SCHOOL OF MANAGEMENT,ASIAN INSTITUTE OF TECHNOLOGY

Seven-Eleven, Japan

2010
Saurav Srivastava - 109298
Nirmalya Majumder - 109311
Kushal Sundar Shrestha - 110570
Supreeti Pradhan - 109417
Muhammad Diah - 110561
Sutthikarn Sangkawong - 109396
Niyonta Islam - 109464
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Index:

Topic Page No.

1. Summary 3

2. Question 1 5

3. Question 2 7

4. Question 3 8

5. Question 4 10

6. Conclusion 12

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Summary of the Case

Introduction

The -Seven-Eleven Japan Co. case discusses about the rise of Seven Eleven in the Japanese retail store business. At
present Seven Eleven can be found in almost every single country around the globe and it is one of largest super market
chains in the world. The case here analyses the factors responsible for the phenomenal success of the company in the
retail business with a supply chain perspective. The analysis mainly draws attention towards the supply chain strategy of
the company and the performance drivers of seven eleven co. which have lead to a great balance between efficiency
and responsiveness and have contributed positively towards the success of the company.

Company Background

The company was established in 1973 and it had set up its first store in Koto-ku, Tokyo, in May 1974. Seven-Eleven
Japan realized a phenomenal growth between the years of 1985 to 2003. During this period, the number of stores
increased from 2299 to 10303. Seven Eleven Japan represented Japan's largest retailer in terms of operating income and
number of stores. In 2004, Seven Eleven accounted for 60 percent of the total net increase in the number of stores
among the top 10 convenience store chains in Japan. This growth has been very carefully planned, exploiting the core
strengths that seven-eleven Japan has developed in the areas of information systems and distribution systems.

The company was first listed on the Tokyo Stock Exchange in October 1979. In 2004, the Ito-Yokado group was entitled
as the owner of Seven-Eleven in Japan. This group also manages a chain of supermarkets in Japan and owns a majority
share of Southland Company which is managing Seven-Eleven in United States. During 1985 and 2003, the number of
Seven-Eleven stores in Japan 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. In 2004, customers’ visit to Seven-Eleven was 3.6 billion
averaging almost 30 visits to Seven-Eleven annually for every person in Japan.

Competitive Strategies

According to seven-eleven “filling in the entire map of Japan is not our priority Instead, we look for demand where
Seven-Eleven stores already exist, based on our fundamental area dominance strategy of concentrating stores in specific
area”

The growth of Seven-Eleven is the result of excellent distribution system, information, integrated store information
system and variety of store services. Seven-Eleven was one of the few businesses which continued to grow even during
the financial crisis of 1990s there were a number of reasons behind the exponential growth

1. Seven-Eleven was the first company to introduce point-of-sales system in 1982.

2. It had established an extensive network of franchised stores (both company owned and third party owned)
which played a crucial role in its exponential growth during 1991 to 2002. The franchise network helped it in
following ways
 Boosted distribution efficiency
 Improved Brand awareness
 Increased system efficiency
 Enhanced efficiency of franchise support services
 Improved advertising effectiveness
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 Prevent competitors entry into the dominant area

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 Thus franchisee network helped it increase the profitability and hence maintain its dominance.

Fiscal year ending in 2000 (billion yen) 2004(billion yen) ANALYSIS(%

February (in BILLION INCREASE)
YEN)
Net Sales 1964 2343.2 19.31%
Revenue 327.0 445.4 36.21%
Ordinary Income 140.2 168.9 20.47%
Net Income 68.2 91.5 34.16%

3. Seven-Eleven starts too emphasized more on regional merchandising to attract the local preferences in terms of
food items, beverages, magazines etc. This helped them to increase the sales.
4. Customer Focus - Seven-Eleven’s store size changed to 150 square meters from 125 square meters so that they
can offer more goods to the customers.
5. Use of Technology to reduce any excess in Supply Chain - Seven eleven joined hands with NEC. This helped them
to design with better information system that was ISDN enabled with e-commerce. NEC develops graphic order
terminals, scanner terminals, store computer and pos register. With the help of graphic order terminal
implementation seven eleven equipped itself with better visibility and networking.
6. With combined delivery system they reduced the delivery time, reduced number of vehicles. Seven Eleven was
able to reduce the number of vehicles from 70 in 1974 to 11 in 1994 a reduction of 84.28%.

