FirstGrid Secures Pre-A Funding from Qiming Venture Partners to Empower Medical Device Distribution with Integrated Online-Offline Solutions

Recently, VCBeat (WeChat ID: vcbeat) learned that Shanghai Shouge Network Technology Co., Ltd. (“Shouge Network”), a provider of supply chain solutions for high-value medical consumables, has completed its first round of financing (Pre-A). This round was exclusively invested by Qiming Venture Partners, a top-tier domestic investment firm, with an investment amount exceeding RMB 33 million (USD 5 million).

Shouge Network is a technology-driven startup dedicated to enhancing overall operational efficiency in the supply chain industry for high-value medical consumables. By leveraging mobile internet, cloud computing, and big data technologies, and integrating advanced offline warehouse management concepts and practices, Shouge Network provides comprehensive solutions to industry enterprises, ranging from cloud-based management software to offline physical services.

Currently, Shouge Network’s core businesses include the online supply chain management cloud platform “Yijie Cloud” and offline supply chain management services (including third-party medical device storage and distribution services).

Since the launch of the “Yijie Cloud” cloud platform in May 2017, its average monthly order volume has surpassed RMB 100 million within less than a year by this February. To date, “Yijie Cloud” has facilitated nearly 80,000 surgical procedures, with a total service value approaching RMB 2 billion. It has signed contracts with nearly 400 clients, including dozens of paying professional customers such as manufacturers and large-scale operating enterprises. On average, online orders worth approximately RMB 10 million are fulfilled through Yijie Cloud’s logistics and distribution services daily, while orders valued at around RMB 8 million are processed through its billing and settlement system.

Mr. Hu Rui, CEO of Shouge Network, stated that following this round of financing, the company will continue to focus on the research and development (R&D) and iteration of its cloud platform products, as well as the R&D and testing of intelligent devices dedicated to supply chain management. Meanwhile, while further strengthening its offline service capabilities in East and Central China, Shouge Network plans to expand into South, North, and West China, striving to gradually establish a nationwide coverage of major core regions within the next year. Its business scope will extend to supply chain management for high-value consumables in fields such as dentistry, general surgery, and medical aesthetics.

Amid the “capital winter,” what core competencies have enabled Shouge Network to attract investor interest? How has Shouge Network strategically positioned itself within the complex medical device distribution industry? With these questions in mind, VCBeat conducted exclusive interviews with Hu Rui, CEO of Shouge Network, and Zhang Lei, its CTO.

The founding team of Shouge Network boasts decades of experience in the medical device industry, having previously held executive positions at industry giants such as Medtronic, Johnson & Johnson, and GE. The founders are widely regarded as pioneers and key architects in the development of China’s orthopedics and interventional cardiology markets. Explaining their motivation for launching a startup, Hu Rui, CEO of Shouge Network, stated, “We aim to address the longstanding criticisms and challenges plaguing the supply chain management of high-value medical consumables.” This mission has become the lifeblood of Shouge Network. Following its establishment, the company conducted extensive research on enterprises across various regions, ranging from large-scale platform providers to end-user distributors. By analyzing diverse needs, pain points, and uncertainties, Shouge Network defined its strategic direction: to enter the market through orthopedics—the sector with the greatest complexities and highest management difficulties—and to introduce specialized information system management software for high-value medical consumables, filling a gap in the market.

The distribution of medical devices represents a vast market. In China, sales revenue in the medical device industry rose from RMB 114.1 billion in 2010 to RMB 370 billion in 2016, achieving a compound annual growth rate (CAGR) of 21.67%. This growth rate significantly outpaces the approximately 10% growth observed in the overall pharmaceutical market. Within the medical device sector, high-value consumables account for approximately 17% of the market, second only to medical equipment which holds the largest share. The markup on high-value consumables is particularly substantial, making their value-added potential a key breakthrough point for industry transformation.

However, the industry is plagued by numerous pain points, necessitating holistic solutions that address both internal and external environments. Merely addressing the pain points of one side without penetrating deeper into the ecosystem will only result in superficial fixes.

