An Alibaba program lets small web retailers order small quantities from factories
April 6, 2015 01:31 PM
Sales are up on 1688.com, Alibaba Group’s business-to-business e-commerce site for connecting China-based suppliers with retailers within China. One reason is that suppliers are offering their customers more flexible ways to place small and customized orders through Alibaba’s Tao Factory program.
The program, which is geared toward retailers who also sell through Alibaba’s Taobao.com and Tmall.com retail e-commerce sites, also lets retailers apply for loans to purchase merchandise. It also includes a system through which suppliers automatically replenish a retailer’s inventory of particular products when they fall below specified levels. Alibaba declines 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 $22.7 billion; a year-earlier figure was 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, Alibaba says. This is especially handy for retailers looking to offer big discounts on high-traffic online shopping days such as Singles’ Day, a big shopping holiday that occurs every Nov. 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% from $5.8 billion a year earlier.
Minimum order size through Tao Factory is just 30 units. The small number allows retailers to test demand before ordering hundreds of items, minimizes the risk of overstocking a product and eliminates overhead storage costs, Alibaba says. Outside of the Tao Factory program, most factories require a minimum order of 5,000 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 maximize their sales opportunity and minimize 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 recognizes 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. A factory named Guangzhou Qianku Clothing Co. 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. Maximum loan size is 1 million yuan (US$162,721), and there is no minimum.
A hardware manufacturer, Haining Yanguan Shuangsheng Hardware Factory, says it used a loan from Alibaba through Tao Factory to stock up on raw materials while the price was down, and was able to save money and avoid an eventual price hike.
Other companies in China take a more home-grown approach.
Guang Zhou Huimei, a manufacturer of apparel that retails its own products online at Inman.com.cn and through Alibaba’s Tmall marketplace at Inman.tmall.com and Chuyu.tmall.com, owns and uses its own factories to automatically respond to low inventory levels and order small, test amounts of a product as a way to avoid overstocking items that prove unpopular. Huimei pays close attention to feedback from customers, and introduces 30 new products every week based on that feedback. Huimei ranks No. 45 in the Internet Retailer China 500, which ranks companies on their annual web sales in China.
Huimei produces a small quantity of each product at first, then places additional orders when the product performs well. The company founder, Fang Jianhua, solicits feedback by posting new products to Chinese social media platforms, such as WeChat, and every week invites customers to vote for their favorite designs. Based on the responses, Fang adjusts the orders it places with suppliers. Fang says, because he can efficiently predict trends based on customer data, he turns over his inventory about every 50 days, about twice as fast as other apparel retailers in China.
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