Physical Circulation

Unit 3

Physical Circulation

Juan
6 min read
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The Fourth Law of Value
Table of Contents

The Equation, Defined for Ecommerce

We use the 4th Law of value for Ecommerce as physical transportation of goods:

Vl4,t = k · Pt · γt

We redefined these in marketplace terms:

Symbol General Meaning Ecommerce Meaning
Vl4,t Exchangeable value realized at time t Platform fee revenue actually captured at time t
k Fair Exchange Coefficient Take rate — Shopee’s commission + service/payment fee (%), fixed by policy
Pt Consolidated Price / economic output Throughput-capable GMV — units of deliverable inventory × unit price (not just listed stock)
γt Circulation Coefficient Demand-to-fulfillment ratio = Demandt ÷ Effective Supplyt, where Effective Supply = warehouse stock actually reachable by logistics

With the saturation correction for γ > 1 (since demand beyond logistics capacity can’t convert to real revenue, only to lost sales):

γ′t = γt for γt ≤ 1 γ′t = 1 + α·tanh(γt − 1) for γt > 1

The practical revenue formula becomes Vl4,t = k · Pt · γ′t, and the gap between the raw and capped version is the revenue leakage caused by logistics blockage.

Example Data Table

Assumptions: k = 5%, unit price = ₱350, α = 0.6

Scenario Demand (units/day) Effective Supply (units/day) γt γ′t (capped) Pt (₱) Naive Revenue (₱) Effective Revenue (₱) Leakage (₱) Diagnosis
A — Dead stock 100 800 0.13 0.13 280,000 1,750 1,750 0 Severe undercirculation
B — Slow mover 300 700 0.43 0.43 245,000 5,250 5,250 0 Undercirculation
C — Healthy 480 500 0.96 0.96 175,000 8,400 8,400 0 Balanced flow
D — Tight but okay 550 500 1.10 1.06 175,000 9,625 9,275 350 Balanced (edge)
E — Viral spike 1,200 500 2.40 1.84 175,000 21,000 16,100 4,900 Overcirculation
F — Full blockage 1,500 300 5.00 1.98 105,000 26,250 10,395 15,855 Severe overcirculation

Reading the table:

  • A & B (γ < 0.85): goods aren’t moving — candidates for flash sales, ad boosts, or seller markdown incentives.
  • C (γ ≈ 1): the target zone — hold current allocation.
  • D is a soft warning — γ just past 1, leakage still small but worth watching.
  • E & F (γ » 1): demand is real but logistics can’t deliver it — this is where courier/warehouse capacity fixes recover the most revenue per peso invested, since leakage in scenario F (₱15,855) dwarfs anything undercirculation loses.

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