Taking the distribution of high-value orthopedic consumables, which is among the most complex, as an example, it is not a linear process from manufacturers directly to hospitals. Due to the high value of these consumables, the large number of product specifications, and significant variations in surgical usage, hospitals typically do not purchase them in bulk for warehouse storage. Instead, they place surgical demand orders with suppliers only after preliminary surgical needs arise in clinical departments. The supplier then arranges and delivers a complete set of surgical implants and instruments matching the clinical requirements to the hospital’s supply management department. After the surgery is completed, the high-value consumables undergo a return process. Only after this lengthy procedure can it be clearly determined which specific consumables were used for the patient in that particular surgery.

The prevalence of multi-brand operations and concurrent service provision by multiple medical institutions is ubiquitous in the industry. This protracted business workflow, coupled with a management model entirely reliant on manual processes, has become a quagmire for medical device manufacturers, sales and service providers, distributors, and hospitals alike. Every stakeholder in the industry is dissatisfied and faces urgent challenges: medical device manufacturers and importers lack precise data to inform R&D, production, and marketing decisions; distribution channels suffer from low efficiency and heightened risks; and hospitals struggle with management difficulties while facing significant latent compliance risks. Furthermore, fragmented processes hinder regulatory authorities from effectively implementing oversight, rendering product traceability unachievable.

Hu Rui stated, “The frequent inbound and outbound processes have led to management chaos and loopholes in the handling of high-value medical consumables. Often, even the owners of these companies are unclear about their actual inventory levels. Furthermore, the ongoing delivery of products to hospitals and the failure to retrieve them result in a temporary separation of material usage rights. The involvement of multiple hospitals and manufacturers only exacerbates this disorder. Therefore, we have chosen to enter this field to provide SaaS cloud-based management software for relevant stakeholders. Unlike most ERP systems, our product emphasizes process control rather than post-event data entry.”

What is process control? Zhang Lei, CTO of Shouge Network, explains: “ERP systems require users to input data after actions have been taken, whereas ‘Yijie Cloud’ proactively instructs users on what to do once data is available. This approach lowers personnel requirements while enhancing efficiency, enabling clients to calmly navigate new industry trends and challenges. During periods of rapid corporate growth, companies can confidently entrust their core operations to standardized information systems for management. Much like the transformative impact of industrial standardization on automobile manufacturing half a century ago, this marks the first introduction of a data-driven standardized process system into the circulation sector of high-value medical consumables.”

The traditional extensive management approach in the industry: Process management is carried out by key personnel such as logistics supervisors, with traditional supply chain management software serving merely as a tool. This model will soon reach its development ceiling, failing to drive customer business expansion and only increasing marginal costs. For instance, when the "Two-Invoice System" was implemented, enterprises seeking mergers and reorganizations discovered that their limited human resources could not support such expansion.

“At Yijie Cloud, we are driving a transformation in corporate management philosophy and business process reengineering. As our product implementation deepens, we gradually help clients standardize and digitize their existing processes, achieving a breakthrough from human-driven to data-driven operations. For example, after using our software for over a year, our clients have optimized everything from the organizational structure of their departments down to the placement of individual workstations in warehouses and the movement pathways of warehouse staff,” said Zhang Lei, who has nearly a decade of experience in software R&D within the internet and IT industry. “A good software solution is not defined by its development cost or the sophistication of its technical architecture; these elements merely serve to support and deliver value to customers. The greatest endorsement of our platform is that our clients’ daily operations have become inseparable from our software products.”

Internally, the goal is to break through the impasse and extricate the company from its predicament. Externally, tightening policies and the trend toward consolidation in the medical device industry are likewise forcing enterprises to undergo transformation. Traditional extensive management practices will face significant challenges in terms of compliance.

Since the promulgation and implementation of the new Measures for the Administration of Medical Device Operations in 2014, drug regulatory authorities across various regions have begun to progressively implement inspection guidelines while conducting large-scale unannounced inspections. These inspections have introduced new requirements for enterprises in all aspects of operational management. The guidelines specifically mandate that distributors of Class III medical devices must utilize computerized information management systems to enforce quality control over key processes, including initial business approval, procurement, storage, sales, and logistics. “Yijie Cloud” is designed to provide superior information system solutions for companies in the high-value medical consumables industry, particularly those specializing in niche sectors such as spine, joint, trauma, and cardiology.

