Image source @ Visual China
Text | Titanium Capital Research Institute
Nowadays, China's consumer Internet has been at the forefront of the world, and in the field of industrial Internet and industrial Internet, there are constantly innovative technologies active on the world stage. In the future, enterprises will also rapidly iterate and upgrade, and supply chain projects have especially development opportunities.
Supply chain projects in the new era have the opportunity for rapid development: consumption upgrading has shifted to industrial upgrading, high-quality development of the digital economy, while the digital and intelligent infrastructure has been gradually completed, and the rapid iterative upgrading of enterprises has become a solid foundation for development.
Recently, Titanium Capital Investment Research Institute invited Zhang Qi, investment director of ChencaiZhi, to share the theme: Some Thoughts on Supply Chain Investment in the Era of Digital Intelligence Economy. Zhang is always a serial entrepreneur and venture capitalist; he joined Dachen in 2016, mainly responsible for the investment of pan-supply chain and industrial Internet, and his representative cases include Gino Shares, Lanwei Inspection, Beiden Technology, Jiayan Supply Chain, Jian'an Logistics, etc.
Moderator Wang Minwei, Managing Director of Titanium Capital, focuses on debt financing, semiconductors, and supply chain.
01 Background of the New Era Supply Chain Project
The background of the new era supply chain project can be summarized by three "haves".
The first is opportunity. The development of any subdivision of the track is inseparable from the external macroeconomic drive. Supply chain projects have a relatively good development at this stage.
On the one hand, there is an opportunity for external industrial upgrading. In the past, the mainland economy focused more on the direction of consumption upgrading, and in the past five or six years, industrial upgrading has become more and more prominent, and consumption upgrading and industrial upgrading are parallel, which is a new topic.
On the other hand, it is an internal digital economy opportunity, which is also in line with industrial upgrading. In addition to emphasizing basic innovation, industrial upgrading also emphasizes the application of digitalization and emphasizes high-quality development formed through the combination of digital and economic subdivisions.
The second is conditional. China's economy is huge, and many industries are the world's largest markets. Many subdivisions of industries are scattered and chaotic, scattered is the main body of the industry is relatively small, chaos is the degree of standardization of many industries is not high, and some industries still have a state of bad currency expelling good money. Scattered and chaotic caused some links to be less efficient, such as in the circulation link, which is an important basis for our pan-supply chain projects today. In such a situation, excellent entrepreneurs and investors jointly support the growth of excellent projects, so that the objective conditions for driving industrial upgrading are more mature.
The third is that there is a foundation. The development of supply chain projects in the new era requires a hard foundation and a soft foundation.
The hard foundation is that the digital infrastructure is being completed. The mainland is one of the first countries to enter the 5G era, and many of China's Internet innovations have been ahead of the United States, especially in the performance of the consumer Internet. The innovation activity of the industrial Internet in China is very strong, and the basic capabilities of the Mainland Internet of Things are becoming more and more complete, which are necessary for the development of supply chain projects in the digital age.
The soft foundation is the emergence of entrepreneurs. Many entrepreneurs with deep industrial foundation and industrial cognition are combining industrial operation with the Internet, digitalization, intelligence, new technologies, etc., to create a new model. The rapid iterative upgrading of entrepreneurs is an important soft foundation for the vigorous development of supply chain projects in the new era.
02 Classification of supply chain projects in the new era
Supply chain projects can be divided into the following three categories.
First, supply chain operation projects are divided into two types.
One is the circulation type. Circulation-oriented projects are only one type of supply chain operation project, and they are far from representing the entire supply chain project. B-to-B is actually a kind of circulation supply chain project Internet, the main feature is to sell goods from upstream through integrated solutions and finally to the downstream.
The second is the product type. Its biggest feature is: finally, the output product is the actual appearance, and the upstream is reorganized from design to production around a certain demand of the downstream in a certain subdivision of the industry.
Second, supply chain service projects.
Supply chain services revolve around supply chain processes, providing infrastructure and basic services for the supply chain to run smoothly. Typical supply chain service projects such as logistics projects, as well as supply chain finance, which have received more and more attention in the past two years, including the important branch of supply chain finance - financial technology, the application direction and the scope of its coverage are very extensive.
Third, supply chain management projects.
