Company Analysis of 7-11 Japan - Case Study Example

s The assignment was due Case Study: 7-11 Japan Introduction The core philosophy of supply chain is the integration of all value added levels from the extraction of raw materials to the sale of the finished product to the ultimate customer, whilst taking into account organizational, technological and human factors, in a integrated supply chain. Although many factors go into product manufacturing, services to the end customers will always remain a primary motive. And today’s costumer demands, products and services that are on right time with perfect quality, and it is here the supply chain management comes into the picture. And this paper will analyze Japanese convenience store giant, 7-11 and their supply chain management by case studying it. 7-11 was established by the Ito-Yokado group, which was founded by Masatoshi Ito and the first 7-11 store was set up in Koto-ku, Tokyo, in 1974. Actually in 1972 itself, Ito approached the American concern, Southland Corporation about the possibility of opening Seven-Eleven convenience stores in Japan. After rejecting his initial request, Southland agreed in 1973 to a licensing agreement. In exchange for 0.6 percent of total sales, Southland gave Ito exclusive rights throughout Japan and in1974, the first Seven-Eleven convenience store was opened. And in the course of time, the situation changed upside down, with Ito-Yokado group acquiring 70% stake in the Southland itself. 1. A convenience store chain attempts to be responsive and provide customers what they need, when they need, where they need. What are some different ways that a convenience store supply chain can be responsive? What are some risks? Various factors decide the customer’s purchase of products from a convenience store. And as, the customer only decides, the products to buy, the time to buy and store to buy, it is the duty of the convenience stores to be in a prepared state, to welcome the customer, when the customer makes that decision. That is, every customer will have different product needs and it is based on the lifestyle of the customer. And with each customer having different lifestyles, the list of products needed by the customer, will be a never-ending one. And the convenience stores should respond to this situation by studying the customer preference and buying patterns, and make available all that products through a well-maintained supply chain. But the inherent risk with this response is, the customer preference may change due to some factors and making available all the products could result in overcrowding of the racks. Also, the customer, most times, keeps limited inventory of the products, he/she uses because many types of products are perishable. So, they will prefer to purchase them frequently as and when required. And it is the duty of the convenience stores to respond in equal time, by storing all the required perishable products using refrigeration. And the risk with this response is, some times even with the above aids, the perishable product’s shell life cannot be extend indefinitely and it will result in losses for the stores. Also purchase decisions most times are influenced by the availability of product in the racks and the stores using its supply chain should maintain a constant supply of the products. But the risk with this response is, it will lead to glut of products. 3. What has Seven-Eleven done in its choice of facility location, inventory management, transportation, and information infrastructure to develop capabilities that support its supply chain strategy in Japan? It is a fact that organization will develop mainly by extending its network. Seven-Eleven Japan did the same by first extending his own chain of stores and also by developing an extensive franchise network. And, they made each store and franchise well connected and well equipped by perfectly planning all the links in the supply chain. That is, the facility location is an important cog in the supply chain. And 7-11 followed the strategy of market dominance and entered into any new market by building around a cluster of 50 to 60 stores supported by a distribution center. Such clustering gave Seven-Eleven Japan a high-density market presence. In 7-11, the inventory management is streamlined using information technology and by the work of store managers. That is, store managers will check the racks and place the orders using the device, graphic order terminal, and then connect it to the store computer to relay the information to the appropriate vendor and the distributor. The transportation section of the 7-11 is also utilized efficiently by acquiring good number of vehicles and also by using private operators. The transportation was provided by Transfleet Ltd., a company set up by Mitsui and Co. for the exclusive use of Seven-Eleven, Japan. And by employing the scanner terminal, the time, spend by the truck in the store unloading the products is shortened very much. That is, after dropping the goods, the truck can move on to the next store as scanner terminal will do all the checking of the goods. Speaking about the information structure all the above parts of the supply chain are carried out mainly by the information technology equipment installed in the stores. 4.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? Seven-Eleven does not allow direct store delivery in Japan because its distribution system have tightly linked the entire supply chain for all product categories. That is, after they extended their network to franchising, the system of having a distribution center for a group of stores became a viable option and it showed its benefits. That is, the major objective of all 7-11 stores is to carefully track sales of items and offer short replenishment cycle times. And the distribution system was flexible enough to alter deliver schedules depending on customer demand. For example, ice cream was delivered daily during the summer. All because of a well oiled distribution network. Also at the distribution center, delivery of like products from different suppliers (for example, milk and sandwiches) was directed into a single temperature controlled truck. This distribution system enabled Seven-Eleven to reduce the number of vehicles required for daily delivery service to each store, even though the delivery frequency of each item was quite high. In 1974, 70 vehicles visited each store every day. In 1994,only 11 were necessary. This dramatically reduced delivery costs and enabled rapid deliver of a variety of fresh foods. On the other hand, the direct store delivery will an option when the stores are located nearer to manufacturing units. This is the case with some stores, because in the initial stages, 7-11 started stores randomly with many stores having close proximity to the manufacturing plant. Also, some stores may have to be located away from the radar of distribution network; in that case direct store delivery will be more appropriate. 5. What do you think about the 7dream concept for Seven-Eleven Japan? From a supply chain perspective, is it likely to be more successful in Japan or the United States? Why? Companies have to be agile and nimble footed to stay ahead in a competitive business environment. Because customers are demanding more variety, at the same wishing for the shortening product cycles. The challenge to fulfill these orders efficiently forms the work of the supply chain and the key is information technology. And, in 2000, Seven-Eleven established 7dream.com, an e-commerce company. The main purpose of its launch is, using its original planning and merchandizing capabilities, 7dream.com working together with Seven-Eleven Japan planned to create and expand the exploding e-commerce business. Also, the goal was to exploit the existing distribution system. That is, as the stores of seven- eleven were easily accessible to most Japanese, it was served as the drop-off and collection points for Japanese customers. And when one analysis whether this concept, a key in the supply chain management, will work better in Japan or USA, the answer will be Japan. That is, the 7-11 stores are entrenched in Japan everywhere but in USA it was not that well distributed. Also, the general mentality of the Japanese people is that they like to pick their deliveries from a third party place instead of their homes. A survey by eSBook proves this concept. That is, the survey discovered that 92 percent of 7dream 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. 7dream hoped to build on this preference along with the synergies from the existing distribution system. Conclusions As the name itself suggests the convenience stores are the ones, which can be easily accessible and approachable to the customers. And for that to happen, the store should be well equipped not only with products but also with correct personnel, ambiance and a nice brand image. All these things are applicable to the Japanese convenience store leader, 7-11. But for the all above things to work out in a perfect manner, the concept of supply chain is crucial. That is, production of goods useful for the humans is an ongoing process and organizations are organized to continue the ongoing process into complete and successful process. And, for the process to be a complete and successful one, there should be a link, which should join all the process, and it is the Supply Chain Management, which forms the link. And in the case of seven-eleven Japan, the supply chain is working perfectly and is showing great results consistently over many years. Read More