“YiJie Cloud” is a SaaS software solution customized and developed for the production and distribution markets of high-value medical consumables. The system emphasizes process control at every stage and deeply integrates with the Good Supply Practice (GSP) for medical devices, organically combining practical business operations with industry self-regulation. While supporting the high-frequency and high-intensity nature of high-value medical consumable distribution, it achieves inventory control in complex scenarios, including batch number traceability and dynamic management of on-hand and in-transit inventory.

The ability to achieve end-to-end traceability is inseparable from the “infrastructure” built by Shouge Network in establishing a public database. Shouge Network’s public infrastructure database integrates multiple databases, including the Medical Device Product Registration Database, the Medical Device Operation License Database, and the UCC/HIBC Barcode Database.

Zhang Lei stated frankly, “First, we have a large-scale public foundational database at the core to support various customer businesses and data flows. We have a dedicated team of industry consultants who help customers gradually improve data quality, ensuring that standardized data is collected and used in accordance with Good Supply Practice (GSP) quality management standards before being entered into the system through the standardized process for initial operations as required by drug regulatory authorities. In the supply chain operation phase, compared to the relatively static product and enterprise registration information held by drug regulatory authorities at all levels, the MedJet Cloud platform generates greater value by integrating its vast public foundational database with customers’ dynamic supply chain data. From this perspective, we can help customers better implement product traceability and quality control, thereby reducing quality management risks at all levels within customer enterprises and their member companies.”

With the implementation and advancement of the national “Two-Invoice System” policy, the trend toward consolidation in the medical device sector has become irreversible. Under new business models and formats, traditional manufacturers and distributors are gradually evolving into manufacturers, platform enterprises, and various service providers. Meanwhile, what was once straightforward goods trading has transformed into a multitude of new service-oriented business models designed to meet end-users’ clinical needs and third-party logistics requirements.

Hu Rui stated, “Having been deeply rooted in the medical device industry for many years, our product design possesses a certain degree of foresight. Currently, calculating and measuring the value of multi-party services, along with settling service transactions, has become the new mission of Yijieyun. The newly launched Service Provider Module of Yijieyun now supports various business models, including third-party storage services, third-party distribution services, and third-party sales agency services. It enables principals to delegate diverse operations to different service providers, allows for the segmentation of service provider authorizations, and features comprehensive functionalities such as automated calculation of service fees.”

In 2018, Shouge Network began leveraging the centralized advantages of the “Yijie Cloud” platform to deploy its own self-operated offline supply chain service network across China. By transforming its previously exported standardized management capabilities into in-house competencies, the company established “smart warehouses” in the field of high-value medical consumables, gradually reducing reliance on traditional operational models and harnessing the benefits of centralization, informatization, and intelligence.

Shouge Network is actively expanding its offline presence by establishing joint ventures across various regions. To date, Shouge Network’s member enterprises have covered Shanghai, Hangzhou, and Wuhan, with its core warehouse in Wuhan having obtained the third-party medical device storage and distribution operation license issued by the Hubei Provincial Food and Drug Administration. In the future, Shouge Network will be committed to leveraging internet-based technologies and management tools, while introducing advanced technologies such as intelligent algorithms, robotics, and unmanned warehousing. By adopting new models characterized by intensification, intelligence, and even full automation, Shouge Network aims to provide offline supply chain services with broader city coverage, higher service efficiency, and superior service quality for production and operating enterprises nationwide.

In the near future, Shouge Network will gradually evolve into a platform-level enterprise for high-value medical consumables, providing an integrated platform that offers transactions of high-value consumables and professional services, as well as offline storage and logistics services, to distributors, warehousing service providers, manufacturers, and even end-user medical institutions.

Qiming Venture Partners, the sole investor in this funding round, is an investment firm focused on consumer internet and healthcare. It has participated in early-stage investments in numerous well-known listed companies and possesses unique insights into the biomedical sector. Qiming’s early-stage investment in Shouge Network represents a strategic move in the medical supply chain field. Shouge Network is poised to enhance efficiency and drive industry transformation across the entire value chain of high-value medical consumables.