Supply chain management revolves around a certain industry or a certain subject, and helps the supply chain to sort out the project by formulating a process to cut into management. For example, one of the more popular directions in the past two years: SCRM supply chain management system. Including SCRM software with a high degree of customization and SCRMS with a high degree of standardization. There is also a type of supply chain management, which is composed of online systems and offline landing services.
Differences between the three types of projects
Supply chain operation projects usually cut directly into the commodity trading link, "with commodity trading as the core and selling products as the purpose".
The main feature of supply chain service projects is that they generally do not directly cut into transactions, but provide corresponding supporting support for transactions in the supply chain.
The characteristic of supply chain management projects is to sort out and optimize the supply chain behavior of an industrial entity.
The scope of supply chain defined here, including projects with the construction of industrial chains and systems as the core, can be understood as supply chain projects. Some projects even manifest as a kind of chain retail industry state, the operation of this type of chain retail is separated from the front and back end: the front-end operation is undertaken by agents and franchisees, and the company itself provides the supply chain system support of the middle and back office; so that the project can also belong to the scope of supply chain projects.
03 Evaluation and analysis of supply chain projects in the new era
In the era of the digital economy, what are the key points for investment evaluation supply chain projects?
The first key point is digital intelligence. Digital intelligence is the application of digitalization and intelligence to supply chain projects, including the digital capabilities and intelligent capabilities of the project, which should serve the target.
The goal is to provide exceptional value. Build capabilities that customers have not previously had, and strengthen what customers already have.
The second goal is to significantly improve operational efficiency. Rational and full use of digitalization and intelligence to improve operational efficiency. For example, human efficiency, sales efficiency, etc., this ability is the key to supply chain projects in the new era. When we actually examine the project, we will pay more attention to the improvement of the efficiency of project operation by digitalization and intelligent application.
The third goal is to improve the efficiency of ecological resource organization. The characteristics of supply chain projects that are different from traditional projects are that they often need to organize the resources of the entire industrial ecology, which is manifested in the profitability of the project itself and the expansion of the profit range.
The second key point is profitability.
First, we must focus on the three dimensions of gross profit margin, turnover rate and cash flow, and look at it dialectically. Gross margin, turnover, and cash flow are a triangle, and it's almost impossible to get all three at the same time.
Second, it is necessary to analyze the input period and the completion period. Many supply chain projects have a development process, and the phased investment part is similar to the capital expenditure of many traditional projects. Some traditional projects, especially asset-heavy projects, have capital expenditure cycles, and this feature is also found in some supply chain projects. Because this type of industrial project often requires the construction of some infrastructure, it will involve the investment period and the analysis of the final completion period. Therefore, when looking at a supply chain project, the judgment of its investment period and completion period should be comprehensive.
Three looks at project profitability. This often requires focusing on its underlying profitability and extended profitability. When looking at a project, the profitability corresponding to the current business model is the first stage, but often when it develops to a certain stage, there will be some extended profit points that will open up its profit space.
The third key point is the "three natures" analysis of core competitiveness. One is indispensable, the other is difficult to replace, and the third is continuous dependence. Indispensability in the industrial chain is rigid, current and future can not be skipped; difficult to replace is that after the company does, other models are difficult to replace it; continuous dependence refers to the upstream and downstream once the service is used, will form a continuous dependence, and continuously represents a certain stability. Here, it is suggested that all partners pay more attention to whether the core competitiveness has the characteristics of "three personalities".
Analyzing whether a supply chain project is a "platform-type" project can also be viewed from three dimensions.
The first is the platformization of positioning. A platform-based supply chain project is essentially the agglomeration and synergy of the industrial chain, and its core is the agglomeration of industrial resources and the improvement of digital efficiency, including professional process control. The platform often charges the platform service fee, and from the perspective of profitability, the ability to charge is determined by the value of the platform. A platform function acceptance company, its positioning should be in line with the characteristics of third-party, the essence is the agglomeration and synergy of the industrial chain.
The second is the platformization of transactions. A supply chain project whose platform properties consist of three parts. One is that it does not truncate transaction information, thus bearing the risk of transaction mismatch. The second is not to acquire the right to goods, the trading platform itself does not collect the right to goods, and does not bear the risks of inventory, cargo damage inventory and so on. Third, from the perspective of funds, do not advance funds and bear the risk of liquid turnover. Because many categories have cyclical fluctuations, prices change at any time, and the real platform transaction payment pricing is with the waves.
