Warehousing and Inventory Management of Seven-Eleven Japan - Case Study Example

Content page Contents page no. Executive summary 02-03 Warehouse space and layout 03-07 Warehouse operations management 07-09 Case study 09-11 Inventory management 11-13 Conclusion 14 References 14-15 Executive summary The successful organization of the future will be customer focused, supported by marketing information competence that links the voice of the customer to all the firm's value delivery processes (Webster, 1997). Each organization must have the strategy to provide goods or services to customers at the right time, right place, right quality, and right quantity and at right cost. This all can happen only when the organizations will develop fully automated, properly constructed warehouses with prudent warehouse operations management and inventory management. Today's customer is more demanding in every sense. Meeting the demands of the customers requires organizations to develop capabilities to manage value, volume, velocity, volatility, variety, variability, visibility and virtuality. In order to achieve these competencies we are discussing the various aspects of warehouse space utilization and layout plans. There are several plans of layout, which has been discussed, and each has its own advantages and drawbacks. If the warehouses are used efficiently and effectively, it improves the effectiveness of whole supply chain. As we know that we are moving through communication revolution, better use of information and communication technology improves the warehouse operations management. While discussing the case study of Seven-Eleven Japan we observed that how use of information and communication technologies have improved the warehousing operations of the organization as a whole and have the potential to proved benefit to the customers. Through use of information and communication technology, objectives of the warehouse manager to provide goods and services to its customers timely and efficiently will be fulfilled. We had also evaluated the traditional and modern inventory management practices and found that modern practices like JIT have outnumbered the traditional inventory management systems like re-order or economic order quantity on various parameters. 1. Warehouse space and layout: Storage is the physical hording of inventories awaiting transport to customers. The current emphasis is on the movement of inventories. According to Layson (2000), there are a number of important issues to be considered: Acknowledgement that reducing ware housing and storage costs is essential; Automated stores and computerized system make it possible to better manage these facilities; Trade-off between higher customer service levels, low inventory and low operating costs need to be balanced; Changes in business practices through the implementation of just-in-time (JIT) and Kanban concepts; Better logistics systems; Time-compression, reducing time consumed in business processes, Elimination of non-value-added time. In the process of warehouse layouts and space, organizations primarily focus on The space required and cost for each category of stock, Whether to centralize or decentralize the stores Physical characteristics of the stores at each location e.g. size, weight, shape, perishable, hazardous Flows of material and handling equipment required Goods received into store, quantities, volumes, frequencies, packing, delivery vehicles, handling requirements, documentation and inspection Foods outwards-quantities, volumes, frequencies packing, delivery vehicles, handling requirements, documenting & packaging; Inventory policies e.g. JIT buffer sticks, stock pilling Security, safety, administrative system, and personnel. To fulfill these above-mentioned conditions, warehouse space and layout planning must have following objectives in mind: Utilizing space efficiently within the building cube Create rapid and easy access to stock and stock movements Achieve efficient and balanced traffic flows Mechanized and automated stores operations Minimize distances and stock movement (e.g. avoid double handling) Clearly identify stocks Group products with similar storage characteristics and according to frequency of receipts and issues Maintain adequate security. Warehouse need to be laid out in an orderly fashion to achieve the objectives of Efficient material flows Clear identification and location of inventories and Efficient space utilization (Hines, 2004). In the process of developing effective space and layout plan for warehouses, J.P. van den Berg et al. (1998) propose a model to solve the forward-reserve problem in the case of unit load replenishment. Those replenishments can occur during busy or idle picking periods. Hackman and Rosenblatt (1990) were the first to address the issues of deciding which product to store in the forward area (assignment issue) and how much to store (allocation issue). Frazelle et al. (1994) propose a model that tackles three warehouse decisions: the size of the forward area and the allocation/ assignment of products to the forward area. They propose a model which minimizes the total warehousing costs, which depends on the size of the forward area replenishment cost of the forward area, Reserve/forward picking cost and the cost of capital (shelving's), under forward capacity and congestion constraints. Storage policies remain the least investigated. Random storage is the most widely used option, and Schwarz et al. (1978) examined its performance. Eynan and Rosenblatt (1994) claimed that the class-based storage required less data processing and yielded similar saving with volume-based storage. The Chartered Institute of transport and logistics has identified four principal types of stores layout: 1. The inverted "T" warehouse flow 2. The cross flow warehouse 3. The corner warehouse flow and 4. The through flow warehouse. Essentially these different designs have different benefits and disadvantages. Bulk store is achieved by placing low usage farthest away from the exit point and the high usage stocks near to