and orders are created for
stock rotation. Wave Picking is provided. Picking routes and stock rotate alternatives are
simulated on the dashboards.

• Wave Planning: Workload can be scheduled through Wave planning into short intervals
and prioritized by order or function. Waves are planned and created against Labor and
resource requirements. Criteria are set on order types and waves scheduled and released
for order fulfillment. Wave Release sequence rules are set. Wave reports are

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 generated.Number of Waves, Orders, Order-lines and wave statuses can be checked. Labor
statistics are plotted. Total capacity and workload is monitored. Pick, Replenishment, Put-
away tasks can be assigned.

• Shipping: Warehouse billing procedures are put in-place. Integrates with Logistics Service
Providers(LSP) software and provides Real time integration to create activity based
invoices on demand. Sales Orders(Standard, POS, Warehouse) are created. Service items
can be viewed and billed for as per client contracts. Billing price is agreed as per quantities,
billing period and contracts through sales and distribution techniques. Invoices are created
and can be viewed. Billing transactions are tracked.

• Forecasting/Replenishment: Store order leveling provides truckload/workload balancing at

distribution centers. Algorithms reduce the free shelf-space and maintain lean stock levels.
Material master record is maintained. Material data, Unit of measure(UOM), pelleting
instructions are stored. Storage location specific data is stored. . Max, Min Bin quantities,
replenishment quantities, Bin Sizes are calculated. Work scheduling is done.

• Dashboards and Analytics: Real time data is populated on COO and Inventory Manager
dashboards to provide Daily shipments, shipping volumes and destinations and worker
productivity stats. Dashboards can be customized to monitor metrics from
Inbound/Outbound or process activities. Order lead time(OLT) and Order processing
time(OPT) are calculated. Holding Costs, Ordering and Shortage Costs are calculated.
Order quantities and annual costs are plotted in a graph for Cost minimizing analysis.
Reordering points are elicited.

• Quality Control (QC): Item for inspection are inspected as per QC standards. Cold storage
requirement, humidity conditions, ventilation, fragility, pelleting, details are accounted for.
Unit load racking standards are defined and checked. Location and Aisle numberings are
allotted for ground storage and Rack Storage. Automated Storage and Retrieval System
(ASRS or AS/RS) is integrated with for Put-away and Picking. Pallets, Cartons and items
are tagged with RFID. Order verification, picking and pelleting is optimized by Bar code
scanning. Real time locating system (RTLS) can track RFID from hundreds of feet away.
Stock rotation algorithms are deployed.
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• Integration with Softwares: The module integrates seemlessly with Quickbooks fishbowl
inventory, CRM and ERP and provides Kit-to-Order, Kit-to stock features for distribution
requirement planning; Integrates with Manufacturing automation module and
provides build-to-customer, and built-to-order fulfillment. Voice directed warehousing
(VDW) and speech recognition programs are integrated for efficient picking.

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4. Advancements in the Operations through Online Supply Chain

The Alibaba story is actually a general story. It offers a glimpse into the future of business for
everyone, no matter where you are. What it does is right in the middle of the core of any economy:
retailing, advertising, logistics, supply chain. But also, it shows how the Internet can transform
an economy that has been lagging behind for a very long time.

Over the last 40 years after economic reform and open door policy, China has become the largest
production center for the whole world. In China, on one hand you have a vast number of customers,
but on the other hand you also have the largest network of supply chains of anything produced in
the whole world. And this hasn’t happened before. When Japan or Korea emerges, they are not a
world production center – they are just strong in a few sectors. But China is a production center of
almost everything. And then it becomes also the largest, one of the largest consumer market as
well.

In the U.S., leading firms emerged when new technology was applied to new problems like online
advertising, auctions and social networks. But in China, new technology was basically applied to
old problems that in many ways had never been solved yet or we’re not as far along, like retailing
and finance and logistics, because they were still in development. This has been unfold by the
business environment in the U.S. is well-developed and in many cases is very advanced, the labor
efficiency gains of applying new technology to old problems is relatively low. But in China, there
so many areas lagging behind, new technology can show wonders in productivity gains, in the
quality gain of service people receive.

