Alibaba thinks small
Apr 10, 2015 | Strategy | Comments Off on Alibaba thinks small
The Chinese internet giant’s sales on its 1688.com site are up significantly as suppliers are offering customers more flexible ways to place small and customised orders through Alibaba’s Tao Factory program, which also allows retailers to apply for loan finance to make purchases.
The program, which is geared toward retailers who also sell through Alibaba’s Taobao.com and Tmall.com retail eCommerce sites, includes a system through which suppliers automatically replenish a retailer’s inventory of particular products when they fall below specified levels.
Alibaba has declined to say if a similar program will be made available to international buyers on Alibaba.com, the company’s global wholesale marketplace that connects Chinese manufacturers with retailers and wholesalers around the world.
Tao Factory also is set up to let buyers and suppliers share information about production capabilities and consumer demand, enabling retailers and suppliers to match special orders with production schedules.
Through the program, small as well as large factories are receiving more sales, according to AliResearch, a research affiliate of Alibaba.
In 2014, the total transaction volume on 1688.com was US$22.7 billion. Figures for the previous year were not immediately available.
Factories involved in the program are flexible regarding order volume and can turn around orders quickly, Alibaba says. For example, retailers can place orders just one week ahead of their expected arrival date.
This is especially useful for retailers looking to offer big discounts on high-traffic online shopping days such as Singles’ Day, the high profile shopping holiday that occurs every November 11. Some called last year’s Singles’ Day China’s “Black Tuesday” because the huge sales surge makes retailers profitable for the year. Alibaba reported that consumers purchased $9.3 billion worth of goods on Singles’ Day last year, just on Alibaba sites like Taobao and Tmall, up 60 per cent from the $5.8 billion of a year earlier.
The minimum order size through Tao Factory is just 30 units, a number which allows retailers to test demand before ordering hundreds of items, minimising the risk of overstocking a product and eliminating storage costs, says Alibaba.
Outside of the Tao Factory program, most factories require a minimum order of 5000 items, according to AliResearch.
To promote the advantages to retailers of purchasing through the Tao Factory program, manufacturers and other suppliers selling through 1688.com have begun advertising how quickly they can manufacture products. Some have lowered the minimum quantity of items retailers must order, allowing retailers to maximise their sales opportunity and minimise the risk of overstocking unpopular goods, Alibaba says.
Launched in December 2013, Tao Factory is named after Alibaba’s retail marketplace, Taobao.com, which is China’s largest retail e-marketplace.
Tao Factory includes 11,500 factories and 19,624 production lines, many of them located in southern China’s Pearl River Delta region, particularly in the manufacturing hub city of Dongguan. These manufacturers can see their retailer customers’ inventory levels on Taobao.com and Tmall.com, Alibaba’s two retail online shopping portals.
Once a customer’s stock falls to or below a previously identified minimum, Tao Factory recognises that change in its order processing system and starts working to fill an order for more products for the customer. By connecting retailers’ inventory levels to the factory that manufactures their products, Tao Factory frees up retailers from having to call the factory, talk to a manager and order more items, Alibaba says. Alibaba guarantees that a customer’s entire stock will be manufactured in one week or less.
Chao Yi, director of the Tao Factory program, says factories that benefit the most from Alibaba’s initiative have between 50 and 100 employees. Guangzhou Qianku Clothing Co, for example, receives more than 1 million yuan (US$162,721) in orders through Tao Factory per month, he says.
For companies looking to place orders through Tao Factory, Alibaba offers microloans, and gives these smaller business owners several months to pay back the cost of their first few orders. The maximum loan size is 1 million yuan (US$162,721), and there is no minimum.