Taobao.com is an online retail platform operated by Alibaba , a Chinese e-commerce conglomerate in China. Taobao.com sells a diversified range of products, including grocery food. Taobao.com doesn’t hold any inventory. Once a customer makes an order online, the seller ships it to the customer directly. Therefore, the delivery time highly depends on the distance between the customer and the seller, ranging from less than a day to more than a week. Unexpected supply chain disruptions may even further delay the shipment. In addition, perishable food requires temperature-controlled transportation, which many food sellers can hardly afford.
One the one hand, the digitalization of supply chain enables customers to track the movement of their orders online. Frustration increases as customers watch their orders get stuck on its way. As customers become more and more concerned about food safety and quality, they demand faster shipping and more convenient grocery shopping experiences.
On the other hand, the digitally-enabled supply chain makes information simultaneously available to all food sellers, forming a more integrated information flow. However, because the existing food supply chain of Taobao.com is dispersed among thousands of small and large food sellers, it is almost impossible for Taobao.com to implement these technologies for each individual seller. Taobao.com is unable to leverage digitalization to improve the efficiency and quality of its food supply chain, and thus cannot respond to customers’ new demand.
To address the efficiency and quality concerns, a new type of stores named Hema Supermarket was created. Hema Supermarket acts as both a centralized smart warehouse to eliminate the deliver time, and an advanced supermarket for customers to come shop, eat, and experience. Customers can either order online and get orders delivered to their home, or physically go to the supermarket to shop.
The centralized customer demand forecasting and inventory planning processes decrease the inventory in the supply chain system to a minimum level. The integrated supply chain makes it possible to skip the distributers in the middle and ship directly from food suppliers to Hema supermarket. The digitalization enables food suppliers to have real-time visibility of customers’ orders and to plan their inventory instantly. The inventory turnover is reduced to less than a day, and thus much less food is perished and wasted during the transportation and storing process. Furthermore, lower inventory level requires less space in the store. The extra space is refurbished into a small kitchen with dining tables. Customers can ask the chef to cook customized dishes using the groceries they bought, and enjoy a family dinner in the store. In addition, Truck drivers use real-time data to group order deliveries and to optimize their routes. Orders can be delivered to places within 2 miles from the store within 30 min.
Due to higher efficiency and lower labor requirements, products sold in Hema supermarket are 10%  cheaper than average grocery stores. There are currently about 20 Hema supermarket open in Beijing, Shanghai, Hangzhou, and Shenzhen. More stores will be opened in the next few years and will renovate customers’ groceries shopping habits.
In order to further improve its supply chain system, Hema Supermarket should address the following three items. First of all, as prodigious amount of data is collected in the digitalized supply chain system, data mining tools will be used to manage, analyze and utilize these data to understand customers’ preferences and predict their needs in the future. Secondly, the picking, packing, replenishing and checking out processes in the supermarket are still very labor intensive. In order to realize the vision of industry 4.0, advanced automations and technologies are to be developed to help workers perform these tasks and further improve the quality and efficiency of the system. Hema Supermarket needs to hire more talents in robotics engineering, software development, and machine learning areas. Finally, many of the traditional food suppliers and distributors should be educated to implement digitalization infrastructure in their warehousing and logistics operations, or even integrate information technology into their product packaging.
Nowadays we can buy almost everything online. It is very interesting to see how digitalized supply chain has driven online stores to move to an integrated online-and-offline system. Since Hema supermarkets are located very close to customers, the real estate in densely populated areas is very expensive. One open question is, should the offline stores such as Hema supermarket sell everything, or just the fast-moving products?
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 From Wikipedia, see: https://en.wikipedia.org/wiki/Alibaba_Group.
 From China Business, see: http://business.china.com.cn/news/info-5725.html.