SCHOOL OF MANAGEMENT,ASIAN INSTITUTE OF TECHNOLOGY
2010 Saurav Srivastava - 109298 Nirmalya Majumder - 109311 Kushal Sundar Shrestha - 110570 Supreeti Pradhan - 109417 Muhammad Diah - 110561 Sutthikarn Sangkawong - 109396 Niyonta Islam - 109464 1 e g a P
2. Question 1
3. Question 2
4. Question 3
5. Question 4
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Summary of the Case Introduction
The -Seven-Eleven Japan Co. case discusses about the rise of Seven Eleven in the Japanese retail store business. At present Seven Eleven can be found in almost every single country around the globe and it is one of largest super market chains in the world. The case here analyses the factors responsible for the phenomenal success of the company in the retail business with a supply chain perspective. The analysis mainly draws attention towards the supply chain strategy of the company and the performance drivers of seven eleven co. which have lead to a great balance between efficiency and responsiveness and have contributed positively towards the success of the company. Company Background
The company was established in 1973 and it had set up its first store in Koto-ku, Tokyo, in May 1974. Seven-Eleven Japan realized a phenomenal growth between the years of 1985 to 2003. During this period, the number of stores increased from 2299 to 10303. 103 03. Seven Eleven Japan represented Japan's largest retailer in terms of operating income and number of stores. In 2004, Seven Eleven accounted for 60 percent of the total net increase in the number of stores among the top 10 convenience store chains in Japan. This growth has been very carefully planned, exploiting the core strengths that seven-eleven Japan has developed in the areas of information systems and distribution systems. The company was first listed on the Tokyo Stock Exchange in October 1979. In 2004, the Ito-Yokado group was entitled as the owner of Seven-Eleven in Japan. This group also manages a chain of supermarkets in Japan and owns a majority share of Southland Company which is managing Seven-Eleven in United States. During 1985 and 2003, the number of Seven-Eleven stores in Japan increased from 2,299 to 1 0,303, annual sales increased from 386 billion to 2,343 billion yen and net income increased from 9 billion to 91.5 billion yen. In 2004, customers’ visit to Seven -Eleven was 3.6 billion
averaging almost 30 visits to Seven-Eleven annually for every person in Japan. Competitive Strategies According to seven-eleven “ filling in the entire map of Japan is not our priority Instead, we look for demand where Seven-Eleven stores already exist, based on our fundamental area dominance strategy of concentrating stores in specific ”
The growth of Seven-Eleven is the result of excellent distribution system, information, integrated store information system and variety of store services. Seven-Eleven was one of the few businesses which continued to grow even during the financial crisis of 1990s there were a number of reasons behind the exponential growth 1. Seven-Eleven was the first company to introduce point-of-sales system in 1982. 2. It had established an extensive network of franchised stores (both company owned and third party owned) which played a crucial role in its exponential growth during 1991 to 2002. The franchise network helped it in following ways Boosted distribution efficiency Improved Brand awareness Increased system efficiency Enhanced efficiency of franchise support services Improved advertising effectiveness 3 e Prevent competitors entry into the dominant area g a P
Thus franchisee network helped it increase the profitability and hence maintain its dominance.
Fiscal year ending in February (in BILLION YEN) Net Sales Revenue Ordinary Income Net Income
3. Seven-Eleven starts too emphasized more on regional merchandising to attract the local preferences in terms of food items, beverages, magazines etc. This h elped them to increase the sales. 4. Customer Focus - Seven-Eleven’s store size changed to 150 square meters from 125 square meters so that they can offer more goods to the customers. 5. Use of Technology to reduce any excess in Supply Chain - Seven eleven joined hands with NEC. This helped them to design with better information system that was ISDN enabled with e-commerce. NEC develops graphic order terminals, scanner terminals, store computer and pos register. With the help of graphic order terminal implementation seven eleven equipped itself with better visibility and networking. 6. With combined delivery system they reduced the delivery delivery time, reduced number number of vehicles. Seven Eleven was able to reduce the number of vehicles from 70 in 1974 to 11 in 1994 a reduction of 84.28%.
