Alibaba Makes Foray Into Manufacturing With New Digital Factory

Alibaba disclosed the opening of a new ‘made-in-cloud’ digital manufacturing factory, which the Chinese tech giant hopes will help small and medium-sized enterprises (SMEs) stay competitive in the fast-moving fashion market.

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Alibaba’s (BABA) foray into apparel manufacturing comes at a time when the Covid-19 pandemic is catalyzing an acceleration in the digital transformation of different industries, the company said. The Hangzhou-based factory, also known as Xunxi Digital Factory, will deploy Alibaba’s cloud computing infrastructure and IoT, to offer SMEs a digitalized end-to-end manufacturing supply chain for a fully-customized, demand-driven production.

Powered by new technologies such as real-time resourcing, process and cost planning, automated in-house logistics and Xunxi’s manufacturing operating system, the factory can produce small-batch orders at reasonable costs and with shorter delivery times, while boosting manufacturing efficiency from 25% to an average of 55%, the company said.

“Data is the core of new manufacturing and harnessing data insights is key to capturing new opportunities in the shift in consumer preference for personalized rather than mass-produced goods. New manufacturing transforms traditional manufacturers with data-driven intelligence and technology to move towards a more agile model of production based on real-time demand,” said Alibaba’s Alain Wu. “This allows traditional manufacturers to improve profitability and reduce inventory levels while still being able to meet these personalization needs.”

Alibaba believes that this model will provide smaller businesses and manufacturers with the capacity to benefit from the digitalization of China’s $4 trillion manufacturing market by responding better and quicker to customers’ changing needs.

Looking ahead, Alibaba plans to replicate the Xunxi Digital Factory technology model to other sectors in addition to the current focus on fashion and apparel.

The e-commerce company has already served investors well with its shares surging 31% so far this year as stay-at-home mandates during the outbreak of the coronavirus pandemic forced more and more people to shop online and change their purchase preferences. Looking ahead, the $305.83 average price target implies upside potential of another 10% in the coming 12 months.

Argus Research analyst Jim Kelleher at the end of last month raised the stock’s price target to $330 from $260 and reiterated a Buy rating, citing the company’s “solid” Q1 results and strong revenue-driving cloud computing business.

Kelleher believes Alibaba is well positioned for continued growth and market share gains based on demographics in both major and mid-tier cities as well as its ability to “leverage data from its active customer base”.

Turning to other Wall Street analysts, the bulls have it all. The Strong Buy consensus boasts 19 unanimous Buy ratings. (See Alibaba stock analysis on TipRanks).