Seven- Eleven Japan Co. Case

AnalysisGroup 4:Ruchi Sao 13PGP048 Geeta Hansdah 13PGP079Trisha Gajbhiye 13PGP116 Bhavana Ziradkar13PGP118Sai Shilpa 13PGP124

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Seven – Eleven Japan Co. Established in 1973 by Mr. Masatoshi Ito

1973-1991 managed by Southland corporation, later by Ito-Yokado Group

In 2004, Convenience store in Japan and in US contributed to 48.2% total revenue of IYG

Seven-Eleven Japan contributed 87.6% of operating income received from convenience store by IYG

In 2004, the average daily sales at four major convenience store chains excluding Seven-Eleven was 484,000 Yen where as Seven-Eleven has daily sales of 647,000 yen

Core strengths were information systems and distribution systems

Worked on franchise model and followed a market dominance strategy

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Contd.Limited geographical presence in Japan and about 70% (32 out of 47) of prefectures within Japan but their presence was dense

All store had standard size of 125 m2 which was increased to 150m2 in 2004

Seven-Eleven offered to keep SKU of 5000. on average store kept 3000 SKU

Food items were classified in 4 broad categories depending upon storage & transportation temperature- warm items, Room temperature items, Chilled items and frozen items

In 2004, Processed foods and fast foods contributed to 60% of total sales at each store

By 2004, Seven-Eleven had 290 manufacturing plants to produce fast food items and 293 DC’s

Offered services in store like bill payment services, photocopying, ticket sales and 7dream.com etc.

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Contd.Integrated services digital network (ISDN) linked more than 5000 stores

IS support was through Graphic Order terminal, Scanner terminal, Store computer, POS register- to improve ordering process

POS analysis data was provided each day to each store- removal of product with no demand, forecasting, identification of slow and non moving items

3 times daily delivery of rice dishes and Replenishment cycle time of less than 12 hours

At DC, delivery of like product were stacked in one vehicle and transportation was done by Transfleet

In US, Distribution was through direct store delivery (DSD), wholesalers and CDC’s. Inventory turnover of 17 compared to that 50 in Japan

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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?

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Ways to become responsive SC can become responsive by reducing lead time. This can be done in

following ways:

Real time information flow between suppliers, distributors and storeStrong supplier network Good relationship maintenance with suppliers and distributorsAnalysis of day to day data for each store and each SKU will enable in

forecasting & reduction of replenishment timeCross-docking is one of the ways to be responsive

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Risk associatedReal time information flow risk

• Server breakdown or hacking

Strong supplier network & good relationship maintenance with suppliers and distributors

• Over-dependency on one supplier• Risk due to natural calamities increase if all suppliers lie in close proximity

Analysis of day to day data for each store and each SKU

• Data congestion due to large volume of data from 3000 SKU × 10000 stores

Cross-docking

• Vehicle breakdown• Natural calamities

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Seven – Eleven’s Supply chain strategy in Japan can be described as attempting to micro-match supply and demand using rapid replenishment.

What are some risk associated with this choice?

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Risk associatedOver-dependency on Information Systems

Any calamity on supplier end would lead to stock out situation in Seven-Eleven because of absence of inventory in supply chain

No warehouse

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What has seven-eleven done in its choices of facility location, inventory management, transportation and information infrastructure to develop capabilities that support its supply chain strategy in Japan?

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Support systemsFacility location

One distribution catering 50-60 stores

High density market presence

TransportationDedicated vehicle for each category

Delivery during off-peak hours

Delivery using scanner terminals

Allocation of stores per truck dependent on sales volume

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Seven-eleven does not allow direct store delivery in Japan with all products flowing through its distribution centre.

What benefits does seven-eleven derive from its policy?

When is direct store delivery more appropriate?

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Benefits of current system Proper product assortment as per required temperature at DC thus

reducing perishability Reduction in number of vehicle required for daily delivery at each store

(1974, 70 vehicles visited each store every day, in 1994, only 11 were necessary)

Reduction in delivery costs Rapid delivery of variety of fresh foods thus making the chain responsive Rapid and reliable delivery to distribution trucks through dedicated DCs

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Appropriate direct store delivery Demand from retailer is high enough to require FTL When lead time is critical Manufacturers and retailers in close proximity

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What do you think about the 7dream concept for Seven-Eleven Japan? From a SC perspective, is it likely to be more successful in Japan or in US? Why?

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7Dream.com concept

Virtual convenienc

e store

Increase in customer service level• Reduction

in queuing at billing counter

• Time saving for consumers

No additional cost as they

are using existing

distribution system and

no home delivery system

Catering to new

market

Increase in market share,

revenue and footfall

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Successful in Japan or in US? Number of store in Japan = 10,615 Number of stores in US = 5,798 More convenient in Japan to pick delivery from any store because of

number of stores Transportation cost will increase in US as there is different distribution

structure and consumer prefer home delivery Store density area ratio is higher in Japan than in US, thus making it

inconvenient for US customers to pick up from stores

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Seven-Eleven is attempting to duplicate the SC structure that has succeeded in Japan in the US with the introduction of CDC’s. what are the pros and cons of this approach? Keep in mind that stores are also replenished by wholesalers and DSD by manufacturers.

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Duplication effectPros Increase in responsivenessIncrease in variety of fresh

productsReduction in stock outIncrease in distribution network

and support to storesReduction in lead time for Fresh

products

ConsProduct assortment will occur at

store thus increase in timeIncrease in Labour costHigh coordination is required

between DSD, Wholesalers and CDC

Increase in cost for CDC

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The US has food service distributors like McLane that also replenish convenience stores. What are the pros & cons to having a distributor replenish convenience stores versus a company like Seven-Eleven managing its own distribution function?

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Seven-Eleven: Self distribution systemPros Backward integrationScope for future expansionControl over SC Reduction in replenishment timeReduction in dependency

ConsExtra effort to build supplier

networkMIS maintenanceHigh risk

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Outsource ProsNo effort to build supplier networkNo data maintenanceLow cost Risk sharing

ConsIncrease in dependencyNo control over supply chainIncrease in lead timeForward integration chances by

outsourcing party

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23 Thank You