Seven Eleven was able to achieve t he following 1. Store assessment that increased productivity of inventories and store space within consumer interface 2. Optimized time and cost in with w ith the help of S even-Eleven replenishment replenishment 3. Efficient promotion in maximizing total system efficiency of trade and consumer promotion 4. Product introduction reflect effectiveness of new product development and introduction activities
The following are the strengths and weaknesses which were internal to Seven Eleven Strengths 1. DSD (Direct store delivery) and CDC (Combined distribution centre) makes seven eleven networking strong. 2. 3. 4. 5.
Combined distribution system saves time. Seven Eleven effectively does Micro matching of demand and supply. Seven Eleven have various Franchises which also help in str onger branding. Implementation of IT like connecting through ISDN, wide screen graphic display helps in smoothening of flow of information. 6. Seven Eleven have very effective store management and transportation system. Risks 1. Dedicated employees needed as there is a hard work for t he inventory movement. 2. Improving ability means reducing constraints is the biggest risk. 3. As seven eleven had drastically reduced the vehicles they don’t have any backup plans. If the vehicle breaks down the system of delivery breaks down. 4. Seven eleven is connected through IT systems if IT system breaks down their whole system breaks down which is the biggest risk in their networking.
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Supply chain advantage – advantage – Advantage of maintaining a lean system
One critical component of successful supply chain management (SCM) is tight integration among supply chain partners—by sharing information. Recent advances in information technology and the basic premise of SCM have contributed to the trend of information sharing. Information sharing allows the supply chain to achieve efficiency gains in various forms like lower inventories, higher service levels, lower logistics cost, and better customer satisfaction with fresh products. Types of information shared by supply chain partners are point-of-sale data (POS), sell-through data, inventory levels, demand forecasts, order status, performance measures, and production schedules. An important aspect of such information sharing is that it takes place at the supply chain level, beyond the boundary of an enterprise. A
chain management. Our key case of learning data-rich SCM is Seven Eleven Japan (SEJ) —the leading convenience store chain in Japan.
1: A convenience store chain attempts to be responsive and provide customers what they need, when they need it, where they need it. What are some different ways that a convenience store supply chain can be responsive? What are some risks in each case? Answer: As responsiveness increases, the convenience store chain is exposed to greater uncertainty. A convenience store chain can improve responsiveness to this uncertainty using one of the following strategies, especially for fresh and fast foods:
Increasing Local Capacity: The convenience store chain can provide local cooking facility at the stores and assemble food on demand. Inventory can be stored as raw material for local cooking facility. The same strategy can be seen in use at the U.S. fast-food restaurant franchise Subway w here dinner and lunch sandwiches are assembled on demand. Risk - The main risk with this approach is that t he capacity is decentralized, leading to poorer utilization of the resources. Local Inventory: Another approach can be to have all inventories available at the store at all times. This allows for the centralization of cooking capacity. The main risk is obsolete inventory and the need for extra space. If the convenience store maintains high level of inventory, it increases the holding cost that make convenience store less efficient. Risk -The inventory can be wasted, because of uncertainty of demand. In high level of inventory there is very low margin of error in forecasting, so it can increase wasted and also increase the supply chain cost. Rapid Replenishment: Another approach is to set up rapid replenishment and supply the stores with what they need when they need it. This allows for centralization of cooking capacity and low levels of inventory, but increases the cost o f replenishment and receiving. Risk – When the products are quick replenish in different location, it increase the transportation cost and capacity also increase the holding cost. Extensive use of Information System: This can help predict demands with great accuracy and also help the store decrease the associated costs with inventory replenishment like transportation cost, holding cost etc. The fixed cost of information system is very high. Risk – With the entire system heavily dependent on information systems there is a huge risk of operations goin haywire in case of network failure. The fixed cost involved is very high.