People don’t use credit cards in China, they use Alipay. There was hardly any credit card services
in China when we started. And because we leapfrogged into a mobile payment area, nobody used
personal check ever in China. A smart business means more and more business decisions,
including a lot of daily operational decisions, will be done by machines in the future, rather than
by human beings. But for this to happen, you have to move your business online first. Otherwise
you will not be able to have your data. The concept that is called “the live data feedback.” Data is
just a direct recording of your business activities and all the data can be put into a algorithm which
is like the brain of machine. So they can turn out certain decision output. Business has to move

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online first, and this pushes coordination among business to become more network-driven, rather
than the traditional way of vertical supply chain. So these are the two most important forces driving
business transformation in the future.

Figure 9: Supply Chain Lessons from Alibaba

Alibaba’s special innovation was that it was truly building an ecosystem: a community of
businesses and consumers of many types interacting with one another and the environment (the
online platform and the larger off-line physical elements). Its strategic imperative was to make
sure that the platform provided all the resources, that an online business would need to succeed.

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It linked buyers and sellers of goods. As technology advanced, more business functions moved
online—including established ones, such as advertising, marketing, logistics, and finance, and
emerging ones, such as affiliate marketing, product recommenders, and social media influencers.
And as it expanded its ecosystem to accommodate these innovations, it helped create new types of
online businesses, completely reinventing China’s retail sector along the way.

The world’s largest retailers are planning to not only grow into the world’s biggest logistics
companies, but to completely revolutionize the industry. Alibaba has recently made significant
investments to its supply chain capabilities and in the not distant future it will soon handle more
shipments than most specialist delivery postal and courier companies. In effect, this companies are
building its own streamlined delivery systems that may replace the more established specialists.

Alibaba, also made a moves in the logistics space. Cainiao, a logistics company formed by Alibaba
and others three years ago, announced plans for $16 billion supply chain investment. The monies
were released to provide enhanced data quality and route planning information, as well a physical
investments into 1,800 distribution centers and 97,000 delivery stations in more than 600 cities
across 31 Chinese provinces.

Cainiao president Judy Tong told Freight Week that the funds were planned "to make it easy to
deliver goods to anywhere".

Aside from these short-term, tactical investments into capacity, the retailers are increasingly
looking to disrupt the foundations of the logistics market. Interestingly, the answer to all these
quandaries lies in the supply chain. Smooth operations was always important for retailers, but now
a useful side-function is now becoming the critical success factor. By investing into old-fashioned
logistics in the immediate future and revolutionizing the industry in the long-term, Alibaba is
positioning itself as major disruptor to new markets.

Alibaba grabbed global attention in 2014 with its initial public stock offering. It was the biggest
IPO ever – still is. Founded in 1991 by Jack Ma, Alibaba is now worth more than Walmart. 150
million people shop on Taobao, its shopping site, daily. Its popular mobile payments platform
Alipay is expanding across Asia. But even though the name Alibaba was designed to give the sense

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of hidden treasure – a name chosen to be universal – most people outside of Asia don’t know a lot
about one of the world’s biggest companies.

And the challenge for Alibaba is most people in the West has no direct experience with its main
service – such as Taobao, or Alipay – it had a hard time to understand the value Alibaba was able
to create over all these years. The company was able to grow quickly by leapfrogging existing
technologies, and by leveraging data to better serve its users in fast-emerging economies.

Alibaba is more networked than most retailers in the United States. Amazon, for instance, owns a
lot of stock, even though it sells a lot from third party sellers, it does its own warehousing
distribution. It’s vertically integrating that way too – for instance, by having its own employees or
own contractors deliver packages. But Alibaba is different in the sense that it is working with a lot
of partners to do many of the things that Amazon does by itself.

One of the most important reasons for this is everything was growing so fast, there’s no way we
can provide all the service that is necessary to do the retailing business online. Secondly, we
actually believe in the power of an open ecosystem – that working with others can be more
productive in many, many scenarios. The more we build the open system, the more we benefit,
and then the faster the ecosystem grows and we become more inclined to this new approach.

The obvious example of a success of network coordination and data intelligence had at Alibaba is
logistics. As early as 2006, packages originating from Taobao was growing exponentially. The old
state mail system cannot handle it at all. And when we go talk to the postal service, they just didn’t
care at all. It’s extremely hard for to do logistics because there are just a bunch of engineers. But
then business people see great entrepreneurial opportunity in this areas. So people start to build
their own delivery companies and they all grow exponentially with Taobao over time. So there are
quite a few delivery companies that already went IPO over the last few years and became billion
dollar companies.