Seven Eleven was able to achieve the following

1. Store assessment that increased productivity of inventories and store space within consumer interface
2. Optimized time and cost in with the help of Seven-Eleven replenishment
3. Efficient promotion in maximizing total system efficiency of trade and consumer promotion
4. Product introduction reflect effectiveness of new product development and introduction activities

The following are the strengths and weaknesses which were internal to Seven Eleven
Strengths
1. DSD (Direct store delivery) and CDC (Combined distribution centre) makes seven eleven networking
strong.
2. Combined distribution system saves time.
3. Seven Eleven effectively does Micro matching of demand and supply.
4. Seven Eleven have various Franchises which also help in stronger branding.
5. Implementation of IT like connecting through ISDN, wide screen graphic display helps in
smoothening of flow of information.
6. Seven Eleven have very effective store management and transportation system.
Risks
1. Dedicated employees needed as there is a hard work for the inventory movement.
2. Improving ability means reducing constraints is the biggest risk.
3. As seven eleven had drastically reduced the vehicles they don’t have any backup plans. If the vehicle breaks
down the system of delivery breaks down.
4. Seven eleven is connected through IT systems if IT system breaks down their whole system breaks down
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which is the biggest risk in their networking.

Supply chain advantage – Advantage of maintaining a lean system

One critical component of successful supply chain management (SCM) is tight integration among supply chain
partners—by sharing information. Recent advances in information technology and the basic premise of SCM have
contributed to the trend of information sharing. Information sharing allows the supply chain to achieve efficiency
gains in various forms like lower inventories, higher service levels, lower logistics cost, and better customer satisfaction
with fresh products. Types of information shared by supply chain partners are point-of-sale data (POS), sell-through
data, inventory levels, demand forecasts, order status, performance measures, and production schedules. An important
aspect of such information sharing is that it takes place at the supply chain level, beyond the boundary of an enterprise.
A supply chain that acts on fast flows of information is here called data-rich supply
chain management. Our key case of learning data-rich SCM is Seven Eleven Japan (SEJ)—the leading convenience store
chain in Japan.

1: 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?

Answer: As responsiveness increases, the convenience store chain is exposed to greater uncertainty. A convenience
store chain can improve responsiveness to this uncertainty using one of the following strategies, especially for fresh and
fast foods:

Increasing Local Capacity: The convenience store chain can provide local cooking facility at the stores and assemble food
on demand. Inventory can be stored as raw material for local cooking facility. The same strategy can be seen in use at
the U.S. fast-food restaurant franchise Subway where dinner and lunch sandwiches are assembled on demand.

Risk - The main risk with this approach is that the capacity is decentralized, leading to poorer utilization of the resources.

Local Inventory: Another approach can be to have all inventories available at the store at all times. This allows for the
centralization of cooking capacity. The main risk is obsolete inventory and the need for extra space. If the convenience
store maintains high level of inventory, it increases the holding cost that make convenience store less efficient.

Risk -The inventory can be wasted, because of uncertainty of demand. In high level of inventory there is very low margin
of error in forecasting, so it can increase wasted and also increase the supply chain cost.

Rapid Replenishment: Another approach is to set up rapid replenishment and supply the stores with what they need
when they need it. This allows for centralization of cooking capacity and low levels of inventory, but increases the cost of
replenishment and receiving.

Risk – When the products are quick replenish in different location, it increase the transportation cost and capacity also
increase the holding cost.

Extensive use of Information System: This can help predict demands with great accuracy and also help the store
decrease the associated costs with inventory replenishment like transportation cost, holding cost etc. The fixed cost of
information system is very high.