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By making strategic fit in vertical and horizontal strategies of convenience stores that can make more responsive and support to achieve the competitive strategy: If the company goes for strategic integration based on cost benefit analysis, there would be a reduction in the dependency on outside firms thus leading to a more predictable response. Risk – Financial predictions may go wrong with respect to the forward and backward integration. Facilitate the customer by location and increase in capacity: This can be achieved by having bigger stores with greater capacity and by also having more stores within same area and having a minimum distance for optimum sales for both the stores. Risk – Having too many stores too close to each can have c annibalizing effect on the stores. A Supply chain could accurate its responsiveness if it is able to improve in these criteria: - Respond to wide ranges of o f quantities demanded - Meet short lead times - Handle a large variety of products - Build highly innovative products - Meet a very high service level Highly dynamic, globalized and competitive environment, companies are under pressure to improve their supply chain strategies in order to be more responsive to customer demands. In the case of convenience stores, as this type of business doesn’t have a very certain demand, the need of having a supply chain system that can act responsively is
important for the success of the stores. One of the very important elements on a supply chain m anagement is the handling of information. The more t he information shared in between the different actors of the supply chain flow, the mo re flexible and responsive this supply chain would be. In t his case we can see how 7eleven Japan applied this whole new system based on information sharing between the shops, distributors and suppliers. This new focus gave 7eleven advantages such as saving time in placing orders, delivery process. Also advantages on demand analysis as they could see which products wer e bought and at what frequency and time, this helped them to organize the store in relation with their sales. This also permitted 7eleven to study new products entrance and costumer reactions to them.
Risks: - Irregularities and disruptions occurring at any point in the system make responsive supply chain management even more challenging. - As relying intensively on information technologies, we risk to have a major break down if a system failures - As lead time’s decreases, any malfunction of the parts will have much more impact on it. - Because the wide range of quantities demanded, the uncertainty of number of transport units is always present
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2: Seven-Eleven’s Seven-Eleven’s supply chain strategy in Japan can be described as attempting to micro-match micro-match supply and demand using rapid replenishment. What are some risks associated with this choice?
Answer: One of the very important elements on a supply chain management would the handling of information. The
more the information shared in between the different actors of the supply chain flow, the more flexible and responsive this supply chain would be. In this case we can see how 7eleven Japan applied this whole new system based on information sharing between the shops, distributors and suppliers. This new focus gave 7eleven advantages such as saving time in placing orders, delivery process. Also advantages on demand analysis as th ey could see which products were bought and at what frequency and time, this helped them to organize the store in relation with their sales. This also permitted 7eleven to study new products entrance and costumer reactions to them. But the main risk for SevenEleven is the potentially high cost of transportation and receiving at stores. Risks of micro-match supply and demand for 7eleven using rapid replenishment are:
Sensitive to regularity: Irregularities and disruptions occurring at any point in the system make responsive supply chain management even more challenging. The process from ordering t he products to selling them needs to be done accurately and on timely basis. If there is interference in any part of the process, Seven-Eleven will face a lot of difficulties. High dependence on Information System: As relying intensively on information technologies, they risk to have a major break down if a system fails. SevenEleven has attributed a significant part of its success to the Total Information System installed in every outlet and linked to headquarters, suppliers, and the distribution centers. The hardware systems included Graphic Order Terminals, Scanner Terminals, Store computers computers linked to the ISDN network and POS registers. Thus, Seven-Eleven depended heavily on its Information system and supply was matched with the demand through this technology. Even the distribution depended upon the information network and the store manager could accurately forecast sales through the system. Impact of lead time: As lead time decreases, any malfunction of the parts will have much more impact on it. Seven-eleven usually have products which are fast selling and the food products need to be fresh, so the lead time is low. Since the lead time is low, nothing should go wrong as even a small problem while ordering or receiving the product could reduce the sales for S even-Eleven. even-Eleven. Problem of too many varieties: Because the wide range of quantities demanded, the uncertainty of number of transport units is always present. Ordering various varieties of products means different ordering time for different products, so the transportation cost will be high for Seven-Eleven. Rise in cost: High Transportation cost as the products need to be r eplenished timely, maybe even even several times of the day. As mentioned earlier, Seven-Eleven has fast selling products like food and drinks which need to be replenished timely and this means products need to be delivered several times because they try to sell fresh products. This will lead to high transportation cost for Seven-Eleven. Risk of delays in replenishment: Since 7eleven does not stock up the products, delays in replenishment will be a major problem. The products which Seven-Eleven sell cannot be stocked up so replenishment should be fast and on time and any delay could hamper the sales of S even-Eleven. even-Eleven.