For recruitment of people Vision is extremely important nowadays, especially when you are
trying to build an ecosystem. You have to provide direction for all your partners about where you
are going and why it makes sense. It’s usually people who have a mission, because when they have
a mission, they will think beyond short-term results and they will think beyond just making money.

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So first day, when Alibaba was set up, Jack Ma and the founding team had a mission to make
doing business easier for everyone and anywhere. And their vision is: internet is the most powerful
tool to make this happen. And the following this, we have a strategy.

Alibaba mainly concentrate on being more creative to attain individual as well as organisational
goals. Because more and the more decisions will be taken over by machines. People have to
become more creative to work with smart machines in the future, so go for jobs that can make
them more creative, and go for organizations that really provide an environment that fosters
development of creativity. It is even called “creativity revolution” following Peter Drucker’s
terminology. He coined the term “knowledge revolution,” Also People who only have knowledge
will lose their jobs in the future, because most jobs with just codifiable knowledge will be replaced
by machines. But this leaves more room for people who have creativity to play a role. And
creativity relies so much on individuals, so organizations have to enable individuals to become
more creative. But a traditional company is more about control, – monitor the performance of an
employee – so people are much more passive in a traditional organization. But in the future,
individuals have become more self-driven and become more creative in the future. So in this sense,
they have more power over companies.

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5. Role of Technology in Supply Chain of Alibaba

Alibaba has launched a blockchain technology initiative to protect product authenticity and
improve its supply chain integrity.

The Food Trust Framework is a Tmall Global initiative which aims to enhance consumer
confidence and create trust and transparency for cross-border trade across Alibaba’s Tmall Global
platform. The initiative will incorporate standards and controls including product tagging with
unique QR codes and blockchain technology in a bid to authenticate, verify, record and provide
ongoing reporting of products throughout the shipping process.

The initiative has launched a trial program with Australian vitamin brand Blackmores and New
Zealand dairy brand Fonterra, along with Australia Post and New Zealand Post, with PwC to act
as an advisor.

The program will incorporate the shipping of Blackmores’ Odorless Fish Oil products and
Fonterra’s Anchor dairy products to China via Tmall Global orders.

If successful, the Framework could form the basis of a global supply chain model applied across
all of Alibaba Group’s e-commerce markets.

The move is part of a bid by Alibaba to increase both consumer and supplier trust in its platforms
as it seeks to build its reputation globally after a number of recent hits.

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6. Cost Optimization Techniques used by Alibaba

Alibaba uses following measures when it comes to techniques to optimize cost:

Figure 10: Cost Optimization Techniques

1) Differentiation Strategy:
Alibaba’s strategy for differentiation has enabled it to pull ahead of its competitors. It
operates as a middleman, connecting only buyers and sellers, avoiding the need for physical
warehouses.
2) Connecting with partners:
Alibaba enables small merchants and suppliers to reach thousands of new customers like
never before. It allows any user, whether a consumer or merchant, to interact and trade with
any other consumer and business in its network. In particular, it has opened the direct-sale
door for many merchants in Asia, a market that Amazon and eBay have yet to penetrate
successfully. Alibaba knows supplier and customer satisfaction is vital to its continued
success. Its middleman approach shows it's aware of suppliers' struggles.

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 3) Drafting supply chain processes:
Alibaba emphasizes buyer protection, an important issue in this era of e-commerce rife
with shady sellers. When an Alibaba customer pays for a good or service, the funds make
a pit stop in the company’s escrow account until the customer receives the order.
Concerned customers can request pre-delivery product inspections. Only when the buyer
confirms satisfaction does Alibaba forward payment to the seller, thus greatly reducing
fraud on its site.

7. Innovations used by Alibaba

The CEO of Alibaba Jack Ma announced a major infrastructure upgrade project for its
global logistics subsidiary Cainiao Network, at the Global Smart Logistics Summit held in
Hangzhou as part of an investment by more than 13.3 billion euros.
Cainiao Network is working on a new state-of-the-art logistics complex in Wuxi near
Shanghai, with a smart warehouse, offices and stores. The logistics center is virtually fully
automated. With artificial intelligence and the Internet of Things, it will be equipped with
robotic arms for picking and packaging, 500 self-guided vehicles, infrared sensors and
cameras capable of calculating real-time storage.

