Case StudY

Seven-Eleven JaPan Co.

Established by Ito Yokado in t973' Seven-Eleven Japan

set up its lrst store in Koto-ku' Tokyo' in May 1974 The

comiany was first listed on the Tokyo Stock Exchange in

Octotei t SZS. On September l, 2005, Seven & i Holdings

Co. Ltd., was established as the holding company for

Seven-Eleven Japan- Ito-Yt-rkado. and Denny's Japan' As

a result, detailed financial results for Seven-Eleven Japan

have no{ been available since then and are only reported

as the convenience store portion of Seven & i Holdings'

Seven-Eleven Japan realized a phenomenal growth

between 1985 and 2009. Du ng that period, the number

of stores ircrea'sed fro m2,29 to 12,753 and annual sales

increased from 386 billion to 2,?85 billion yen in Japan'

Globally, the firm had over 40,000 convenience stores by

January 201 1 and was tlre world's largest chain in terms of

retail outleLs. Global revenues for Seven & i from conven-

ience store operations were 1'968 billion yen in 2009 with

an operating income of 183 8 billion yen' The ltrm was

present in 38 of Japan's 4? prefectures and opened 966

sores in Japan while closing 5l i stores in 2009' Customer

visits to Seven-Eleven outlets totaled 4 l bitlion in 2007'

averaging almost 35 visits lo a Seven-Eleven annually for

every penon in JaPan

Company History and Profile

Both lto-Yokado and Seven-Eleven Japan were founded

by Masatoshi Ito. He started his retail empire after

*otlA W"t lI, when he joined his mother and elder

brorher and began to work in a small clothing store in

Tokyo. By 1960, he was in sote control, and the single

store had grown into a $3 million company After a tnp

to the United States in 1961, Ito became convinced that

suDerstores were the wave of the future At that time'

Japan was still dominated by mom-and-poP stores' Ito's

chain of superstores in the Tokyo area was instantly pop-

ular and soon constituted the core of lto-Yokado's retail

oDerauons.h 1972, Ito first approached the Southland

Corporation about tie possibility of opening Seven-Eleven

Prcsutti, William D., Jr.' ancl John R' Mawhinncy "Thc Supply

Chain-Finance Link'' Srl/'/tv ChditI ManaSlnettl Revie\t

(Septcmber 2007): 32-38.

Slone, Rcuben E., J Paul Ditttnan, and John T Mcntzcr lie rVerv

Supply Chain Agenda: Th? Fivc Stcps thal Drie R?dl vulue

Bostont HaNard Busincss Press, 20 lu'

convenience stores in Japan. Aftcr rejecting his initial

request, Southland agreed in 1973 to a licensrlg agree-

ment. ln cxchange for 0.6 percent of total sales, Southland

gave Ito exclusive rights throughout Japan ln May 1974'

the first Seven-Eleven convenience store oPened in Tokyo'

This n€w concept was an immediate hit in Japan'

and Seven-Eleven Japan cxperienced (remendous

growth. By 1979, there were already 591 Seven-Eleven

itores in Japan; by 1984' there were 2,001' Rapid growth

continued (Table 3-2), resulting in 12,753 stores by 2009'

On October 24, 199O' the Southland CorPoration

eotered into bankruptcy protection. Southland asked for

Ito-Yokado's help, and on March 5, 199l,IYG Holding

wrs formcd by Sevcn-Eleven Japan (48 percen() and

Ito-Yokado (52 p€rcent). IYG acquired 70 percent of

Southland's common stock for a t'otal price of $430 million'

60 Chapter 3 '

Marien, Edward

SupplY Chairr

60-6lJ.O'Marah, Kevin

Suppll,Chairtl6-22.

