Seven-Eleven Japan Co.Rohan Raj Mishra

IIFM

Supply Chain Drivers Analysis for

Outline

• History & Profile• Strategy & Tactic of Seven Eleven• Food Items Classification• Convenience at the Store• Schematic Representation of the Supply Chain• Supply Chain Framework• Supply Chain Drivers Analysis• Case Questions Discussion

History and Profile

• Founded by Masatoshi Ito post 2nd World War.• By 1960, the single store had grown into a $3 million

company.• In 1961, realized that superstores were the wave of the

future.• In 1972, approached Southland Corporation .• In 1973, Southland agreed to a licensing agreement.• In 1974, first 7-11 convenience store opened in Tokyo.• In 1990, Southland Corporation entered into bankruptcy

protection.• In 1991, IYG acquired 70% of Southland’s common stock.

Number of Stores ofSeven-Eleven in Japan

19741975

19761977

19781979

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

0

2000

4000

6000

8000

10000

12000Number of Stores

Number of Stores

Annual Sales in Billion Yen of Seven-Eleven in Japan

19741976

19781980

19821984

19861988

19901992

19941996

19982000

20020

500

1000

1500

2000

2500

Annual Sales (Billion Yen)

Annual Sales (Billion Yen)

So how did 7-eleven manage such phenomenal growth?

7-Eleven Japan’s Competitive Strategy

• To provide high-availability of a variety of reasonable quality products at reasonable prices

Strategy & Tactic of Seven Eleven

• Strategy of 7-Eleven Japan– Market Dominance– Cluster of stores (50-60) in small geographical area

supported by a Distribution Centre (DC)• Tactic– Combination of Own and Franchisee Stores– In 2004 Franchisee Commissions accounted for 68%

of Total revenue from operations– By 2004, the company had presence in 70 prefectures

of Japan

• Advantage of Dominance Strategy– High Distribution Efficiency– Brand Awareness– System efficiency– Franchisee Support Services– Advertising effectiveness– Entry barrier for competitors

Continued

• Store Size was 150 square metres• Average inventory at store of 3000 Stock Keeping

Units (SKU), with max capacity of 5000 SKUs• Emphasis on regional merchandizing• Goods included:– Food Items– Beverages– Magazines– Soaps, Detergents etc.– Game, Software

Continued

Food Items Classification

• Chilled temp item.– Sandwiches, sweets, milk

• Warm temp item.– Box lunch, rice balls, fresh bread

• Frozen item– Ice cream, Ice cube etc.

• Room temp item– Canned food, Instant noodles etc.

Convenience at the Store• Payment of Bills

– Electricity– Telephone– Gas– Insurance Premium

• Accepting Installments on behalf of credit companies• Payment for internet shopping• ATMs at almost all the stores• Meal Delivery service for aging population of Japan• Ticket Sales, Photocopying• Pick up location for parcel delivery.• 7dream e-commerce• etc.

Supplier(frozen)

Supplier(Warm)

Supplier(Room Temp.)

Supplier(Cold)

DC

Stores Stores Stores Stores

Stores Stores Stores Stores

50-60 stores

Schematic Representation of Supply Chain

Supply Chain Drivers Analysis

Competitive Strategy

Supply Chain Strategy

Efficiency Responsiveness

Facilities Inventory Transportation

Information

Supply chain structure

Cross Functional Drivers

Sourcing Pricing

Logistical Drivers

Supply Chain Decision-Making Framework

Facility• Facilities were at 2 levels

– Distribution Centres (DCs)– Stores

• DCs– less in number – held no inventory, – served stores in its cluster– Increased Efficiency as opposed to Responsiveness

• Stores – More in number– kept inventory on shelf– Located in abundance and dominated the market– Were more responsive than efficient

Inventory

• @ DC– No inventory– Highly efficient– Poor at responsiveness

• @ Stores– Kept Daily Stocks– Low Inventory– Were efficient but not very responsive

Transportation

• Transportation was at two levels– Vendor to DC (Vendor delivered)– DC to Store (Seven-Eleven delivered)

• Transportation Network Design– Each truck would be stocked at the DC– One truck would deliver supplies to more than one store.

• Mode of transportation– Road (Vans &Trucks were used)

• Rapid replenishment cycles• High Frequency• Provided High responsiveness as opposed to efficiency

Information

• Information System Components– Graphical Order Terminal (GOT) @ Stores– Scanner Terminals (ST) for inventory checking– Store computer

• Processed information from GOT , ST & POS• Was connected to the network• Tracked inventory levels, placed orders, maintained store equipment

etc.

– POS register• Information about sale, customer details like age, sex, item of sale

etc.

– Data was relayed to Suppliers, Distribution Centres and the Headquarters automatically.

– Increased both efficiency and responsiveness

Sourcing

• Outsourced transportation– From DC to Stores to Transfleet Ltd.

• Risk of Fuel Price Fluctuation, Fleet Maintenance and Cost of Fleet staff was transferred.

• The company increased profits and reduced risk.

Pricing

• Seven-Eleven offered reasonably priced products.

• Their market dominance allowed ease of access to the customers.

• Both these factors led to stable demand• Thus, such pricing decision increased the

efficiency of the supply chain.

US Market

• Existing system– Store replenishment through Direct Store Delivery

from Manufacturers– Remaining products delivered by Wholesalers

• Introducing Combined Distribution Centre concept– 23 CDCs across North America– Supported 80% of Store Network

• Introducing Fresh Foods like in Japan

Q1

• Different Approaches for Increasing responsiveness– Local Capacity– Local Inventory– Rapid Replinishment

Q2

• Risks associated with attempting to micro-match Supply & Demand– High Cost of Transportation– High Order Costs

Q3

• Supply Chain Drivers have already been discussed

Q4

• Benefits of DCs– Reduces complexity at store level– Organizes Store demand at DC– Reduces complexity and costs for Vendors to

directly deliver at the stores• When Direct Store Delivery?– Variety of products is less– Order size is more– Delivery Destinations are few.

Q5

• 7dream.com- an e-commerce initiative• In 2004

• Area of USA is more than 26 times that of Japan• 7dream concept would be more successful in

Japan

Country No. of StoresJapan 10615US 5798

Thank You