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3. What has Seven-Eleven done in its choice of facility location, inventory management, transportation, and information infrastructure to develop capabilities that support its supply c hain strategy in Japan? Answer: Facility location
Seven-Eleven Japan developed extensive franchise network expansion using a Marketing-Dominance Strategy to ensure efficiency. It gave Seven-Eleven a high density market presence and allowed it to operate an efficient distribution system. Seven-Eleven opened the majority of its new stores in areas with existing clusters of stores. According to the market-dominance strategy, there are six advantages: 1. 2. 3. 4. 5. 6.
Boosted distribution efficiency Improved brand awareness Increased system efficiency Enhanced efficiency of franchise support services Improved advertising effectiveness Prevented competitors’ entrance int o the dominant area
For the location, Seven-Eleven stores in Japan tended to be dense as it has limited presence. Seven-Eleven located their stores by looking at the demand where its stores already exist, basing on Area-Dominance Strategy of concentrating stores in specific areas. As the stores are easily accessible for customers, seven-eleven stores in Japan also serve as drop-off and collection points in the service of 7dream.com, its e-commerce company. Seven-Eleven tried to make its stores have many facilities to serve customers as many as possible. Inventory Management Management
Seven-Eleven Japan offered its stores a choice from a set of 5,000 SKUs (stock keeping units). Each store carried on average about 3,000 SKUs depending on the local customer demand. Since processed and fast foods contributed about 60% of the total sales at each store, Seven-Eleven Japan had 290 dedicated manufacturing manufacturing plants that only produced fast food for their stores. Economy of scale, easier to organize the resources and manage the inventory of the plant plant are the reasons why having separating plants to serve specific product or service is better. This is also the same reason as SevenMeal Service co. which was established just to serve the aging Japanese population on meal delivery. As Seven-Eleven uses many both hardware and software systems to help in managing the store information system, seven-eleven also use those collected information to analyze and update data of each seven-eleven store. Each store computer automatically updated its product master file to analyze its recent sales and stock movements. The information system allowed seven-eleven stores to better match supply with demand. Store staff could adjust the merchandising mix on the shelves according to consumption patterns throughout the day. When a new product was introduced, the decision whether to stock it was made within the first three weeks. Each item on the shelf contributed to sales and margin and did not waste valuable shelf space. According to the applying of Combined Distribution Center (CDC) in Japan and US, fresh foods suppliers will send products to the CDC during the day where Seven-Eleven will deliver to its stores at night. Therefore, the inventory turnover rate in Japan was over 50 while in North America was about 17. However, the performance of North American inventory management together with the delivery system shows an improvement.
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Seven-Eleven has a very comprehensive distribution system that linked the entire supply chain of all products. This helps them track sales of item and offer short replenishment cycle times and also allows store manager to forecast sales on each orders. Seven-Eleven has offered the store delivery services as shown below: Item Rice Bread and other fresh food Ice cream
Delivery Times per day 3x 2x Daily on Summer Three times a week other times
The delivery system was shown to be flexible and can alter delivery schedules demand on customer demands. The replenishment cycle time has also been shortened further.