Risk – With the entire system heavily dependent on information systems there is a huge risk of operations goin haywire
in case of network failure. The fixed cost involved is very high.
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By making strategic fit in vertical and horizontal strategies of convenience stores that can make more responsive and
support to achieve the competitive strategy: If the company goes for strategic integration based on cost benefit analysis,
there would be a reduction in the dependency on outside firms thus leading to a more predictable response.

Risk – Financial predictions may go wrong with respect to the forward and backward integration.

Facilitate the customer by location and increase in capacity: This can be achieved by having bigger stores with greater
capacity and by also having more stores within same area and having a minimum distance for optimum sales for both
the stores.

Risk – Having too many stores too close to each can have cannibalizing effect on the stores.

A Supply chain could accurate its responsiveness if it is able to improve in these criteria:
- 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

Highly dynamic, globalized and competitive environment, companies are under pressure to improve their supply chain
strategies in order to be more responsive to customer demands. In the case of convenience stores, as this type of
business doesn’t have a very certain demand, the need of having a supply chain system that can act responsively is
important for the success of the stores.

One of the very important elements on a supply chain management is the handling of information. The more the
information shared in between the different actors of the supply chain flow, the more flexible and responsive this supply
chain would be. In this case we can see how 7eleven Japan applied this whole new system based on information sharing
between the shops, distributors and suppliers. This new focus gave 7eleven advantages such as saving time in placing
orders, delivery process. Also advantages on demand analysis as they could see which products were bought and at
what frequency and time, this helped them to organize the store in relation with their sales. This also permitted 7eleven
to study new products entrance and costumer reactions to them.

Risks:
- Irregularities and disruptions occurring at any point in the system make responsive supply chain management even
more challenging.
- As relying intensively on information technologies, we risk to have a major break down if a system failures
- As lead time’s decreases, any malfunction of the parts will have much more impact on it.
- Because the wide range of quantities demanded, the uncertainty of number of transport units is always present 6
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2: 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?

Answer: One of the very important elements on a supply chain management would the handling of information. The
more the information shared in between the different actors of the supply chain flow, the more flexible and responsive
this supply chain would be. In this case we can see how 7eleven Japan applied this whole new system based on
information sharing between the shops, distributors and suppliers. This new focus gave 7eleven advantages such as
saving time in placing orders, delivery process. Also advantages on demand analysis as they could see which products
were bought and at what frequency and time, this helped them to organize the store in relation with their sales. This
also permitted 7eleven to study new products entrance and costumer reactions to them. But the main risk for Seven-
Eleven is the potentially high cost of transportation and receiving at stores.

Risks of micro-match supply and demand for 7eleven using rapid replenishment are:

 Sensitive to regularity:
Irregularities and disruptions occurring at any point in the system make responsive supply chain management
even more challenging. The process from ordering the products to selling them needs to be done accurately and
on timely basis. If there is interference in any part of the process, Seven-Eleven will face a lot of difficulties.

 High dependence on Information System:

As relying intensively on information technologies, they risk to have a major break down if a system fails. Seven-
Eleven has attributed a significant part of its success to the Total Information System installed in every outlet
and linked to headquarters, suppliers, and the distribution centers. The hardware systems included Graphic
Order Terminals, Scanner Terminals, Store computers linked to the ISDN network and POS registers. Thus,
Seven-Eleven depended heavily on its Information system and supply was matched with the demand through
this technology. Even the distribution depended upon the information network and the store manager could
accurately forecast sales through the system.

 Impact of lead time:

As lead time decreases, any malfunction of the parts will have much more impact on it. Seven-eleven usually
have products which are fast selling and the food products need to be fresh, so the lead time is low. Since the
lead time is low, nothing should go wrong as even a small problem while ordering or receiving the product could
reduce the sales for Seven-Eleven.

 Problem of too many varieties:

Because the wide range of quantities demanded, the uncertainty of number of transport units is always present.
Ordering various varieties of products means different ordering time for different products, so the
transportation cost will be high for Seven-Eleven.