Supply Chain Dtivcrs and Metrics

J. "The Four Supply Chain Enablers"

Mdntgement Reri{,lt (March-APril 2000):

"Thc Tirp 'lwenty Five Supply Chains "

Mdnagement Revier' (Septernbcr 2007):

Numberof Annual Sales

stores (billion Yen)

1914

1979

1984

1989

1994

1999

2000

2001

20022003

20042005

2006

2007

2008

2009

15

801

2,2993,954

5,905

8,153

8,6029.060

9,69010,303

10,826

11,310

11,735

12,034

12,298

12,753

o.7109.8

386.7

780.3'1,392.3

1.963.9

2,046.6

2,114-O

2,213.2

2,343.2

2,440.8

2,494.1

2,574.3

2,762.5

2,7A4.9

('haptcr.j . Supply ('hain Drivcrs rnd Mefrics 61

For Fiscal Years gnding February 28/29 2008 2009 2010

Total revenues (billion yen)

Total operating income lbillion yen)

Convenience store revenues (billion yen)

Convenience store operating income (billion yen)

5,752.4281.9

2,395.7201.0

5,649.9 5,111.0

281.9 226.72,304.7 1,968.6

213.4 183.8

In 2005, Seven & i Holdings was establishedthrough a stock transfer combining Seven-Eleven Japan,

Ito-Yokado, and Denny's Japan. ln 2009, convenience

store operations from Seven-Eleven Japan and othersubsidiaries in North America and China contributed38.3 Errcent of total revenues from opcrations and 80.9percent of operating income for the Seven & i HoldingsCompany (see Table 3-3 for details). The relativeperformance of convenience stores within Japancseoperations was even more dominant. The drop in ftnan-cial performance in 2009 relative to 2008 was attributedlargely to the drop of gasoline prices in North Americaand the skonger yen. The discrep:ncy between Tables 3-2

and 3-3 results because Table 3-2 reports sales (at bothcompany owned and franchised stores), whereas Tablc3-3 reporls revenues for only Seven & i.

The Convenience Store Industry and Seven-Eleven in Japan

The convenicnca store sector was oDe of the few business

arcas that continued to grow during the prolonged slow-down in Japan toward the end of the 20D ccntury and the

start of the 2 I sr century. From I 99 I to 2fi)2, the number of

convenience stores in Japan increascd from 19,603 toalmost 42,000. As a perccntage ofall retail stores in Japtur,

this representcd an increasc liom 1.2 perccnt to 3.2percent. During that pcriod, annual sitles at convcnienccstores more than doublcd, from just over 3 trillion to 6.7trillion yen. As a percentage ofall retail sales in Japan, thisreprescnted an incrcase fronr 2.2 perccnt to 5.0 pcrcent.

Japan's convenicncc store secto. graduallyconsolidated. with larger players growing and srnallcroperators shutting down. In 2004, the top l0 conveniencestore chains accountcd for approximately 90 percent ofJapan's conveniencc sknes. As the chains improved theiroperating structures and bclter lcveraged economies ofscale, smaller operators fbuncl it hitrd to compete.

Scven-Elcven Japan had increased its share of the

convcnicnce storo markct sincc it oocned. In 2008.Scven-Eleven was Japan's leading convenience storeoperator, accounting for 34.3 percent market sharc in the

convcnience store segnrent. Scven-Eleven was very

eflective in terms of same-store sales. In 2004, average

daily sales at the four major convenience store chainsexcluding Seven-Eleven Japan totaled 484,000 yen.

Seven-Eleven stores, in contrast, had daily sales of647,000 yen-more than 30 percent higher than thecompetition put together. By 2009, average daily sales at

Seven-Eleven Japan stores had declined somewhat to616,000 yen. In 2004, Seven-Eleven's operating incomeof 165.7 billion yen positioned it as a leader not only ofthe convenience store sector but also of Japan's retailindustry as a whole. In terms of growth, its performance

was even mcre impressive. In 2004, Seven-Elevenaccounted for 60 percent of the total net increase in thenumber of stores among the top l0 convenience store

chains in Japan- This growth had bcen carcfullyplanned, exploiting the core strengths that Seven-ElevenJapan had developed in the areas of infbrmation systems

and distribution systems.