the exit. This also saves time and minimizes the distances travelled for fast moving stocks with better security and surveillance. The main disadvantage is the central aisle may become congested in periods of high throughput. The cross warehouse is a one way system with goods inwards flowing to the left on entry and then into one of the three designated storage areas depending on high, medium or low storage items being identified. This design retains the main advantages of the T system and removes the central aisle congestion problem. The main disadvantage of this system would be the situation where a high proportion of the stock but bulk may lead to the design being impractical. The corner warehouse has the goods inwards and outwards areas adjacent on two sides of the corner. This layout reduces aisle congestion in times of high throughput activity. One possible disadvantage is that any expansion can only be developed on two sides, potential security, and surveillance problems. The final layout is the throughput design. This has the advantage of being a flow system with entry and exit points on two opposite sides of the building. There are three main disadvantages to this layout are All stocks will have to travel and full length of the building between receipt and dispatch Goods in and goods out are on two different sides of the building increasing the security risks and surveillance If the warehouse is to be extended it can only happen on two sides unless bays are moved. Therefore, it has been viewed clearly that proper layout and efficient use of space of warehouse fulfill the objectives like keeping inventories low, meeting customer demand by being responsive to their needs, minimize operating costs by being efficient and minimize funds tied up in working capital. In view of the present strategic/competitive situations, Issues relating to stores centralization and decentralization types of building, layouts, storage methods and handling equipments manual or automation is an important part of organization's strategic decision-making. Warehousing is an integral part of a total logistics system that stores raw material, work-in-progress and finished goods at and between points of origin and consumption (Murphy & Wood, 2004). 2. Warehouse operations management: Warehouse operation management depends on location, purpose, operation and stock characteristics. The decision to store items outdoor or indoor is taken because of the stock characteristics. One important choice for an organization in designing its storage facilities and system is to decide how the organization will access stores. Warehouse operations management becomes much easier through a centralized store, which comprises one large facility that all units of the organization draw their stocks from or stores are decentralized. For example, W.H. Smith has a centralized storage facility that supplies all its retail stores located in Sweden. Many retailers need to have decentralized storage facilities from which to deliver their supplies regularly. For example, regular replenishment of food and grocery lines is important issues for food retailers especially for their perishable lines Sainsbury and Tesco among others have a number of regional distribution, centers (RDC's) from which they replenish stores regularly. In recent years there has been increasing management attention focused upon improving throughput times in supply systems. Times pressures have forced organizations to improve the way they receive, store and distribute goods; automated handling systems, the use of barcode and RFID tracking systems and a reassessment of facilities required. Cross docking allows deliveries to enter temporary storage until the loads can be married with other loads being sent to the same destination. Cross docking has been important logistics development enabling a faster supply chain. Cooke (2000) noted the pressure from virtual sales in a digital economy. In current situation, there is an increasing active involvement by retail organizations and a diminishing involvement of manufacturers in the supply of groceries, according to the IGD (2003). The recent trend see retailers organize the suppliers and take charge and control of the entire supply chain. The advent of factory gate pricing and increasing backhauling has diminished the suppliers' role further. Backhauling ensures that trucks are filled both ways to ensure the economies of scale. Automated warehouse facilities have become increasingly important in reducing handling and speeding up movement through the warehouse. Full automation in comparison to mechanization has several advantages. Third party storage has been practiced nowadays. The information infrastructure needed with distributor storage is significantly less complex than that needed with manufacturer storage. Due to complete automation of warehouse, provide better logistics planning. Uses of more and more information & communication technologies including computers, organizations are able to plan their activities to maximize deliveries and to minimize their costs. This has been shown by leading organizations like Amazon.com, Dell computers and like others. Automated warehousing and efficient warehouse management follow the principal that goods have to be moved once do not double handle it and make available to the right place at the right time. Cost, quality, technology, timeliness, dependability, responsiveness and services are all issues that require through investigation. Using ICT to automation process of warehouse is the key to efficiency, which is critical to customer satisfaction. Successful supply chain strategies, operations, and effective use of ICT are a key requirement of effective and efficient warehousing operations management. This automation of warehouse provides proper order tracking and delivery systems using satellite technology for logistic operations. Automation of warehouse leads to quick response and ultimately reduces inventory-holding costs. Quick Response is a pull system and relies on consumer demand information being used by all parties in supply chain. Consequently, much of the early concerns were focused on the use of electronic data identity (EDI) and compatibility between retailers and various suppliers system (Hunter, 1990; KSA, 1987). This requires fully automated warehouses. Finally, we can see that apart from fully automated warehouses, which are, using ICT more frequently, third party logistics are shifting towards fourth party logistics, which needs close monitoring. These systems also need more and more use of ICT in every level of supply chain. 