When Chinese Manufacturing Met On-Iine shopping Carnival

After fast development in the past four year: \"ll.ll\"has become an online shopping carnival for Chi-nese netizens. On the single day of November11， 2013， Tmall reaped an amazing daily salesvolume of RMB 35 billion. Afterwards， such e-suppliers asJD.com， Dangdang， Suning.com， Gome.com and Vipshopjoined the \"11.11\" shopping carnivalwith considerable salesvolume. Products of the traditional manufacturing sectorssuch as mobile phones， home appliances， garment and fur-niture were best sellers on that day.

By the daily Tmall sales volume on the day of \"11.11\"shopping carnival， xiaomi topped the sales list with a salesvolume of RMB 541 million， followed by Haier with RMB160 million and LuoLai with RMB 143 million. Manysmall-and medium-sized enterprises saw an increasing salesvolume on the \"11.11\" shopping carnival. The sales volumeon the day of \"11.11\" is a miracle against the sluggish marketbackground， which injects vigor to the traditional manufac-turing sector.

Challerge to traditional manufaceuring

In the mean time， IDC holds that the annual \"11.11\"online shopping carnival is not necessarily a big cake for thetraditional manufacturing sector. Little knowledge oflnter-net featuring \"11.11\" online shopping carnival and lack of theInternet thinking to reform the traditional production andoperation model， companies maybe abandoned by the shop-ping carnival.

First， the \"11.11\" online shopping carnival exposes com-panies' bottleneck in terms of equipment and manufacturingcapacity. A sound production company normally has a capac-ity utilization ratio of around 80%， by which on the one handthe equipment in the plant can be fully utilized and on theother hand the company has certain flexibility to meet unex-pected demand surge. However， the \"11.11\" online shoppingcarnival brings multiplied demands within one week， whichis far beyond a company's production capacity. If the companyexpands capacity blindly， after a short time of operating at afull capacityits equipment will be idle for a long time， whichwillimpact the company's capital flow.

Second， the \"11.11\" online shopping carnival results in alabor shortage. For instance， the labor-intensive sectors suchas garment and furniture need lots oflaborers for production，processing and assembly. However， against the backgroundof asevere labor shortage in China， how to hire so many la-borers in a short time to cope with the shopping carnival is aheadache for plants every year. Many a plant is forced to hirelaborers by bigger salary hike and higher overtime compensa-tion and to dismiss laborers at a high cost after the shoppingcarnival. This undoubtedly makes the situation worse forthe traditional manufacturing companies， which run at slimprofits. Moreover， a sharp rise of demands within a shorttime disturbs the company's production pace. Just like run-ning， production may require least efforts and last long at astable speed; while a sharp rise in speed may lead to a burdento the heart. Likewise， to yield a satisfactory outcome， pro-duction needs a buffer process for an increase in laborer andequipment. The shorter the buffer process， the easier for theproduct quality to be affected and the higher ofthe operatingcost to the company.

To tackle the above-mentioned problem， some manu-facturers may purchase equipment and manufacture in ad-vance to spare inventory. But a large inventory poses invisiblerisks to the sound operation of the company. For a traditionalmanufacturing company， cost for material purchase usuallyaccounts for over 60% ofits turnover. Excess inventory willseverely impact a company's cash flow. Once the sales volumeturns out unsatisfactory at the \"11.11\" online shopping car-nival， the company has to sell products at discounts， whichdamages brand image and slashes profits.

Jack Ma once said that the \"11.11\" online shoppingcarnival sparks off a reform to the traditional manufacturingsector， impacting the traditional business model. However，the shopping carnival is inevitable as it is a reflection of theInternet wave.