The Seven-Eleven Japan Franchise System

Seven-Eleven Japan developed an extensive franchise net-

work and performed a key role in the daily operations ofthis network- The Seven-Eleven Japan network inoludedboth company-owned stores and third-pany-owned fran-chises, In 2fiX, foanchise commissions accounted for more

than 68 percent of revenue from operations. To ensure cffi-ciency, Seven-Elevcn Japan based irs fundamental network

expansion policy on a markct-dominance strategy. Entryinto any new m:rket w:Ls built around a cluster of 50 to 60

stores supportcd by a distribution centcr. Such clusteringgave Seven-Eleven Japan a high-density market presence

and allowcd it to operate an efficient distribution system.

Seven-Eleven Japan, in its 1994 annual report, listed thc fol-lowing six advantages of the markeGdominance strutegyi

. Boostcd distribution efficiency

. Improved brand awareness

. Increascd system efficiency

. Enhanced efficiency of franchise support seryices

. Improvcd advertising effectivenr:ss

. Prevented compctitors' entrance inlo the donlinantaret

62 Chirptcr -l . Srrppll'('hain L)rivers and N'lellics

Adhering to its dominant stratc-qy, Sevcn-ElevcnJapan opcned tho maiority ol its new stores in areas

with existing clusters of stores. Rrr exanple, the Aichiprefccturc. whcre Sevcn Elevcn bwan,rp\'nin! slorcs in

2002, saw a large incrcasc in 2004, witlt 108 ncw storc

openings. This represented more than l5 perccnt of the

new Sevcn-Elcven stores opcned in Jrpan that year.

Seven-Elevcn had a linited gcog,raphic prescncc

in Japan. In 2009, the conrpany had s(orcs in about 80perc(rrt (3? of 47) of thc prefectulcs within Japan.Howcver, within prefectures where they were present,

stores tended to be dcnsc, As the 200'1 annual reportstated, "lrilling in the entire rnap ol Japan is not ourpriority. lnstead, wc look for demand where Seven-Eleven stores already cxist, based on our fundamentalarea-dominance strategy of coDcentrating storcs inspecific areas."

With Seven-Elevcn lianchiscs being highlysought after, fewer than onc of 100 applicants was

awarded a fianchise (a testament to store profitability).The franchise owner was retluired to put a significantanount of monoy up front. Half of this amount was

used to prepare the store and train the owner. The restwas used for purchasing thc initial stock for the storc.

ln 1994, 45 percent of total gross profits at a store wentto Scven-Elcven Japan, and the rest went to thc storeowner. The responsibilities of thc two partics wcre as

follows.

Seven-Eleven Japan responsibilities:

. Devekrp supply and merchandise

. Provide the ordering system

. Pay for the system operation

. Supply accounting services

. Provide advertising

. Install and remodel facilitie.,

. Pay 80 percent of utility costs

Franchise owner responsibilities:

. Operate and manage store

. Hire and pay staff

. Order supplies

. Maintain store appgarance

. Provide custolner service

Store lnformation and Contents

Seven-Elevcn had 12.753 stores in Japan as of 2009 (see

Table 3-2). In 2004. Scven-Eleven Japan changed thestandard sizc of new stores fronr 125 squarc meters to

Percentage of Total Sales

Processed foods

Fast foodsFresh/daily toods

Nonfoods

28.3

27.4

12.1

32.6

150 square metcrs, still significantly snlallcr than the

size of Dost U.S. 7 Elevcn stores. In 2009, daily sales at

a store averagcd 613,000 ycn (about Xi?,558 in March201 | at an cxchangc ratc of about 8l yen to a U.S. dollar), which was almost twice the averagc at a U.S. store-

