Exploring 7-Eleven Japans Strategic Supply Chain - Case Study Example

Exploring 7-Eleven Japan’s Strategic Supply Chain Summary The success of 7-Eleven as a convenience store transformed it to become one of the worlds largest operator, franchisor and licensor of convenience stores, with more than 27,900 units worldwide. In November 2005, 7-Eleven was taken private by Seven-Eleven Japan Company, a Japanese retailing chain. As the largest convenience store chain in the world, 7-Eleven convenience stores are open 24 hours a day. In Japan, the size of its stores was decreased in size that ranges from 125 to 150 square meters and each store stocks approximately 2,300 to 2,800 items. The company sells tobacco, beverages, beer, wine, candy snacks, fresh foods, dairy items and other general merchandise through its stores. In addition, 7-Eleven sells a number of private label products such as Slurpee semi-frozen carbonated beverages, Cafe Select coffee, Big Gulp fountain beverages and Big Bite hotdogs. Since its establishment in 1973, 7-Eleven Japan had taken on “Adapting to Change” as its business slogan, reflecting its focus on adapting to changing consumer trends. As such, its 7-Eleven convenience stores had earned the patronage of much of the population, far outstripping other companies in the convenience store sector as well as in the overall retail industry in terms of growth and profitability. In 2000, while Japan was in the midst of an economic downturn, 7-Eleven Japan opened an additional 423 stores and recorded the highest profits in the retail industry. Fact is that 7-Eleven Japan realized its phenomenal growth between the years of 1985 and 2003. During these period, the number of stores increased from 2,299 to 10,303; annual sales increased from 386 billion to 2,343 billion yen; and net income increased from 9 billion to 91.5 billion yen. Additionally, the company’s return on equity (ROE) averaged around 14 percent between 2000 and 2004. In 2004, Seven-Eleven Japan represented Japan’s largest retailer in terms of operating income and number of stores. Customer visits to 7-Eleven outlets totaled 3.6 billion that year, averaging almost 30 visits to a 7-Eleven annually for every person in Japan. This impressive result and its rapid growth were due to its efforts at developing merchandise and services that met customers’ needs and requirements. For example, it was the pioneer in providing ready-made meals such as sushi and spaghetti that had become popular among the Japanese population. In addition, the information and distribution systems played an especially large role in placing 7-Eleven Japan in a leading position. 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? Increasing supply chain responsiveness would mean the firm will also increase its ability to: Strategy in Increasing Supply Chain Responsiveness Risks Involved respond to wide ranges of quantities demanded meet short lead times handle a large variety of products build highly innovative products meet a very high service level Wider range of quantity implies greater variance in demand Less time to react to orders Demand per product becomes more disaggregated New products tend to have more uncertain demand Firm now has to handle unusual surges in demand Matching supply chain capabilities to customer’s requirements means that a firm and their supply chain partners must be continually reassessing their performance with respect to these requirements. This reveals the importance of performance measures and their ability to relay information regarding the performance of each member within the supply chain, along with the performance of the supply chain vis-à-vis its end customers. Successful supply chains are those that can continue to deliver the right combination of cost, quality, and customer service as customer needs change. Weaknesses in any of these areas can mean loss of competitiveness and profits for all members along the supply chain. This is why if a convenience store wants their supply chain to be responsive, they should not only be responsive to customer needs, but they need to be quicker to anticipate changes in the markets and much better at controlling costs, that would result in greater supply chain profits. 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 risks associated with this choice? The rapid replenishment strategy in 7-Eleven Japan receive point-of-sale (POS) data and use these data to prepare delivery at previously agreed-upon intervals to maintain specific levels of inventory. Each 7-11 store uses graphic order terminal to place an order. All stores are given cutoff times for breakfast, lunch, and dinner ordering. When a store placed an order, it was immediately transmitted to the supplier as well as the distribution center. The supplier received orders from all 7-Eleven stores and started production to fill the orders. The supplier then sent the orders by truck to the distribution center. Each store order is separated so the distribution center could easily assign it to the appropriate store truck using the order information it already had. The key to store delivery was what 7-Eleven called the combined delivery system. This system worked on trust and did not require the delivery person to be present when the store personnel scanned in the delivery. 7-Eleven managed to reduce delivery time spent at each store. Their distribution system enabled Seven-Eleven to reduce the number of vehicles required for daily delivery service to each store, even though the delivery frequency are high. However, the risk involved in this system of 7-Eleven is that it is too technology-dependent, if there is a power interruption the data for the orders might be irretrievable. Also, there is a risk involved in being reliant on “trust”. For example, when the delivery person is not available and the delivery truck makes a wrong store delivery, there is a little chance that the store attendants will notice this error. As 7-eleven are also dealing with perishable items, errors in delivery would mean greater losses because their system is very time-dependent. In an advanced form of continuous replenishment, suppliers may gradually decrease inventory levels at the retail store or distribution center as long as service levels are met. In a structured way, inventory levels should be continuously improved. In addition, the inventory levels need not be simple levels but could be based on sophisticated models that change the appropriate level based on seasonal demand, promotions, and changing consumer demand. Seven-Eleven does not allow direct store delivery in Japan but has