"Industrial internet must be slow at first and fast later. This is a process of quantitative change to qualitative change. Once suppliers decide to do it, once a consensus is formed, the entire industry will see a sudden change. We are not far from this inflection point now."

Wei Zhe did not invest in Baturu, but he was generous with his praise.

"The inventory turnover in the auto parts industry is extremely slow, and Baturu has made a high contribution to industry efficiency," Wei Zhe believes that universal parts in repair components can be shared, and auto parts are relatively standardized assets with less sensitive inventory information, making them the most suitable industrial internet model.

At the beginning of 2019, Baturu completed a new round of financing, introducing China International Capital backed investor China International Capital Qizhi. Combined with Huaxing Capital's investment in early 2018, Baturu has completed five rounds of financing.

After the financing, Baturu rapidly expanded from the South China region to seven major war zones across the country. Its North China headquarters in Beijing had just moved to a new office before the Chinese New Year.

In the hazy state where the entire market is optimistic yet confused about industrial internet, Yibang Power had an in-depth conversation with Wang Guangshi, co-founder of Baturu, examining the success of its business model from multiple dimensions to get a glimpse of what industrial internet looks like.

The following is Wang Guangshi's oral account:

An Extremely Fragmented Market

In 2013, we officially registered Baturu in Guangzhou. I am one of the founders. Both Chairman Zeng and I have been in the auto parts trading business for more than 20 years, and he later also engaged in auto parts manufacturing.

This industry has a characteristic: the traditional auto parts industry has a ceiling and cannot grow large.

Generally speaking, sales over 100 million yuan belong to large enterprises, and over 1 billion yuan was unheard of before. Auto parts is an extremely fragmented business format. When we first started, it was relatively easy to make money, but as an enterprise, it was difficult to develop.

The biggest reason for the ceiling, we concluded, is that the traditional industry is overly dependent on professional people, completely a master-apprentice model. Once the apprentice understands the upstream and downstream, if the apprentice has a dozen repair shops in hand, basically they can go solo. Going solo is definitely more profitable than working for others, and it's enough to support a family.

This leads to the fact that after the enterprise grows to a certain extent, people split up, and because of this human fragmentation, the entire industry becomes particularly fragmented. They are all small and medium-sized enterprises, all small and medium-sized bosses.

Everyone says there are 400,000 repair enterprises, roughly 400,000 suppliers. This kind of industrial format results in extremely low efficiency, with much inventory accumulated in the circulation channel. We have some data that may not be accurate, but roughly 5 to 6 trillion yuan of inventory goods are accumulated in the circulation channel, basically enough for the auto aftermarket's three to five years of annual consumption.

The parts I mentioned do not include lubricating oil, batteries, or tires.

Standardization Breakthrough: Unified Coding

Over the years, we have been looking for a breakthrough.

Until 2012 when mobile internet came. We discovered that internet technology brought into the industry could solve the need for professional people, providing an opportunity to digitalize the industry, and based on digitalization, standardization and intelligence.

Once the human factor is removed, the industry will consolidate.

The auto parts industry is particularly suitable for transformation with internet technology. It has two characteristics:

First, there are many long-tail models, many car models, and therefore many types of parts. Each car is composed of roughly tens of thousands of parts, requiring professional knowledgeable people. Previously, those doing Toyota brands only understood Toyota parts, those doing Volkswagen only knew Volkswagen parts. People selling Volkswagen car parts didn't understand Toyota parts and couldn't sell them.

Second, auto parts are relatively standardized. Each car has a part number when it leaves the factory, and this number is actually standard, but previously no one concentrated this data for processing to form standardized products. If this data could be built into a standardized database, it could change the entire industry.

Based on this, we started Baturu.

First, we built a standardized database, allowing customers to easily and accurately express their needs; after completion, we built a trading platform, allowing parts queries and payments to be completed online. This took roughly a year and a half.

In 2015, we opened the trading platform to users, which are repair shops, with suppliers upstream, connecting upstream and downstream through the platform.

Actually, we are still in a self-operated form, but not completely self-procurement and self-sales. Rather, it's sales-driven procurement. Our inventory with suppliers is completely connected. After customers pay, we place orders with suppliers, and finally we deliver to customers.

Tackling Inventory Asset Sharing

One of the initial difficulties Baturu encountered was why suppliers would give us their inventory.

This process took quite a long time.

Initially, even if we offered cash to buy from suppliers, they wouldn't necessarily sell to us. At that time, their understanding was that we wanted a piece of the pie, but actually that wasn't the case.

In fact, we do database construction, system construction, central warehouse storage and logistics, and last-mile delivery. These collectively constitute a basic service infrastructure for auto parts supply chains that all suppliers can use to do business.

We did many things, such as finding markets for suppliers. Our earliest ground team developed repair shops and got them to use our system for procurement. Previously, suppliers found it difficult to directly connect with repair shops. Now they suddenly discovered many orders brought by Baturu.

As the order volume we brought to suppliers increased, their cooperation increased. Suppliers suddenly discovered that this format could help them do more business. When we made further requests, their cooperation was even higher.