The third is the platformization of services. In addition to the flow of goods, the platform-based supply chain project of services around the interaction of goods often has some supporting services. The biggest feature of the platform's services is that the platform itself builds a digital supply chain scene, integrates and controls various service subjects in the industry's ecology, so as to provide relevant supporting services for the entire supply chain. Delivery refers to the logistics, financial or other types of services, through the organization of the platform for the service. Some projects are self-operated, in fact, can not be said to be a pure platform, many projects from the self-operation, the future can slowly develop into a platform, which is complementary.
04 Investment methodology for supply chain projects
We summarized the "three choices": choose the track, choose the mode, and choose the team.
The first is to choose a track. The success of many to B projects is closely related to the development opportunities and driving factors of the tracks they are in.
The drivers are analyzed. Some are market-oriented, and some are industry-policy-oriented. Some have "upgraded" the industry, which is conducive to the rapid development of related services. Some opportunities are to "squeeze" the industry, resulting in the rapid development of specific links of services. Whether an excellent project can achieve rapid development in a fund cycle depends on whether it is in the outlet, and the chasing wind depends on the current driving factors of the track.
The second is to choose the mode. I conclude it as concise, efficient and sustainable. Concise means that the project is doing very simple things, and the key points and difficulties of conciseness are often in the details. Efficiency means that the business model of the project is very efficient, such as whether it is simple or difficult to expand customers, operations, and supplier organization. Many VCs do not like heavy asset projects, an important reason is that the business model efficiency of heavy asset projects is not high enough, it has a time period of capital expenditure, and the follow-up also involves the amortization of fixed assets. From a VC perspective, we still prefer more efficient business models, including profit models.
The third is sustainability. Sustainable competitive advantage encompasses "three personalities": irreplaceability, indispensability and continued solidity. For supply chain projects, it is important to build a regional competitive advantage, because the supply chain project itself does not have particularly strong barriers, and it is necessary to continuously build a sustainable competitive advantage in the process of business development.
Finally, the team is chosen. For supply chain projects, the following three are particularly important.
1. Deep industrial base. The process of building or operating the business model of the project is the final judgment of the adjustment of the project, which depends on the deep understanding of the industry by the entrepreneur. If you do not have a deep understanding of the industry, it is very difficult to do a good job in supply chain projects.
2, good compound. In the digital age, there must be a composite team. An excellent company is often a combination of industrial talents and professional talents.
3. Strong operation and execution. Some projects may be purely technology-driven, technology research and development capabilities are very critical, for supply chain projects, most of the supply chain projects are operational, so the team's execution, operational capabilities, including the control of the rhythm, the management of operational details, are very important points for us to observe the team.
Therefore, for supply chain project investment, it is necessary to pay attention to the industrial base, the composite composition of the team, and the team's ability to execute operations.
05 Q&A
Q1: In the automotive supply chain sector, where do you see potential investment opportunities in the future? What advice do you have for companies that have been involved in the traditional automotive supply chain, auto parts, including the aftermarket?
A: The automobile industry is a particularly important industry in the national economy, and its scale is huge. A structural change is reflected in the fact that the automobile industry is changing from traditional fuel vehicles to new energy vehicles. In the past two years, the vigorous development of new energy vehicles has been particularly obvious. The new energy of the automobile industry pays attention to the power system of the car, and the intelligent focus on the driving experience of the car, we believe that from 2022 to 2025, the new energy automobile industry is still in a rising stage.
My investment advice is: the grip should fall on the main engine factory. At present, the main engine factory is still the core of the automobile industry. From the upstream of the grasp, there are many opportunities in the front of the car market; looking backwards, there will be new changes in the sales and after-sales service links. Around the concept of new energy vehicle recycling, parts need to do intelligent and electronic services, which can be expected.
Q2: Is it the supply chain project with pricing power that has investment value, is it that the upstream and downstream are scattered, and the industry with many SKUs can have pricing power? What do you think of this problem.
A: We don't just invest in projects with pricing power. First of all, circulation is an important type of supply chain project, but supply chain projects do not only refer to circulation, but also product-based projects, making products around the needs of a certain industry. According to the needs of the downstream, pay attention to design, research and development, and grasp collaborative production. This kind of collaborative production must be based on digital connection and control, and the final product is more dependent on outsourcing, and the outsourcing is different from the traditional non-digital distribution, which is distributed through digital connections. Only in this way can the quality of the product meet the requirements. Therefore, as a product-based supply chain project, this kind of project will also have pricing power and have unique value for the downstream.