Seven-Eloven Japan offered its stores a choicefrom a set of 5,00) SKUs. Each store carried on average

about 3,000 SKUs dcpending on local customerdemand. Seven-Elevcn Japan emphasized regional mcr-chandizing to cater precisely to local preferences. Each

store carricd food items, beverages, magazines, and

consumer items such as soaps and dctergents. The rcla-tive sales across product categories in 2009 for Sevcn

Elcven Japan arc given in Table 3-4.The food items were clnssified in lbur broad cate

gories: (l) chillcd-temperature iterns including sandwich-es, delicatessen products, and milk; (2; wam-temperatureiterns including box lunches, ricc balls, and lresh brcad;(3) frozcn itcms including ice cream, frozcn fotxis, and ice

cubes; (4) and rcxrm-tcmperature items including canned

food, instant noodles, and scasonings. Prosessed food and

fast-food items were big sellers for the stores. ln 2009,

Focessed and fast foods contributed about 55 percent ofthe total sales at each store. More than I billion rice baltswere sold in 20O4: this amoutlted to each Japauresc cilizeneating approximately eight Scven-Eleven rice balls a ycar.

Thc top-selling products in the fast-food category wcrelunch boxes, rice balls, bread-based products, and pasta.

As of February 20O4, Seven-Elevcn Japan had 290 dedi-cated manufacturing plants that produced only fast f(rcdfor their stores.

Other products sold at Sevcn-Eleven steres includ-ed soft drinks, nutritional drinks, alcoholic bevcragessuch as becr and wine, gamc soltware, rnusic CDs, and

magrzines.Seven-Eleven was fbcused on increasing the num-

ber of original items that werc available only at theirstores. ln 2004, original itcrns accounted for roughly 52

percent of total store sales. In 200?. Scven & i launched

Scven Prcnriurn plivatc brand products for sale al its

stores. By February 2010, Sev{rn Premium off-ered

1.035 SKUs. and this number was expected to grow ln

the future. Private brand products were sold across all

storg formats and were viewed by the complny as an

imponant part of the expansion of synergies across its

vari(,us retail formats.

Store Services

Besides proclucts, Sevcn-Elevcn Japan gradually added a

variety of services th4t customcrs could obtain at its

stores. The tirst service, added in October 1987, was the

in-store payment of Ttrkyo Elcctric Power bills. The

company later cxpanded the sct of utilities for which

cusk)mcrs could pay their bills in the stores to include

gas, insurance premiuns, and tclePhone. With more

convenient operating hours and locations tian banks or

other financial institutions, thc bill payment servlce

attracted millions of additional customers every year' In

April 1994, Seven-Eleven Japan began accepting install-

ment paynlents on behalf of credit companies lt startcd

selling ski-lift pass vouchers in November 1994' ln

1995, it began to accept payment lor mail-ordcr purchas-

es. This was expanded to include paynent for Internet

shopping in November 1999. In August 2000, a meal

delivery scrvice company, Seven-Mcal Service Co Ltd '

was established to servs the aging Japanese population'

Seven Bank was sct up as the core opcratlng company

for Seven & i in financial services. l3y 2009, virtually

evcry Seven Eleven Japan storc bad an ATM installed

with Seven Bank having morc than 14'000 ATMs Thc

company averaged I 14 transactions per ATM per day'

Other scrvices offered at sbres include photo-

copying, ticket salcs (inclucling baseball games, cxpress

buses. and music concerts) using multifunctional

copiers, and bcing a pick-up location for parccl delivery

companies that typically do not leave the parccl outside

if the customer is not at holDc. ln 2010' the convcnience

skxes also started oflcring some governmenl servlces

such as provitling cerlificates of rcsidencc. Thc major

thrust for offering thcse servicus was to take advantage

of thc convenient locations of Scven-Eleven stores in

Japan. Besidcs providing additional revcnue, thc servic-

os also got customors to visit the stores more frequently'