The graphic order terminal helps in cutting off times for breakfast, lunch and dinner ordering. The ordering and delivery procedure system of Seven-Eleven supply chain helps on reducing the delivery time spent on each stores, the process is simplified as below:
Placing an order through the graphic order terminal, the order was immediately transmitted to the supplier and the distribution center The supplier that received orders from all Seven –Eleven stores, it will start to production to fulfill the order Then supplier sent the orders to the distribution center by truck The distribution center will assign different store tr uck accordingly to t he different store order separately Seven Eleven then employed the “combined delivery system” to their delivery on their truck. Combined delivery system literally means to directing product from different supplier into a single temperature-controlled trucks. The truck comes in four categories: frozen foods, chilled foods, room-temperature processed foods and warm foods. Each truck then made delivery to multiple retail stores. The numbers of retails stores are per truck are dependent on the sales volume. Deliveries are made off-peak hours and uses scanner t erminals when receiving.
One important features of this system is they do not require the delivery person to be present at the store, or when the sore personnel scanned in the delivery. It was a trust based system, this reduces the delivery time spent to each stores. Overtime from 1974 to 1994, the number of vehicles use for daily delivery service has been reduced from 70 to 11 because of the improving distribution system. This reduces the delivery costs and enables rapid delivery. By 2004, Seven-Eleven has 290 dedicated manufacturing plants in Japan to produce only fast food for Seven-Eleven stores while going through 293 dedicated distribution centers for rapid delivery. These distribution centers do not carry any inventory. They just transferred inventory from supplier trucks to seven-eleven distribution trucks. In USA, the distribution structure was completely different from in Japan since stores in US were replenished using Direct Store Delivery (DSD) by some manufacturers. The products which are left were delivered by wholesalers. In addition, with the goal of fresh products, they introduced the concept of Combined Distribution Center (CDC) to deliver fresh foods once a day. A variety of fresh-food suppliers sent product to the CDC throughout the day and products will be delivered to the stores at night.
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Seven-Eleven added services which involve in information infrastructure set up such as the in-store payment of Tokyo Electric Power bills, the utility bills payment including gas, insurance premiums and telephones. It accepted installment payment on behalf of Credit Company, selling ski lift pass vouchers, mail-order purchase and internet shopping payment. There is also the ticket sales service which used multifunctional copiers and being the pickup location for parcel delivery companies. All of the above service success depend on how well seven-eleven can set up and manage information between their customers and their service partners. They exploited the existing Total Information System in the store. Seven-Eleven simplify its operations by using advanced information technology. It attributed to the Total Information System installed in every outlet and linked to headquarters, suppliers and the Seven-Eleven distribution centers. SevenEleven was the first company in Japan to introduce a Point-Of-Sales (POS) system comprising POS cash registers and terminal control equipment. An Integrated Services Digital Network (ISDN) was installed. Linking more than 5,000 stores in Japan and it is one of the world’s largest ISDN systems. The two -way, high speed online communication capability of
ISDN enabled Seven-Eleven Japan to collect, process and feedback POS data quickly. Sales data gathered in each store by 11 pm was processed and ready for analysis the next morning. Seven-Eleven stores have hardware system as the following: Graphic Order Terminals for placing orders were linked to the store computer, Scanner Terminals scanned deliveries from the distribution center, Store Computers were linked to the ISDN network and POS Registers were linked to the store computer. 4: Seven-eleven is attempting to duplicate the supply chain structure that has succeeded in Japan in the United States with the introduction of CDCs. What are the pros and cons of this approach? Keep in mind that stores are also replenished by wholesalers and DSD by manufactures.
