Supply Chain Drivers

Analysis for

Seven-Eleven Japan Co.

Rohan Raj Mishra
IIFM
 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 of
Seven-Eleven in Japan
Annual Sales in Billion Yen of
Seven-Eleven in Japan
 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
 Continued
• 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
 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.
Schematic Representation of
Supply Chain
Supplier Supplier Supplier Supplier
(frozen) (Warm) (Room Temp.) (Cold)

DC

Stores Stores Stores Stores

50-60
stores
Stores Stores Stores Stores
Supply Chain Drivers
Analysis
Supply Chain Decision-Making
Framework
Competitive Strategy

Supply Chain
Strategy
Efficiency Responsiveness
Supply chain structure

Logistical Drivers

Facilities Inventory Transportation

Information Sourcing Pricing

Cross Functional Drivers

 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
 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
• Country No. of Stores
• Japan 10615
US 5798
•
• Area of USA is more than 26 times that
of Japan
• 7dream concept would be more
successful in Japan
Thank You