 Rise in cost:
High Transportation cost as the products need to be replenished timely, maybe even several times of the day. As
mentioned earlier, Seven-Eleven has fast selling products like food and drinks which need to be replenished
timely and this means products need to be delivered several times because they try to sell fresh products. This
will lead to high transportation cost for Seven-Eleven.

 Risk of delays in replenishment:

Since 7eleven does not stock up the products, delays in replenishment will be a major problem. The products
which Seven-Eleven sell cannot be stocked up so replenishment should be fast and on time and any delay could
hamper the sales of Seven-Eleven.
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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?

Answer: Facility location

Seven-Eleven Japan developed extensive franchise network expansion using a Marketing-Dominance Strategy to ensure
efficiency. It gave Seven-Eleven a high density market presence and allowed it to operate an efficient distribution
system. Seven-Eleven opened the majority of its new stores in areas with existing clusters of stores. According to the
market-dominance strategy, there are six advantages:

1. Boosted distribution efficiency

2. Improved brand awareness
3. Increased system efficiency
4. Enhanced efficiency of franchise support services
5. Improved advertising effectiveness
6. Prevented competitors’ entrance into the dominant area

For the location, Seven-Eleven stores in Japan tended to be dense as it has limited presence. Seven-Eleven located their
stores by looking at the demand where its stores already exist, basing on Area-Dominance Strategy of concentrating
stores in specific areas.

As the stores are easily accessible for customers, seven-eleven stores in Japan also serve as drop-off and collection
points in the service of 7dream.com, its e-commerce company. Seven-Eleven tried to make its stores have many facilities
to serve customers as many as possible.

Inventory Management

Seven-Eleven Japan offered its stores a choice from a set of 5,000 SKUs (stock keeping units). Each store carried on
average about 3,000 SKUs depending on the local customer demand. Since processed and fast foods contributed about
60% of the total sales at each store, Seven-Eleven Japan had 290 dedicated manufacturing plants that only produced fast
food for their stores. Economy of scale, easier to organize the resources and manage the inventory of the plant are the
reasons why having separating plants to serve specific product or service is better. This is also the same reason as Seven-
Meal Service co. which was established just to serve the aging Japanese population on meal delivery.

As Seven-Eleven uses many both hardware and software systems to help in managing the store information system,
seven-eleven also use those collected information to analyze and update data of each seven-eleven store. Each store
computer automatically updated its product master file to analyze its recent sales and stock movements.

The information system allowed seven-eleven stores to better match supply with demand. Store staff could adjust the
merchandising mix on the shelves according to consumption patterns throughout the day. When a new product was
introduced, the decision whether to stock it was made within the first three weeks. Each item on the shelf contributed
to sales and margin and did not waste valuable shelf space.

According to the applying of Combined Distribution Center (CDC) in Japan and US, fresh foods suppliers will send
products to the CDC during the day where Seven-Eleven will deliver to its stores at night. Therefore, the inventory
turnover rate in Japan was over 50 while in North America was about 17. However, the performance of North American
inventory management together with the delivery system shows an improvement.
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Transportation

Seven-Eleven has a very comprehensive distribution system that linked the entire supply chain of all products. This helps
them track sales of item and offer short replenishment cycle times and also allows store manager to forecast sales on
each orders.

Seven-Eleven has offered the store delivery services as shown below:

Item Delivery Times per day

Rice 3x
Bread and other fresh food 2x
Ice cream Daily on Summer
Three times a week other times

The delivery system was shown to be flexible and can alter delivery schedules demand on customer demands. The
replenishment cycle time has also been shortened further.

The graphic order terminal helps in cutting off times for breakfast, lunch and dinner ordering. The ordering and delivery
procedure system of Seven-Eleven supply chain helps on reducing the delivery time spent on each stores, the process is
simplified as below:

 Placing an order through the graphic order terminal, the order was immediately transmitted to the supplier and
the distribution center
 The supplier that received orders from all Seven –Eleven stores, it will start to production to fulfill the order
 Then supplier sent the orders to the distribution center by truck
 The distribution center will assign different store truck accordingly to the different store order separately
 Seven Eleven then employed the “combined delivery system” to their delivery on their truck. Combined delivery
system literally means to directing product from different supplier into a single temperature-controlled trucks.
The truck comes in four categories: frozen foods, chilled foods, room-temperature processed foods and warm
foods.
 Each truck then made delivery to multiple retail stores. The numbers of retails stores are per truck are
dependent on the sales volume.
 Deliveries are made off-peak hours and uses scanner terminals when receiving.

