For those of you who don’t know, JD is China’s version of Amazon – a massive online retailer that dominates some 20 percent of the local retail market.
The reason that you haven’t heard much about JD is that the company keeps a low profile in the Western media. Like Amazon, however, it’s playing the long game, developing the technologies that will allow it to dominate the market in the future.
The company arguably operates the most advanced warehouses in the world today. Ten years ago, it became interested in the idea of fully automating its fulfillment centers after observing what Amazon was up to. It saw an opportunity to cut costs and pass savings on to consumers.
JD Is Not Amazon 2.0
Make no mistake, though: what JD is trying to do is fundamentally different from Amazon. The American tech company relies heavily on Kiva-powered robots in its fulfillment centers to ship products around its facilities, moving them from warehouse racking to packers. What JD is doing is fundamentally different. It’s trying to take humans out of the loop entirely, from the moment the goods arrive on a truck from suppliers at its distribution centers, to the moment that they leave. It’s a whole new way of doing business.
The company, however, doesn’t have its own advanced robotics and AI lab that it’s using to churn out next-gen technology. Instead, it is having to make do with the solutions already available from third-party companies and fit them all together in one system.
So far, it’s had considerable success. In 2018, the company opened the first of several planned semi-autonomous facilities that employ just a handful of people. The facility at Kushan, for instance, handles more than 200,000 packages per day but requires only four people to operate.
The reason for this push towards automation is a direct consequence of the sheer demand for warehouse space. JD knows that as eCommerce expands, it will need ever more facilities to provide it with the fulfillment space that it needs for customers. It wants a business model that allows it to add capacity, but without substantially increasing its variable costs. New warehouses, in its view, should have a marginal cost of zero, once it pays for the initial setup fees. Well, that’s the aim, at least.
Automation And Earnings
We’re already seeing the effect of automation showing up in earnings. JD knows that if it wants to get to profitability in China, it needs to scale its business fast, ensuring that all of its investment is worth the expense. Fortunately, China’s population continues to get richer by leaps and bounds with each passing year, increasing the size of the company’s local markets, without the need for it to expand into Europe and North America to fuel growth.
Where JD leads, others will likely follow. By the end of the present decade, most of the major players in the eCommerce space will have heavily automated warehouse spaces. If they can deal with the last-mile delivery issue, eCommerce will decimate brick and mortar stores.
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