Scveral of thcse scrvices cxploited the existing Total

Information Systetn (see tcxt fi)llowing) in the store

In Febrtrary 2000, Seven-Eleven Japan established

?dream.com, an e-conlmerce company. Thc go'll was to

oxploit the existing clistribution system and the facl that

storcs wcte casily acccssible to most Japlness Stores

servcd as drop olT and collection points lbr Jrpanese

Chuplcf J ' SLrpply ('haiD Drilers irDd \4clrics

customers. A survey by esBook (a joint venture among

Softbank, Seven-Eleven Japan, YahoolJapan, and

Tohan. a publisher) discovered that 92 percent of iis cus-

tomers preferre<i to pick up their online purchases at thc

local convenience store, rather than have them delivered

to their homes. This was understandable given th€

tiequency with whieh Japanese customers visit their

lcral convenience store; Tdream hoped to build on this

prefereDce along with the synergies from the existing

distribution system.In March 200?, Seven-Eleven Japan introduced

"Otoriyose-bin" or Internet shopping The servica

enabletl customers to buy products that were typically

not available at the retail stores. Customors were alk)wed

to ordcr on the Web with both pick-up and payment at

Seven-Eleven stores. There was no shipping fee charged

for this service. Thc company built Seven Net Shopping'

its lntcrnet site aimed at combining the group's stores

and Intemet services. In April 2007, "nanaco" elechonlc

money was otTered in Seven-Eleven stores. The service

allowed customers to prepay and use a card or cell phone

to make payments. 'fhe service was offered as a convcD-

ience to customers making small purchases and was also

a reward system offering one yen worth of points tbr

every 100 yen spent by thc customer. By the end of

2007, nanaco was used by customcrs to make more than

30 million payments each morth.(;ivcn Japan's aging population and an increase in

thc number of womcn working outside thc home (Seveo

Eleven (slimatcd that in 2009 nrore than 70 percent o[

women ir their 40s worked outside the home), Seven

Eleven wanted to exploit its "close by convenient stores"

t.r better.cne ils cuslotners. Thc company atlcmpled to

do this by offcring "meal solutions" that speeded up

cooking at honte and services like "honte meal delivcry-"

Seven-Eleven Japan's Integrated StoreInformation System

From its sta . Seven-Eleven Japan soughl k) sirnplify its

opera(ions by using advanccd inftlnnation technology

Sevcn-Eleveu Japan altributed a significant part oi its

slrccess to the Total Information System installed in

every eutlet and linked to headquarters, suPplicrs, and

lhe Seven-Eleven distlibution centcrs. The first online

network linking fic head officc' stores, and vendo$ was

establishecl in 1979, though lhe cornpany did not collect

poinrof-sales (POS) intbrmation at thal tirne ln 1982,

Scven-Eleven became thc first company in Japan to

inlrrrducc a POS srstcm culnPrising POS cash reAi\ler\

and tcnninal control cquipment. In l9li5. thc company

._:i'!

:l

i

)

I

I

,s

64 Chapter I ' Supply Chain Drivers and Mctrics

developed, jointly wilh NEC. personal compulers using

color graphics that were installed at gach store and

linked to the POS cash registers, These computers were

also on the net)vork linking the store to the head office as

well as the vendors Until July 1991, head oflice' stores'

distribution cente$, and suppliers were linked only by a

traditional analog nelwork Al that lime' an integraled

services digital network (ISDN) was installed Linking

more than 5,000 stores, it became one of the world's

largest ISDN systems at lhat lime

The two-way, high-speed, online commumcahon

capability of ISDN enabled Seven-Eleven Japan to col'

lect, process, an<t feed back POS data quickly' Sales data

gathe;ed in each store by I l:0O r'r'''r' were processed and

ieady for analysis the next morning ln 199?, Seven-

Eleven Japan introduced its fifth generation of the Total

lnformation System' which was still in use in 20O4'

The hardware system at a 1994 Seven-Eleven

store included the following:

. Graphic order terminal: This was a handheld

device with a wide-screen graphic display, used by

the store owner or manager to place orders The

items were recorded and brought up in the order in

which they were arranged on the shelves The

store manager/owner walked down the aisles and

placed orders by item. When placing an order, the

storc manager had access (from the storc comput-

er) to detailed analysis of POS dat related to the

particuldi item. This included sales analysis ofproduct categories and SKUs over lime. analysis-of

waste, lO-week sales trends by SKU' l0-day

sales trends by SKU, sales trends for new prod-

ucts, sales analysis by day and time, list of slow-

moving items, analysis of sales and number of

customers over time, contribution of product to

sections in store display, and sales growth by

product categories, The store manager used this

information when placing an order, which was

antered directly into the terminal- Once all the

orders were placed. rhe lerminal was retumed to

its slot, at which point tbe orders were relayed by

the store computer to both the appropriate vendor

and the Seven-Eleven distribution center'. Scanner terminal: These scanners read bar

codes and recorded invenlory' They were used to

receive products coming in from a distribution

cenler, This was automatically checked against a

previously placed order' and the two were recon-

ciled. Before the scanner terminals were rntro-

ducad, ftuck drivers waited in the store until the

delivery was checkecl. Once they were introduced'

the driver simply dropped the delivery in the store'

and a store clerk .eceived if at a suitable time when

{here were few custonters The scanner lernlinals

were also used when examining inventory at

stores.. Slore computer: This linked to the ISDN net-

work, the POS register, the graphic order terminal'

and lhe scanncr terminul. lt communicated among

thc various input sources. traeke''l slorc inventory

and sales, placed orders' provided detailed analy-

sis of POS data, and maintained and regulated

store equipment.. POS regkter: To better unde$tand the function-

ing of this information network, one needs to con-

sider a sampling of daily operations Assoonasa

customer purchased an item and paid at the POS

register, the item information was retrieved from

the store computer and the time of sale was auto-

matically recorde<1. In addition' the cashier record-

ed the age and sex of the customer. To do this, the

cashier used hve register keys for the categortes:

under-13, 13-19, 20-29,30 49, and 50+' This

POS data was automatically transmitted online

to a host computer. All sales data oollected by

I I :00 P.M. were organized and ready for analysis

by the text moming. The data were evaluated on a

company-wide, district' and store basis'

The analyzed and updated data were thsn sent

back lo the Seven-Eleven Japan stores via the network'

Each store computer automatically updated its product

master file to analyze its recent sales and stock move-

ments. The main objective of the analysis was to

improve the ordering process. All this information was

uuuilubl" on the graphic order terminal used for order

Dlacement.The information system allowed Seven-Eleven

slores to better match supply with demand' Store staff

could adjust the merchandising lnix on the shelves

according to consumption patterns throughout tbe day'

For example, popular breakfast items were stocked earlier

during the day, while popular dinner items wcre stocked

later in the evening. The identification of slow and

nonmoving items allowed a store to convert shelf space

to introduce new items. More than 50 percent qf the

items sold at a Seven-Eleven store changed in the course

of a year. This was due partly to seasonal demand and

parlly ro new products When a new product wa\

introiuc"d, the decision whether to continuc stocking it

was made wilhin the first lhrcc wcek\. Each item on th(

shelf contribuled to salcs and nlargin and did not wastcvltluablc shell space.

Seven-Eleven's Distribution System

The Sevcn-Elevcn distuibution sysrem tighrly linked theentire supply chain for all product categories. The disrri-bution centers and the infonnalion network played a keyrole in thal regard. The major objective was to carefullytrack sales of itcurs and offer shori replenishment cycletimes. This allowed a store manager to forecast salescorrespqrding to each order accurately.

Frorn March 1987, Seven-Eleven offered three-times-a-day store delivery of all ricc dishes (which com-prised most of the fasrfood items sold). Bread and otherfrcsh food were delivered twice a day. The distributionsystem was flexible enough to alter dclivery schedulesdepending on customer demand. Rtr example, ice creamwas delivered daily during the summer but only threetimes a week at other times. Thc replenishment cycletime lbr fresh and fast-food itcms had been shortenedto fewer than l2 hours. A store order for rica balls byl0:00 e.trr. was delivered before thc dinncr rush.