all products flow through its distribution center. What benefit does Seven-Eleven derive from this policy? When is direct store delivery more appropriate? The 7-Eleven distribution centers and their information network are its secret to its successful venture in Japan. Their major objective was to carefully track sales of items and offer short replenishment cycle times. This allowed a store manager to forecast sales corresponding to each order accurately. Since 1987, 7-Eleven, offered three-times-a-day store delivery of all rice dishes (which comprised most of the fast-food items sold). Bread and other fresh food were delivered twice a day. The distribution system was flexible enough to alter deliver schedules depending on customer demand. The benefits that 7-Eleven can derive in this kind of system is that the monitoring of orders can be easily done. Since 7-Eleven offers a wide variety of products, they could easily classify the kinds of products that a specific store requires. Some of 7-Eleven’s products also have a short life cycle and having this kind of system would definitely benefit the company because it can swiftly identify these needs and deliver these perishable products to the store as soon as it is needed. As other companies treat the world as if it were predictable, 7-Eleven swayed away from this thinking. Making production and inventory decisions based on forecasts of the demand would not be applicable; this is why 7-Eleven built distribution centers. Although companies are aware of demand uncertainty when they create a forecast, they design their planning processes as if the initial forecast was an accurate representation of reality. This is why direct store delivery can be applicable if a firm can easily forecast the customer demand. Also, firms can do direct delivery if their store are selling a limited variety of products. Unlike 7-Eleven, having limited products to sell has a lesser propensity for confusion of what products to deliver. What do you think about the 7dream concept for 7-Eleven Japan? From a supply chain perspective, is it likely to be more successful in Japan or the United States? Why? Buoyed by the optimistic outlook on the growth of e-commerce in Japan and the success of previous e-commerce participatory-style undertakings, 7-Eleven Japan decided to fully venture into e-commerce via 7dream.com. After a survey by eSBook (a joint venture among Softbank, Seven-Eleven Japan, Yahoo! Japan, and Tohan, a publisher), they discovered that 92 percent of its customers preferred to pick up their online purchases at the local convenience store, rather than have them delivered to their homes. This was understandable given the frequency with which Japanese customers visit their local convenience store. As the products to be offered on 7dream.com would not usually be found in convenience stores, due to limited space, the company expected overall sales for 7-Eleven Japan to grow. Also, the products to be offered were especially chosen for their ease of handling—if they were not viewable on screen or downloadable, they were small-sized. This was due to 7-Eleven’s plans to utilize the existing their Japan delivery system as 7dream.com’s end-fulfilment system. I think this idea is very revolutionary because 7-Eleven was able to identify their customer needs by establishing 7dream.com. After making a purchase at the 7dream.com Website, customers could even select “Payment at a 7-Eleven store” as their payment method. This is an additional convenience to customers who fear revealing their credit card numbers. Their payment slips with bar codes would then be printed out from the customers’ printers. Customers could then visit any 7-Eleven store in Japan with these slips to make their payments. Customers without printers could just state their assigned payment reference number to the cashier at the 7-Eleven store. From a supply chain perspective, I think this kind of venture will more likely to be successful in Japan because of their highly urbanized lifestyle and the lack of living spaces in most of Japan’s cities. Convenience stores resembled centres of community life in Japan: consumers visited convenience stores to pick up a meal or snack, to pay for their utilities, to socialize with friends and to look at the latest fashion accessories. In addition, the stores were easily accessible as they were located in every conceivable location, at nearly every street corner, in every city or town in their country. In the US, this kind of system would only be applicable in New York City, where it is densely populated. Conclusion Seven-Eleven Japan’s supply chain system had found an unprecedented niche in the Japanese market. This was reflected in the impressive result of its expansion and its rapid growth due to its efforts at developing merchandise and services that met customers’ needs and requirements. Essentially, their distribution centers and their information network are its secret to its successful venture in Japan. Their major objective was to carefully track sales of items and offer short replenishment cycle times. Moreover, 7-Eleven Japan did respond to all drivers of a supply chain: 1. Inventory – Their distribution centers assist the firm to correctly deliver the needed products to a specific store in a speedy manner. 2. Transportation – Although they decreased the delivery vehicles, the store attendants received their items using the scanner terminals. The system worked on trust and did not require the delivery person to be present when the store personnel scanned in the delivery. This also reduced the delivery time spent at each store. 3. Facilities – Since 7-Eleven had installed distribution centers, this saved them time to do inventories when they need because each store sends their specific products needs to them and this saves time of identifying which store needs what. 4. Information - Seven-Eleven Japan stores work via their special information network. Each store computer automatically updated its product master file to analyze its recent sales and stock movements. The main objective of the analysis was to improve the ordering process. All this information was available on the graphic order terminal used for order placement. Thus, modern supply chains should follow suit what 7-Eleven Japan did. The sequential process has been replaced by a process that takes into account the interaction between the various levels of the supply chain. This is how 7-Eleven Japan able to successfully identify their strategies that maximized their supply chain performance. Work Cited Case Study – Seven Eleven Japan Co. Read More