Cooperation is like a seesaw. The more timely and accurate our delivery, the more markets we have, the higher the cooperation, the better the experience, and the more customers we get.

Why we stayed in South China for five years without expanding was actually about building this model. I personally have a great sense of achievement. I saw the work status and situation of suppliers change.

Previously, suppliers opening an auto parts company had to find people, find customers, procure goods, store, ship, and handle returns and exchanges. None of these actions could be skipped. Now, suppliers cooperating with our platform:

First, don't need to find customers—we develop terminal customers at repair shops;

Second, don't need to employ many people with professional knowledge, because our system has solved this problem. With just a simple part name, we can standardly match it to the part number. At this level, many people don't need to be involved;

Third, with central warehouse construction, suppliers don't need to manage goods. Their goods go into our warehouse, and we manage and ship them uniformly. In South China, we have a large intelligent central warehouse for all car parts, where we have parts for all types of cars.

Suppliers become focused on their essential work: studying product layout, turnover rate, and product pricing.

Core Value: Improving Efficiency, Expanding Output, Providing Services

Enterprises using our tools undergo overall changes.

Previously, they needed professional people, with high labor costs. Actually, most companies that develop to a certain extent have management capabilities that can't keep up. Only very few companies can break through the management bottleneck.

A company in Guangzhou originally could only serve the South China market. If they wanted to develop the North China market, they had to send people there to set up operations, re-establish customer channels, supply channels, and set up warehouses, etc. Now none of this is necessary. We have central warehouses in North China, we find customers, and they just need to arrange their goods. They don't even need to come.

Enterprises using tools and those not using tools will develop differences, and ultimately there will be a result. I think this may be the biggest role of internet technology or industrial internet technology in transforming traditional industries.

Some suppliers cooperating with us now know how to read data. Previously, bosses relied on intuition. Now they look at operational data: what's the transaction rate, conversion rate, how many inquiry demands were converted, what's the reason for conversion, what might be the reason for non-conversion? Then they continuously adjust.

We charge service fees based on transaction amounts.

Changes on the demand side are also very obvious. Previously, opening a repair shop, especially larger-scale ones that repair all types of cars, the boss didn't know what he should actually procure. Because whatever cars come in happen instantly, and there's no way to predict.

The traditional way required repair shops to find many suppliers one by one—find Toyota suppliers for Toyota parts, German car suppliers for German cars, corresponding with many suppliers. Add to that distinguishing product quality and authenticity, and it becomes overwhelming.

Now we are a full-car, full-category platform. Repair shops can find whatever they want to procure on the platform, and the platform is responsible for any problems. Especially since we have local partners who provide door-to-door service, with last-mile delivery, and any problems can be resolved with local partners.

We invested significant effort in building a localized partner system, providing them commissions based on local regional transaction amounts. Partners handle local customer development and last-mile delivery, addressing customers' after-sales service needs.

Currently, we set a 700-kilometer service radius, achieving next-day delivery, which is an acceptable level in the industry.

The Characteristic of B2B: Slow First, Fast Later

Last year our transaction volume was over a billion yuan, serving over 50,000 terminal repair shops.

In the auto aftermarket industry, the slow characteristic is very obvious. When we first started, we didn't expect five years to pass so quickly.

Where is the slowness? In the poor industrial foundation. Previously, suppliers all used self-defined coding, which was fine for their own use, but for us it was non-standard. We had to help them gradually standardize their transformation.

An interesting phenomenon is that larger-scale enterprises actually convert more slowly due to management inertia. Many upstream suppliers acknowledge that our tools have value, but it takes time to use them. They need to train people and gradually standardize their original systems.

The first five years we walked very painfully. You have to make suppliers believe in you and willing to try on the platform.

However, the industry is becoming increasingly fast. Industrial internet must be slow first and fast later.

This is a process of quantitative change to qualitative change. Once suppliers decide to do it, once a consensus is formed, the entire industry will see a sudden change. We are not far from this inflection point now.

After completing South China and moving to North China, we don't need to repeat a five-year journey. North China suppliers, after communicating with South China suppliers, quickly cooperate with us. Our North China warehouse system construction and supply capacity building are much faster than South China.

Last year we expanded from South China, starting nationwide coordination with seven warehouse layouts. Last year we opened central warehouses in three regions: East China, Central China, and North China. This year we will expand to Chengdu in Southwest, Northwest, and Northeast, basically completing 700-kilometer coverage for each region.

Warehouses, as basic service infrastructure, allow suppliers to trade on my platform and enter my warehouse. For those not trading on the platform, they can use my warehousing and logistics and my partners by paying a fee.

The first five years we did transactional B2B. The next five years we want to do transactional plus service-oriented.

What does service-oriented mean? For example, for repair enterprises, what we currently satisfy is supply chain needs, but they also have talent, technology, and financial needs, etc. We will, based on the upstream and downstream connection platform established through transactions, leverage synergies and deliver more social resources to users, satisfying their needs beyond procurement.