Sep 21, 2020

Alibaba to ramp up digital transformation in China’s US$4 trillion manufacturing sector

By South China Morning Post

Alibaba Group Holding, which runs the world’s biggest e-commerce platform, aims to provide small companies with an advanced digital manufacturing infrastructure that could help transform how China produces and brings goods to market.

Hangzhou-based Alibaba unveiled its New Manufacturing pilot on Wednesday with the introduction of Xunxi Digital Factory, which has initially offered small and medium-sized enterprises (SMEs) in the apparel industry a cloud-based production supply chain that can respond quickly to shifting consumer trends.

“Data is the core of New Manufacturing, and harnessing data insights is key to capturing new opportunities in the shift in consumer preference for personalised, rather than mass-produced,

goods,” said Alain Wu, chief executive of Alibaba’s Xunxi, in a statement on Wednesday.

New Manufacturing – part of the “Five New” strategy introduced by Alibaba founder Jack Ma in 2016 – connects manufacturing-related data and consumer insights with factory production and management systems to enhance efficiency. As the world’s production hub, China accounted for 28 per cent of global manufacturing output in 2018, according to data from the United Nations.

“This allows traditional manufacturers to improve profitability and reduce inventory levels, while still being able to meet these personalisation needs,” said Wu, referring to how SMEs would benefit from the digital transformation of China’s more than 30 trillion yuan (US$4.4 trillion) manufacturing sector.

The latest initiative by Alibaba, parent company of the South China Morning Post, comes as China emerged as the first major economy to rebound from the coronavirus shock, posting 3.2 per cent growth in the second quarter after a 6.8 per cent contraction in the first three months of this year.

Questions, however, remain as to whether that momentum can continue in the second half amid the ongoing threat of Covid-19 and with US-China relations at an all-time low.

Xunxi, which means fast rhino, is expected to help empower the digital transformation of more companies in manufacturing as well as other industries in China. The Five New strategy initiated by Alibaba’s Ma also includes New Retail, New Finance, New Technology and New Energy.

Apparel, one of the largest categories on Alibaba’s online retail marketplaces in China, was identified as the starting point for Xunxi because the sector is beset by lengthy production cycles and high inventory levels, according to the company.

Powered by technologies such as process and cost planning, automated in-house logistics and Xunxi’s own manufacturing operating system, the factory is able to produce small-batch orders at a reasonable cost and with shorter delivery times, consequently increasing manufacturing efficiency from 25 per cent to an average of 55 per cent, according to Alibaba.

Xunxi, which started operations in Hangzhou in August 2018, has already collaborated with merchants, live-streaming broadcasters and street wear designers on Alibaba’s Taobao Marketplace and Tmall platforms.

Still, it remains to be seen how fast Xunxi can convince more SMEs to adopt its smart manufacturing capabilities amid the disruptions caused by the Covid-19 pandemic in China and around the world.

In July, Alibaba chairman and chief executive Daniel Zhang Yong said the company aims to serve two billion customers globally, while creating 100 million jobs and helping 10 million small businesses on its platform become profitable through infrastructure support by 2036.

Image via South China Morning Post

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