3. Case study Seven-Eleven Japan represented Japan's largest retailer in terms of operating income and number of stores. Established in 1973, it has 10,303 stores. Seven-Eleven Japan had increased its share of the convenience store market since it opened. Seven-Eleven Japan developed an extensive franchise network. Seven-Eleven networks included both company owned stores and third-party owned franchises. To ensure efficiency, Seven-Eleven Japan based its fundamental network expansion policy on the market dominance strategy. In 2004, Seven-Eleven Japan changed the standard size of new stores from 125 squares meters. It offered its stores a choice from a set of 5000 stock keeping units (SKU). Each store carried on average about 3000 SKU's depending upon local customer demand. From its start, Seven-Eleven Japan sought to simplify its operations by using advanced information technology. Seven-Eleven Japan attributed a significant part of its success to the Total information system installed in every outlet and linked to headquarters suppliers and Seven-Eleven distribution centers. Until, July 1991, HO, stores, distribution centers and suppliers were linked only by analog network. At that time, an integrated service digital network (ISDN) was installed. Linking more than 5000 stores, it becomes one of the world's largest ISDN systems that time. Seven-eleven introduced its fifth generation of the total information system, which was still in use in 2004. This system includes hardware like Graphic order terminal, used by storeowner or manager to place order. The items were recorded and brought up in the order in which they are arranged on the shelves. The manager walked down the aisles and placed order by items. During the time manager could access POS data. Once all the order was placed, the terminal was returned its slot at which point the order were relayed by the store computer to both the appropriate vendor and Seven-Eleven distribution center. Scanner terminals read bar codes and recorded inventory. They were used to receive products coming in from a distribution center. The scanner terminals were also used to scan inventory at stores. Store computer linked to ISDN, Pos register, graphic order terminal and scanner terminal. POS register registers all the information about transactions and recorded. The analyzed and updated data were sent back to Seven-Eleven Japan stores via the network. Each store computer automatically updated it product master file to analyze its recent sales and stock management/movements. The main objective of the analysis was to improve ordering process. The information system Seven-Eleven stores to better match supply with demand. The Seven-Eleven distribution centers and the information network played a key role. The major objective was to be carefully track sales of items and offers short replenishments cycle times. This allows stores manager to forecast sales corresponding to each order accurately. The store manager used a graphic order terminal to place the order. When a store places an order, it was immediately transmitted to the supplier as well as distributor center. The suppliers received orders from all Seven-Eleven stores and started production to fill the orders. The suppliers then sent the order by truck to the distribution center. Each store order was separated so the distribution center could easily assign it to the appropriate store truck using the order information it already had. The integrated technology oriented distribution system enabled the supply chain managers to reduce the number of vehicles required for daily delivery services to each stores, even through the delivery, frequency of each item was quite high. The information technologies use by the organization in their supply chain management as a whole and in warehousing operators' management in particular provides several benefits to store manager. This IT enabled system save time, reduces cost, improve processes better and faster, add value, integrate into marketing and provides customer input and mass customization. This also improve forward order window, reduce errors, increase services, reduce down time, reduced inventory and inventory cost, improve tracking and serves existing customers better (Chopra, & Meindl, 2006). 4. Inventory management: Inventory Management or stock management is terms that can be used interchangeably. It is an essential part of managing the supply chain activities. The management challenge is to minimize the stock holding costs while simultaneously satisfying customer demand. In other words, there is a trade off between customer service, levels achieved and inventories held. There are number of tools and techniques that enable managers to manage the tradeoffs involved in managing inventories and balancing customer service levels. One of the traditional models of inventory is Economic order quantity (EOQ). This particular technique is used to determine EOQ, lot or batch sizes. The objective is to order quantities that minimize the cost of ordering and the cost of holding stocks. A number of assumptions apply in EOQ model which may be summarized as a) demand in constant b) Re-orders when made can be delivered with out any time delay c) Prices do not fluctuate between order periods; and d) no small order surcharges apply (or discounts for higher quantities). These restrictions are quite limiting but the model can be adapted to take account of variation. In these models, there is note time and inventories are replaced immediately