Investment, must go to find a project with pricing power, pricing power does not necessarily refer to the dispersion of the two ends. The dispersion of the two ends is a very important standard, because only when the two ends are dispersed, the circulation link has a more significant industrial chain status and value. Significant industrial chain status and value will correspond to pricing power, there is also a pricing power is the category needs deep service, that is, the upstream dispersion of downstream concentration, or upstream concentration of downstream dispersion, such circulation services are not two ends scattered, but one end scattered, or both ends are not scattered. The flow through the artificial environment of the goods may also have pricing power if the service provider needs to provide in-depth service.
Q3: How to measure the gross profit margin and turnover rate of the project, VC generally? Is it strongly related to the industry, or does the platform class have some common baseline standards?
A: The profitability of a project is evaluated by three dimensions: gross profit margin, turnover rate and cash flow.
If you take only two, you often sacrifice one. Many projects only have a certain characteristic, personally believe that there is no absolute standard, the profitability of different projects is related to the profitability of the industrial chain itself. The profit space of different industrial chains themselves is different. In fact, we look at an industrial chain, and the money earned downstream is actually distributed layer by layer through the upstream division of labor. There are also some tracks with high gross profits, but slower turnover, which is essentially related to the characteristics of the track.
Q4: At present, the main demand for supply chain projects is sunshine procurement, such as Jingdong Products, etc., what do you think of this view? In the second half of last year, the supply chain-related enterprise Chaheda was listed, is its model the future direction?
A: Sunshine procurement is currently the development opportunity of some circulation categories, such as industrial product tracks, circulation industrial product supply chain companies, these two years have obtained a good amount of business development. An important reason is that enterprises have seized the opportunity of collecting platforms. For more types of supply chain projects, their development opportunities are not obvious. In some tracks, because the sunshine collection of downstream enterprises has brought development opportunities to certain projects in certain categories, the space for the development of their supply chain projects is actually very large.
Yiheda was a very representative project last year, and the valuation after the listing was also very good. Several models of the Yiheda project, for a certain aspect of the downstream demand, automated parts to create a digital system. Some categories do the circulation of third parties, and some are customized to third parties after standard integration, or outsourced systems. In addition, the factory to which Yiheda belongs can also do a part of the independent three types of business, thus forming a one-stop comprehensive solution for downstream customers, I think Yiheda's model can represent one of the future types of projects, representing a type of business, but not all future supply chain projects.
Q5: What are the core competencies of supply chain projects? What is the entry threshold or difficulty of other competitors? If the entry threshold is not high, what are the decision-making difficulties in investing in such projects?
A: Supply chain projects should focus on building sustainable competitive advantages, mainly from three dimensions.
First, how can downstream customers build a sustainable competitive advantage in the project, can the brand form a certain digital direct connection when facing customers, can it build certain barriers, or is the stickiness with customers strong enough, and the migration cost of customers is not high enough? We call this sustainable competitive advantage, which is an important dimension of judgment.
The second dimension is vendor. No matter what type of supply chain project - circulation suppliers, product collaboration suppliers, supply chain service related suppliers, supply chain management and corresponding suppliers, we must build a sustainable competitive advantage.
The third point is supply chain project operation. The operation of supply chain projects is often based on digital systems and intelligent applications, which can also build a certain sustainable competitive advantage.
Titanium Capital Research Institute observation
In the era of digital economy, from personal consumption to industrial operations, all of them are not affected by digital technology. In order to enhance their competitiveness and respond to changes in the trading environment, all walks of life are actively or passively carrying out digital transformation, and the traditional supply chain field, which accounts for a large proportion of the country's total GDP, is no exception.
In the process of upgrading and transforming the supply chain industry, it will drive the structural adjustment of the original supply chain system and the restructuring of the industrial interest pattern, and there have been and still contain a large number of investment opportunities in this process.
After the rise of sensing technology and artificial intelligence, the traditional information technology means have been unable to meet the needs of the market, the market has begun to enter the post-digital economy era, and the supply chain field with a huge market size has won the second wave of upgraded entrepreneurial and investment opportunities. How to improve operational and management efficiency, gain more market share, and increase customer stickiness through information technology and artificial intelligence has also become the focus of attention.