As <liscussed earlier, thc storc managcr uscd agraphic order terminal lct place an ordcr. All storcs weregiven cukrff timcs for brcakfast, lunch, and dinner order-ing. Whcn a store placed an orde( it was imnrediatelytransmitted to the supplier as wcll as the distribution cen-tsr Thc supplier receivcd ordcrs fronr all Scven-Elevenstores and startcd pKxluction to fill thc orders. The supplierthen scnt the orders by truck to the distributiol centcr.Each store order was separated so the disaibution centercould easily assign it to the appropriate sbre tuck usingthc order information it already had. The key to storedclivcry was what Seven-Eleven called the conbineddolivcry systcn. At the distribution center, delivery of likeproducts fronr cliffercnt supplicrs (e.g., milk and sand-wichcs) wirs directetl into a single tempcrature-controlledtruck. There were four calcgories of teIr1perature-controllcd lrucks: lrozet foods, chilled foods. room-ternpcrature processcd li)ods, and warm forxls. Each truckmadc deliveries to mulliplc retiril stores.'Ihc nunrber ofstores pcr truck (lepcndcd on the salcs volumc. All dcliv-eries were midc during off peak hours and wcre rcceivedusing the scanner terminals. The systctn worked on lrustand did lrot rcquire the dclivcry person to be present whenthe storc persontlcl scalned in the delivcly. That reducctlthc delivcry tirne spcnt at c ch storc.

This distribution syslcm cnublcd Scven-Elevt:n toreducc the number ofvchicles rcquired tbr daily dcliverysctvice to cach store. even though the delivery frcqucncy

( haPlcr.l ' SupDl) ('hltin Dri\crs and l\,letrics

ofeach itenr was quitc high. In 1974, 70 vehiclcs visitcdeach sk)re every day. By 20O6, only 9 were nccessary.This dramatically reduccd delivery costs and cnabledrapid delivery of a varicty of liesh foods.

As of Fcbruary 2004, Seven-Eleven Japan had atotal of 290 dedicated manul'acturing plants throughoutthe country that produccd only fast food f<rr Seven-Elevenstorcs. These itcms were distdbuted through 293 dedicareddistribution centers (DCs) rhat cnsured rapid, reliabledelivery. None of thesc DCs carried any invenlory; thcymerely transferred inventory from supplier trucks toSeven-Eleven distribution trucks. The tansDortation wasproviderJ by Transfleer Ltd.. a company sel up by Mitsuiand Co. fbr the exclusiye use of Seven-Eleven Japan.

7-Eleven in the United States

Seven-Eleven had expanded rapidly around the world(Table 3-5). The major growth was in Asia, although theUniled States continued to be the second largest marketfor Sevcn-Eleven. Oncc Seven-Eleven Japan acquiredSouthland Corporation, it set about improving opera-tions in the United States. In the initial years, several7-Eleven stores in the United States were shut down.The number of stores started to grow beginning in 1998.

Country Stores

Japan

United States

Taiwa n

Thailand

South Korea

China

Malaysia

Mexico

Canada

Australia

Singapofe

Ph ilippines

Norway

Sweden

Denmark

Inoonesra

Tota I

't3,049

6,126

4,190

5,840

3,150

1,1t7

1 ,250

1 ,223

465

415

549

567

173

189

129

23

40,255

66 Chaptcr 3 ' Supply Chain Drivers 'nd Mctrics

Historically, the distribution structure in the United

States was completely different from that in Japan'

Stores in the United Siates were replenished using direct

store delivery (DSD) by some manufacturers, with the

remaining products delivercd by wholesalers. DSD

accounted for about half thc total volume, with the rcst

coming from wholesalers.