One important features of this system is they do not require the delivery person to be present at the store, or when the
sore personnel scanned in the delivery. It was a trust based system, this reduces the delivery time spent to each stores.
Overtime from 1974 to 1994, the number of vehicles use for daily delivery service has been reduced from 70 to 11
because of the improving distribution system. This reduces the delivery costs and enables rapid delivery.

By 2004, Seven-Eleven has 290 dedicated manufacturing plants in Japan to produce only fast food for Seven-Eleven
stores while going through 293 dedicated distribution centers for rapid delivery. These distribution centers do not carry
any inventory. They just transferred inventory from supplier trucks to seven-eleven distribution trucks.

In USA, the distribution structure was completely different from in Japan since stores in US were replenished using
Direct Store Delivery (DSD) by some manufacturers. The products which are left were delivered by wholesalers. In
addition, with the goal of fresh products, they introduced the concept of Combined Distribution Center (CDC) to deliver
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fresh foods once a day. A variety of fresh-food suppliers sent product to the CDC throughout the day and products will
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be delivered to the stores at night.

Information Infrastructure

Seven-Eleven added services which involve in information infrastructure set up such as the in-store payment of Tokyo
Electric Power bills, the utility bills payment including gas, insurance premiums and telephones. It accepted installment
payment on behalf of Credit Company, selling ski lift pass vouchers, mail-order purchase and internet shopping
payment. There is also the ticket sales service which used multifunctional copiers and being the pickup location for
parcel delivery companies. All of the above service success depend on how well seven-eleven can set up and manage
information between their customers and their service partners. They exploited the existing Total Information System in
the store.

Seven-Eleven simplify its operations by using advanced information technology. It attributed to the Total Information
System installed in every outlet and linked to headquarters, suppliers and the Seven-Eleven distribution centers. Seven-
Eleven was the first company in Japan to introduce a Point-Of-Sales (POS) system comprising POS cash registers and
terminal control equipment. An Integrated Services Digital Network (ISDN) was installed. Linking more than 5,000 stores
in Japan and it is one of the world’s largest ISDN systems. The two-way, high speed online communication capability of
ISDN enabled Seven-Eleven Japan to collect, process and feedback POS data quickly. Sales data gathered in each store by
11 pm was processed and ready for analysis the next morning. Seven-Eleven stores have hardware system as the
following: Graphic Order Terminals for placing orders were linked to the store computer, Scanner Terminals scanned
deliveries from the distribution center, Store Computers were linked to the ISDN network and POS Registers were linked
to the store computer.

4: Seven-eleven is attempting to duplicate the supply chain structure that has succeeded in Japan in the United States
with the introduction of CDCs. What are the pros and cons of this approach? Keep in mind that stores are also
replenished by wholesalers and DSD by manufactures.

Answer: Combine Distribution Centers is methodology of supply chain, where distributors supplies the ordered products
to the centralized unit of a company and then, from where company further supplies the inventories to its diverse
situated outlets. With practice of CDC, the quality of the products supplied along the supply chain can be verified and
control from the single centers, which reduces the supervision, and controlling cost.

Pros:

1. Improved Economies of scale

All the items required for the stores diversely located can be tracked to assigned distribution center, doing this leads to
have economies of scale for the procurement and distribution. When products purchased in bulk from the
manufacturer, it leads to enhance buyer’s power, ultimately leading to minimizing product cost along with reduction of
procurement cost, where as in the procurement process, certain cost can be assumed to be hidden. Along with
procurement, economies of scale can also be achieved for distribution of the products along the supply chain.