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 Figure 11: Payment Mode

Warehouse Automation

In major cities in China, Alibaba set up fulfillment center for merchants to store inventories. This
enables Cainiao to leverage its big data and cloud platform to optimize the warehouse design and
data flow for more efficient warehouse management.

In addition, Like Amazon’s move with Kiva Robotics, Alibaba opens the largest smart warehouse
in China manned by 60 cutting-edge AGV (Automated Guided Vehicle). These AGVs are
equipped with WIFI, self-charging capabilities to lift and move the sorting shelves to the workers,
who then packed and posted the products to customers around the world.

Robots and Drones deliver the last mile:

In the long term, Cainiao’s E.T. logistic lab is aiming to implement the coolest technology to
improve logistics efficiency to the last mile and reduce labor cost as much as possible to cope with
increasing demand. The Robot “Xiao G” operates as an autonomous delivery vehicle that interface
with transportation management system to optimize delivery route. It uses simultaneous

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localization and mapping (SLAM) system to assess the local environment and uses the deep
learning algorithm to predict the trajectory of moving objects, pedestrians, and vehicles.

Part C
Analysis and References

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Challenges to Online Medium

Since the online platform of Alibaba works on the basis of marketplace model, it does not have its
own warehouses or any sort of inventory.
In order to facilitate the exchange of goods and services, they’re focusing on the softwares.
This creates a challenge here because the software brings in a lot of dependency upon their supply
chain. As there are no warehouses and the products are directly delivered through the seller, there
is a high risk of product quality. Since Alibaba cannot perform any quality check of the product
being sent, there are high chances of old, damaged, defected goods being sent over because of the
lack of a mediator.

Another major challenge Alibaba faces is the increasing prices of labor. It is one of the aspect
which Alibaba has leveraged to provide product delivery of around 100 Million products in 2-3
days during the Singles’ Day through their company Cainiao. Thus, a rise in the labor disrupts the
whole channel. Alibaba is deriving major amount of profits through its operational costs which
includes the labor costs which may not be the factor anymore if the labor prices increase.

Being the aggregator, Alibaba implements Big Data and Machine Learning technology to predict
the demand of goods and thus make it ready for the anticipated purchase. This requires a huge
amount of data collection from across the country. Alibaba is able to optimize its logistics with
huge amount of data sets which cannot be done so if data is not available so easily in the Chinese
market. Since the companies still think Alibaba as their competitor, they avoid giving the piles of
data they have which might be useful for the company to manage its supply chain. Thus, the
challenge here is to gain as much data as Alibaba can without facing any restrictions.

The power is decentralized, which gives lesser control to Alibaba over its operations, which might
be a weak spot sometime in future if not managed properly.

Another uprising challenge is the facility of mobile payment. Though Alibaba is promoting its own
mobile payment apps and other payment facilities, but with the uproar of Tencent in China, parent
company for the most used app in China, WeChat, there are chances that people may shift to it for
making payments.
Since Tencent is spending a huge amount of money to promote their online payment services, there

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is a scope that people shifting to it will lead to a huge loss in terms of data for Alibaba and also
affect its supply chain.

A point to note here is that Alibaba earns from its sellers who advertise on its platforms to promote
their products. Now since the sellers who invest more in advertising are promoted more and are
purchased from more. This turns into a cyclical process because of which, normal sellers who are
unable to shell out money for advertising are left out and may not be benefitted from Alibaba as
others might be. This will lead to sellers disassociating with the company. Since Alibaba leverages
its wide array of product from plethora of sellers, it becomes challenging to give the customers a
huge number of choices.

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Comparative Analysis of Traditional Medium and Online Medium

Wide Reach: In traditional medium, any retailer will have to set up a shop and wait for its
customers to make purchases. Since the main target of any retailer is the nearby areas, the
customers and the retailers have a limited reach due to geographical constraints. Alibaba’s online
system has space for every type of customer and every type seller. Thus, both the parties have a
worldwide reach as the buyers from across the world can buy products/services from Alibaba.com
and sellers get a platform they never imagined before. Also, the sellers have the advantage of
selling it through plenty of platforms like TMall, Taobao, Alibaba.com, etc.