With the goal of introducing "fresh" products in

thc Uniled Slates, 7-Elcven introduced lhe concepl of

combinetl distribution centers (CDCs) around 2000. By

2003, 7-Eleven had 23 CDCs lmated throughout North

America supporting about 80 percent of the store net-

work. CDCs delivered fresh items such as sandwiches,

bakery products, bread, produce, and other perishables

once a day. A variety of fresh-food suppliers sent prod-

uct lo the CDC throughout the day. where they were

soned for delivery to stores at night RequesB lrom store

managers were sent to the nearcst CDC, and by 10:00 PM '

the products were en routg to the stores. Relative to

Japan, a greatcr fraction of the food sold' especially hot

food such as wings and pizza, was prePared irt the store'

Fresh-food sales in North America exceeded $450

million in 2fi)3. During this period, DSD by manufac-

tutcrs and wholesaler delivery to stores also continucd'

This was a period when 7-Eleven worked very bard

to introduce new fresh-food items widr a goal of compet-

ing more directly with the likes of Starbucks than with

traditional gas station food mans. 7-Eleven in the United

States had more than 63 percent of its sales from non-

gasoline products compa.red to the rest of the industry, forwhich this number was closer to 35 Percent. The goal

was to continue to increase sales in the fresh-food and

fast-footi categories with a special focus on hot foods'

ln 2009, revenue in the United States and Canada

totaled $16.0 billion, with about 63 percent coming from

merchandise and the rest from the sale of gasoline. The

North American inventory turnover rate in 2004 was

about 19, compared to more than 50 in Japan This, how-

ever, represented a significant improvement in North

American performance, whe.e inventory turns in 1992

were around 12-

Study Questions

1. A convenience store chain attempts to be responslve ano

provide customer$ with what they need, when they need it,

wherc they nced it What are some different ways that a

convenience store suPply chain can be responsive'l What

are some risks in each case?

2. Seven-Eleven's supply chain strategy in Japan can be

described as attempting to micro-match supply and

dcmand using rapid replenishment. whal are some rislsassociated with this choice?

3. what has Seven-Eleven done in its choice of facility l(xa-

tion, inventory management, tnnspottatioD, and information

inftashucture to develop capabi.lities that support its suPply

chain stratcgy in Japan?

4. Seven-Eleven does not allow direct store delivery in Japan

but bas all products no\" througb ils distribulion center'

What benefit does Seven-Eleven derive from this policy?

When is direct stot€ delivei more appropriate?

5. what do you think about the Tdream concept for Sevcn-

Eleven Japan? From a supply chain perspective, is itlikcly to be more successful in Japan or thc United

states? Why?6. Seven-Eleven is attemPting to duplicate thc supply chain

structurc that has succeeded in Japan and the U.ited States

with the introduction of CDCs. What are the pros and cons

of this approach? Keep in mind that stores are also replen-

ished by whole$alers and DSD by manufacturers'

7. The United States has food service distributors that also

replenish convenience stores. What axe thc pros and cons

to having a distributor rcplenish coDvenience storcs versus

a company like Seven-Eleven managing its own distribu-

tion function?

Case StudyFinancial Statements for wal-Mart Stores lnc.

Table 3-6 contains the financial resuls for Wal-Mart for

2008 and 2009 (declared on January 3l of the followingyear). Evaluate Wal-Mart's financial performance ba-sed on

the various metrics discussed in Section 3.1, such as ROE,

ROA, profit margin, asset tums, APT, C2C' ART' II'IVT'

anrl PPET. Compare the metrics for Wal-Mart with simi-

lar metrics for Amazon from Table 3-1. Which metrics

does Amazon perform better on? Which metrics does

Wal-M:m perform better on? What supply chain driYers

and metrics might explain this differcnce in Performanc€?In 2010, Wal-Mart announced that it planned to

move into urbzn areas in the United States by building and

operating smaller format stores compared to the large

stores it had operated up to that point. Which supply chain

metrics will be impacted by this move? How will this

move imDact the various financial metrics? Why?