Answer : Combine Distribution Centers is methodology of supply chain, where distributors supplies the ordered products to the centralized unit of a company and then, from where company further supplies the inventories to its diverse situated outlets. With practice of CDC, the quality of the products supplied along the supply chain can be verified and control from the single centers, which reduces the supervision, and controlling cost. Pros: 1. Improved Economies of scale All the items required for the stores diversely located can be tracked to assigned distribution center, doing this leads to have economies of scale for the procurement and distribution. When products purchased in bulk from the manufacturer, it leads to enhance buyer’s power, ultimately leading to minimizing product cost along with reduction of procurement cost, where as in the procurement process, certain cost can be assumed to be hidden. Along with procurement, economies of scale can also be achieved for distribution of the products along the supply chain. 2. Supervision and Control for Products and Supply Chain With practice of CDC, the quality of the products supplied along the supply chain can be verified and control from the single centers, which reduces the supervision, and co ntrolling cost. This is another advantage of centralized distribution. 3. Enhance the information regarding the consumer behavior and buying pattern. When CDC is practiced, the information can be allocated in terms of the products supplied and consumer behavior, to enhance the sales and manipulate the information for additional benefits. The information can be utilized to promote products that depend on the demand of other products. For example, at those stores where the sale of coffee is high, we can supply additional sugar and milk that is required for the coffee. As demand sugar and milk is depended on the demand of coffee. 0
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4. Reduce the Workload at the stores. When the inventory is delivered only once a day, this shall make life easy for staff as they shall have schedule time to spend on inventory management, hence they can provide much of their remaining time completely focusing on the customer need and customer satisfaction. 5. Lower Inventory Management Cost Inventory management, is considered to be one of the difficult task in supply chain management, as to store products, provide right product at right time isn’t an easy job. Inventory management is incurs huge cost, which can be reduced by practicing CDC. When CDC is practiced, due to economies of scale, the inventory management cost is reduced. The warehouse, human resource, information system, technologies, skills can be shared in the large scale, resulting lower inventory management cost. 6. Concentrate more on Customer needs. To meet customer needs, products must be delivered just in time and only when needed. Store concentration based on our area-dominance strategy ensures efficient distribution routes, and thus m akes just in time delivery possible.
This system is intended to combine various types of goods from a variety of products and then combined in the storage center to be distributed collectively to the small shops. in prioritizing the delivery of products to area-dominant strategies in hopes of meeting customer needs. 7. Improve Distribution Distribution Efficiency Efficiency
To provide customers with worthwhile products, CDC can be use to deliver good on right time as required and minimize cost. In the concept of CDC, the efficiency of distribution is to be the main consideration in the delivery of goods. In the concept of CDC, the efficiency of distribution is to be the primary consideration in the delivery of goods. By increasing efficiency, it is naturally expected to increase profits for the company. Cons: 1. Difficult to control effectively Despite CDC as overall is very effective in the process of distributing the product, it was rather difficult to control effectively because the process dependent on one distribution center. 2. Difficulty in managing change for new Distribution System. Introducing a new distribution system is not easy to do because it takes time for adjustment, especially for middle managers and employees who are familiar with the old distribution patterns. 3. Difficulties in implementing distribution The number of products to be distributed to the shops at the same time is a little difficult for the suppliers of the product, considering the amount of the existing store is so many in the different areas. 4. Inflexible Distribution system Deliver of the inventory is made in a fixed time schedule under CDC; the supply chain cannot be modified as per change in requirement. 5. Inability to reflect customer needs. When CDC is practiced, organization need to purchase the inventory in bulk, which is advantage, but on the other side, different outlets might be reflected by different customer needs. Hence the needs of lower customer base are neglected as the demand isn’t sufficient to place an order to the vendor, to have cost advantage 6. Higher dependency When CDC is practice the outlets get dependent on the centralized warehouse, the failure to receive the inventory in time leads to lower sales for the outlet.
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7. Slower compared to DSD. CDC can be considered to be slower than DSD, because time taken by CDC to received order and deliver the goods are a lengthy process. In terms of DSD outlets can enjoy independence, they can directly place an order to the vendor and direct delivery is made by to the outlet by the vendor.
Thus we realize that by integrating the supply chain certain constraints of business can be minimized and customer service levels can be improved through extensive use of information technology systems. With the help of models like CDC and DSD incorporated better, more valuable supply chain network can be developed which help although indirectly but affect the business in subtle way . The seven eleven company in its business services used effective supply chain practices and IT infrastructure within their distribution centers enabling effective information flows and streamline supply logistics. Thus right logistics and collaborations provide imperative business operation benefits considering the majority of customers worldwide. Reference:-
http://www.scribd.com/doc/20573982/Seven-Eleven-Case-Analysis The Seven Eleven case study material.