To survive the Internet wave， manufacturers are sup-posed to learn how to transform traditional sectors and toestablish fresh business models by the Internetthinking and Internet technologies. As for howto bridge the traditional sector with the Internet，Wang Yue， senior manager of the Manufactur-ing Research Division of IDC China， offeredthe following three suggestions:

First， to realize upstream and down-stream collaboration along the supply chainvia Internet technologies

In some sense， competition in the manu-facturing sector lies in the supply chain.lnfor-mation should be timely updated between com-panies and customers， and between companiesand suppliers， so that the supply chain can reacttimely to reduce operation cost and risks to aminimum extent. Nowadays， more and morecompanies begin to realize the significance ofsupply chain management and input more intoinformationization construction to make thesupply chain more visible. However， 80% of thecompanies participating in the \"11.11\" onlineshopping carnival are small- and medium-sizedones， most ofwhom cannot afford the expensivesoftware and the long project implementationcycle. Statistics shows that above 60% ofITinput for small-and medium-sized enterprises(SME) is for hardware and the rest 40% is forsoftware and services，which lags far behindthat of the developed countries. But luckily， thecloud service platform based on the Internetsolves SMEs' problems in terms ofinformation-ization construction and creates much value forenterprises. Via the cloud service platform， en-terprises may use various management software，which would shorten the informationizationconstruction cycle to quickly create value. Inthe mean time， cloud service is charged by us-age， by which enterprises may pay according toactual user accounts and actual using time basedon business volume fluctuation. Thus， one-time investment won't occupy much operationcapital and hardware depreciation is no longera problem， which alleviates the capital pressurefor SMEs. IDC survey results reveal that atpresent only about 16% Chinese manufacturingenterprises are using cloud computing; yet 74%are considering or testing cloud solutions. In theupcoming two to three years， cloud service willbe definitely widely applied among SMEs.

Second， to fully understand consumerneeds via Internet-based social media forproduct differentiation

At the current stage， many companies fo-cus on product for manufacturing rather thanunderstanding the real needs of consumers，which results in severe product homogeniza-tion. As for the \"11.11\" online shopping car-nival， companies treat it as an opportunity toclean up inventory by squeezing profits such asoffering sales or price cut. However， the trueway out for companies is product innovationwith more understanding about customers'potential needs by closing to customers， as thecustomer group serves as the genuine drive forproduct innovation. The Internet-based socialmedia makes it much convenient for companiesto effectively communicate with consumers.Companies' RD staff may actively interactwith users via such social media as micro blog，wechat and bbs in a bid to launch tailoredproducts， which finally helpscompaniesto re-alize product differentiation and sustainabledevelopment.

Third， to reduce inventory in variouslinks along the supply chain via the Internet-based C2B model

Excess inventory is mainly caused by un-certain demands and lack of trust between man-ufacturers and suppliers. By the \"bullwhip ef-fect\" theory， the small changes in the client sidemay lead to big fluctuation in the upper streamalong the supplier chain. And the closer to theupper stream， the bigger fluctuation will be re-sulted in. Therefore， invalid demand predictionmay lead to excess inventory for suppliers， whichthen brings losses to all the participants involvedin the supply chain. Taking the garment sectorfor instance， the garment-making companiesnormally adopt the \"brand-distributor-retailer-consumer\" model for the sales channel， wheredistributor purely decides product order by thesales volume prediction. Such a model maymultiply consumers' actual demands and thenresults in a surprisingly large inventory， whichbrings capital chain rupture and bankruptcy tomany garment companies.The C2B model en-ables companies to collect and target at consum-ers' demands in advance and then have adequatetime to optimize plans for material purchase，manufacturing and logistics， which considerablycuts operation cost， reduces inventory in varioussections along the supply china and eventuallyshortens the product turnover cycle.

Liu Chuanzhi， ChairmanPresident ofLegend Holdings Ltd.， once said: \"The Inter-net thinking is open and interactive， which willreform the entire industrial chain of the manu-facturing sector.\" By making full use of theInternet of things， the comppany needs to inte-grate resources and establish innovated busi-ness model so as to embed thelnternet think-ing into various links along the manufacturingchain from RD， manufacturing， logistics，marketing， sales to after-sales services. In thisway， the DNA of the traditional manufactur-ing sector will be thoroughly transformed.