2. Supervision and Control for Products and Supply Chain

With practice of CDC, the quality of the products supplied along the supply chain can be verified and control from the
single centers, which reduces the supervision, and controlling cost. This is another advantage of centralized distribution.

3. Enhance the information regarding the consumer behavior and buying pattern.
When CDC is practiced, the information can be allocated in terms of the products supplied and consumer behavior, to
enhance the sales and manipulate the information for additional benefits. The information can be utilized to promote
products that depend on the demand of other products. For example, at those stores where the sale of coffee is high,
we can supply additional sugar and milk that is required for the coffee. As demand sugar and milk is depended on the
demand of coffee.
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4. Reduce the Workload at the stores.
When the inventory is delivered only once a day, this shall make life easy for staff as they shall have schedule time to
spend on inventory management, hence they can provide much of their remaining time completely focusing on the
customer need and customer satisfaction.

5. Lower Inventory Management Cost

Inventory management, is considered to be one of the difficult task in supply chain management, as to store products,
provide right product at right time isn’t an easy job. Inventory management is incurs huge cost, which can be reduced by
practicing CDC. When CDC is practiced, due to economies of scale, the inventory management cost is reduced. The
warehouse, human resource, information system, technologies, skills can be shared in the large scale, resulting lower
inventory management cost.

6. Concentrate more on Customer needs.

To meet customer needs, products must be delivered just in time and only when needed. Store concentration based on
our area-dominance strategy ensures efficient distribution routes, and thus makes just in time delivery possible.

This system is intended to combine various types of goods from a variety of products and then combined in the storage
center to be distributed collectively to the small shops. in prioritizing the delivery of products to area-dominant
strategies in hopes of meeting customer needs.

7. Improve Distribution Efficiency

To provide customers with worthwhile products, CDC can be use to deliver good on right time as required and minimize
cost. In the concept of CDC, the efficiency of distribution is to be the main consideration in the delivery of goods. In the
concept of CDC, the efficiency of distribution is to be the primary consideration in the delivery of goods. By increasing
efficiency, it is naturally expected to increase profits for the company.

Cons:

1. Difficult to control effectively

Despite CDC as overall is very effective in the process of distributing the product, it was rather difficult to control
effectively because the process dependent on one distribution center.

2. Difficulty in managing change for new Distribution System.

Introducing a new distribution system is not easy to do because it takes time for adjustment, especially for middle
managers and employees who are familiar with the old distribution patterns.

3. Difficulties in implementing distribution

The number of products to be distributed to the shops at the same time is a little difficult for the suppliers of the
product, considering the amount of the existing store is so many in the different areas.

4. Inflexible Distribution system

Deliver of the inventory is made in a fixed time schedule under CDC; the supply chain cannot be modified as per change
in requirement.

5. Inability to reflect customer needs.

When CDC is practiced, organization need to purchase the inventory in bulk, which is advantage, but on the other side,
different outlets might be reflected by different customer needs. Hence the needs of lower customer base are neglected
as the demand isn’t sufficient to place an order to the vendor, to have cost advantage

6. Higher dependency
When CDC is practice the outlets get dependent on the centralized warehouse, the failure to receive the inventory in
time leads to lower sales for the outlet.
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7. Slower compared to DSD.
CDC can be considered to be slower than DSD, because time taken by CDC to received order and deliver the goods are a
lengthy process. In terms of DSD outlets can enjoy independence, they can directly place an order to the vendor and
direct delivery is made by to the outlet by the vendor.

CONCLUSION:

Thus we realize that by integrating the supply chain certain constraints of business can be minimized and customer
service levels can be improved through extensive use of information technology systems. With the help of models like
CDC and DSD incorporated better, more valuable supply chain network can be developed which help although indirectly
but affect the business in subtle way . The seven eleven company in its business services used effective supply chain
practices and IT infrastructure within their distribution centers enabling effective information flows and streamline
supply logistics. Thus right logistics and collaborations provide imperative business operation benefits considering the
majority of customers worldwide.

Reference:-

- http://www.scribd.com/doc/20573982/Seven-Eleven-Case-Analysis
- The Seven Eleven case study material.

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