when required. Reorder point is reached when organization would need to place an order to replenish the stock. Organizations sometimes anticipate the effect of being out of stock. In order to avoid this position and maintain supplies, it is essential to hold a buffer. This increases inventory cost as well as holdup costs. Recent focus on managing the supply chain has switched from simply organizing suppliers of materials towards managing customer demand. With the development of ICT, it has become possible to forecast demand more accurately but inaccurate demand forecasts are still a problem. One major challenge facing supply chain managers are how to work across organizational boundaries effectively t6o share responsibility for the accuracy of the market de4mand forecast. Collaboration across functions within the firms involved within a supply chain and collaboration throughout the chain involving both customers and suppliers is needed to achieve this large organization working with large suppliers have been able to response by employing ERP system such as SAP and ORACLE. Collaborative supply chain strategies are important for organizations that recognize that to deliver customer focused products and services. To serve customers better may require different types of collaborative strategies: outsourcing, cooperation agreements in, for example, technical knowledge transfer, strategic alliances, partnerships of various kinds and joint venture arrangements. Many large retailers have shared information with their large suppliers using state of the art information systems that allow point of sale, information to be viewed by the suppliers. One approach to the demand management problem has been for organizations to shift the responsibility for inventory management to their supplying organization VF Corporation, having Wrangler brand develop ranges and fill the store space and are paid when the products are sold out of stores (Hines, 2004). This has several benefits like retailer does not have to manage the inventory, suppliers only produces what is required but have several problems like unwillingness of the retailer to share data, seasonal products are difficult to predict and retailers are vulnerable to suppliers. Just in time is one of many inventory management practices. This is order stock items when required. This avoids the need to hold any stock and consequently avoids risks of obsolescent redundant or waste in inventories. The practice requires the coordination process to be managed efficiently. Demand supply is balanced in JIT system. JIT treats setup and order costs as variable rather than fixed costs implied by the EOQ model. Many organizations have organized their transportation and warehousing capabilities to operate effectively with JIT. Mclachin & Piper (1990) identified 11 benefits of JIT systems: Setup time reduction small lot production& transportation possible, multi process handling through automation, zero defect quality control, equipment maintenance, smoother and mixing of production flows, with drawl by subsequent processes, in-house modification and production of equipment, supply arrangements and employee involvement for continuous improvement. Therefore, we conclude that modern method of inventory management is the most appropriate. Conclusion: After discussing the warehouse layout, space, operations management, use of information technologies as well as modern inventory management, finally we can conclude that as a part of supply chain management system as a whole these subsystems and effective management always play a crucial role in enhancing value of the whole supply chain. In a more competitive world, these strategies and proper improvement in these activities provides organizations and the strategic capabilities to excel and survive through improving efficiencies and effectively. References: 1. Chopra, S. & Meindl, P. (2006) Supply chain management: Strategy, planning and operations, 3rd edn., Pearson education inc. 2. Cooke, J. A. (2000) The physical challenges of the virtual sale, Logistics management and distribution, Oct. pp. 67-73. 3. Frazelle, E. H., S.T. Hackman, U. Passy, and L.K. Platzman. 1994. The forward-reserve problem. Optimization in Industry 2, pages 43-61. 4. Eynan, A., Rosenblatt, M.J., 1994. "Establishing zones in single-command class-based rectangular AS/RS", IIE Transactions, vol. 26, no. 1, pp. 38-46. 5. Hackman S. and Rosenblatt J. 1990, Allocating Items to an Automated Storage and Retrieval System. IIE Transactions, pages 7-14. 6. Hines, T. (2004) Supply Chain strategies: customer driven and customer focussed Oxford: Butterworth-Heinemann. 7. Hines, T. (2004) The emergence of supply chain strategy as a critical success factor for retailing organization. In International retail marketing- A Case study approach (Birtwistle, G., Bruce, M. & Moore, C. eds.) Oxford: Butterworth-Heinemann. 8. Hunter, N.A. (1990) Quick Response in Apparel marketing. Manchester:The textile Institute. 9. IGD (2003). Retail Logistics, London: IGD. 10. Jeroen, P. Van den Berg, Gunter P. Sharp, A.J.R.M. Gademann, and Yves Pochet. 1998, Forward-reserve allocation in a warehouse with unit-load replenishments. European Journal of operational Research, pages, 1-13. 11. KSA (1987) New Technology for quick response: how US Apparel manufacturers can capitalize on their proximity to the US market getting started in quick response. Arlington: Technology advisory committee. AAMA. 12. McLachin, R. & Piper, C. (1990) Just-in-Time production, business quarterly, summer pp. 36-42. 13. Murphy, P.R. & Woods, D.F. (2004) Contemporary logistics, 8th edition, Upper Saddle River, New Jersey, Pearson Printce-Hall. 14. Schwarz, L.B., Graves, S.C., Hausman, W.H., 1978. "Scheduling policies for automatic warehousing systems: simulation results", AIIE Transactions, vol. 10, no. 3, pp. 260-270. 15. Webster, F.E. (1997). The future role of marketing in the organization. In Lehman, D.R. and Jocz, K.E. (Eds.) Reflections of the future of marketing. Cambridge MA: Marketing Science Institute. Read More