Cost-Effectiveness: Traditional mediums have it difficult to promote their offerings to the public
due to budget constraints or limited options. Through the online system of Alibaba, which provides
the sellers an option to promote themselves on the website, the firm is empowering small
businesses to gain more reach by investing an optimal amount of money.

Convenience: In traditional mediums, the supply chain begins from the manufacturer to the
wholesaler to the retailer, not only does this increase the cost due to multiple layers, but it also
increases the time taken to deliver the product. Time, effort and money is involved heavily even if
it’s a small product.
Through the online platforms, the wholesalers, retailers, manufacturers from the country and
across the world are able to send products at discounted prices as they’re coming in direct contact
with the customers. The logistics companies handle the shipment and delivery part which is why
the sellers are able to offer the discounts. From Alibaba’s perspective, it’s a win as they don’t have
to look after the warehousing and inventory management. And from customer’s behalf, it’s a win
because he/she’s getting the product at lower prices and same quality with quick delivery.

Technological Advancement: In traditional medium, product stocking is done on the basis of

previous year’s demands and the market trends while buying is done based on the needs, prices
and also the market trends. With the advancement of technology, it is easy now for the
manufacturers, wholesalers, retailers to produce and stock their inventory way before with accurate
data. Alibaba has been incorporating Machine Learning and Big Data where it tracks the user
behaviour and their choices and demands, while also forecasting the product requirements
constantly based on the purchase patterns and behaviours of the customers. Not only does this
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provide insights to the sellers/retailers to push a certain product (that is in demand) to its customers,
but also helps them restock with enough supplies that they don’t run out of goods. This is essential
specially during the Singles’ Day sale where people from anywhere across China shop for
everything and anything they desire.
Also, with the help of AI abled robots, Alibaba was able to process 10 Million orders within a span
of 24 hours which wouldn’t have been possible through a traditional method sale or any normal
sale occurring online.

Value for money: Traditional medium does not provide as wide variety as online medium does.
With increase in disposable income amongst Chinese people, they don’t mind buying products
from anywhere in the world as long as they’re getting value for money. Which is why, online
supply chain system makes it possible for the customers to get exceptional services at optimal cost
while sitting at home. Every seller strives to provide better services amongst the plenty of its
competitors present online. Which would not be the case in traditional supply chain processes
where a single player can exercise monopoly over the entire network.
Another important point to be noted here is that due to responsive supply chain of online platform
of Alibaba, a person would get freshest of the strawberries (fresh till 12 days from plucking) from
any part of the country within a day or two. Perishable products are no more a challenge to
transport because of the strong supply chain network that efficiently transports from one place to
another in no time. No compromise in quality and quantity is being made because of the online
supply chain management, which wouldn’t have been possible with traditional system of
transportation.

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References

• http://blog.economie-numerique.net/2018/07/17/the-supply-chain-innovation-with-alibaba-
smart-park/
• https://blog.una.com/news/how-to-cut-supply-chain-costs-6-lessons-from-alibaba
• https://www.alibaba.com/?src=sem_ggl&cmpgn=92225827&adgrp=4180116547&fditm=&tgt=k
wd-
1980708802&locintrst=&locphyscl=2360&mtchtyp=e&ntwrk=g&device=c&dvcmdl=&creative=2
1430716787&plcmnt=&plcmntcat=&p1=&p2=&aceid=&position=1t1&gclid=EAIaIQobChMIserRh
pCy5QIVkcreCh049gosEAAYASAAEgLp9PD_BwE
• https://digital.hbs.edu/platform-rctom/submission/is-alibabas-smart-logistic-platform-
sufficient/
• https://www.thedrum.com/news/2018/04/30/alibaba-launches-blockchain-technology-
improve-supply-chain-integrity-and-enhance

• https://www.supplychain247.com/topic/tag/Alibaba

• https://www.supplychain247.com/article/lightening_fast_delivery_in_china_for_singles_day/Ali
baba

• https://www.investopedia.com/articles/investing/062315/understanding-alibabas-business-
model.asp

• http://cmuscm.blogspot.com/2014/09/alibaba-giant-in-online-commerce.html

• https://www.forbes.com/sites/jwebb/2016/05/31/amazon-and-alibaba-bet-the-future-on-
supply-chain-management-eretailers-invest-big-in-logistics/#2041383e4181

• https://blog.driv.in/en/how-logistics-contributes-to-alibabas-outstanding-success/

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