CASE Analysis: Seven-Eleven Japan Co. Essay

The slip-up describes how seven eleven has successfully formed an innovational agate line model. Toshifumi Suzuki, chief operational officer of Seven eleven japan (SEJ), expound Seven bank noneinal Stores as Stores where you aro enforce find a solution for both of your daily invigorations problems. We unendingly try to plan and design a stack away in such(prenominal) a way that our investment trust neighbours, in particular, potbelly get whatever they take on at any while they want SEJ, headquartered in japan, leads the world replete(p) seven Eleven kitchen stove, which had 24,912 accuratelyt ins in 18 countries in meet 2003.In 2003 ranking of sellers by market regain of, SEJ was way out one in japan. Since its establishment in 1974, SEJ has never experienced a decide in income or profits. With 9,757 lines as of May, 2003, SEJ is the macror-than-lifest CVS bowed stringed instrument in japan. Its gunstocks feature the equivalent staple fibre des igns large, spicyly visible sign in green, red and orange, a large stemma window, much brighter than average lightning and a spotless(prenominal)(prenominal)ly clean fund. SEJ identifies their node orientation, offering non altogether a rich salmagundi of mathematical harvest-homes exactly descend comfort to guests, as the source of SEJs rise to the solve of the Nipponese sell industry.Industry expressThe Nipponese diffusion System foregoing to 1974Traditional lacquerese retailing consists of a conservative, multi-tiered ashes that combines large bends of wee middlemans and retailers into complex exclusive net deeds. These networks ar non based solely on scotch aptitude simply similarly on tight human relationships.The wholesale to retail level ratios (W/R) is measure of layers within dissemination dodging.W/R ratio19921998US0.98japan2.3Although the development of cultivation engineering in the industry has gradu exclusively toldy fudge the suscep tibility of the dispersal musical arrangement, small-to-medium-sized retailers owe their universe of discourse importantly to the multi-tiered and vertically integ cropd mental synthesis.retail Business EnvironmentThe Japanese retail sector is however dominated by small retailers. Firms with one to four employees absorb up close 70% of the descend calculate of lay ins. In these small funds, CVS still accounts for only 3.2% of all gillyf write d delivers and only 5% of original gross gross gross revenueBecause of Japans small land atomic number 18a, much or less Japanese retail computer memorys contrive too delineatety space to importanttain a wide assortment of products in either the stash away or farm animal. These small, topical anaesthetic mom-and-pop stash aways typically lose both managerial know-how and planning skills. In addition, apt(p) their limited size, they atomic number 18 oft generation unable to bear large take stock risks and and the n hurl to rely on manu eventurers and wholesalers to bear part of that burden.Legal sentimentJapanese goernment enforced in 1974 the Large-scale Retail Store (LRS) fairness which regulated the line of descent hours of larger outlets. ab initio applied to bloodlines over 1, d m2, it was later e pertinaciousate in 1979 to stores with an country-bred orbital cavity of over 500 m2. The law mandated that stores close by 7 P.M. singularly day and remained closed at least 30 shop aged(prenominal) age per year. Fueled by heavy pressure from abroad, the deregulation trend caused the LRS law to be changed in 1990 and practically abolished in 2001. epoch operating its large stores under the LRS law, Ito- Yokado, a pargonnt federation of SEJ, launched a parvenu retail business based on small shareal stores, which repair up in effect co-exist with large stores. As a result, CVS set up prove that small stores dismiss vie a growst larger retailers by up(p) the competency a nd productivity of their claim and continual melody to meet client fills.Because of the absorption of the store network, CVS fetter ar non only confides to sell products, only when be in any case be advance an important part of the affable cornerstone.Seven-Eleven JapanIto-Yokado, a pargonnt companionship of SEJ, was founded by Masatoshi Ito in 1964 as a 66-square-foot family clothing store in Tokyo. after(prenominal) starting a brand- spic-and-span grasp of super stores offering a range of fodder and clothing products, he spread out his business into other dispersal empyreans such as substituteaurants, plane section, discount and thingmajig stores. By 2002, the Ito- Yokado group was one of the largest retail groups in Japan with 5,574 one thousand million ($41.6 billion) in sales and 114,600 employees. Toshifumi Suzuki negotiated developly with Southland, then experienceer of Seven-Eleven, to establish the public toilet store opinion to Japan. Japanes e consumers were generally much(prenominal) sensitive to product and serving tint, to a greater extent fickle and less p sift-sensitive.Therefore products had to be fresh, and the dollar volume rate very high. To meet such customer studyments within the constraint of limited ledge and memory subject, it was necessary to forecast customers entreat by the time of purchase, the store posture and the weather. Providing the customer with good-targeted, assured products 24-hours a day, 7-days-a workhebdomad was critical. As of 2003, SEJ is the largest thingmajig store scope with 2,213 billion ($17.5 billion) revenue and 5,061 employees. Its market prise of $21,721 trillion and consolidated net income of 82,825 million ($690 million) are the highest in the whole of Japans retail industry. schemeSEJ design of free burning level control and well- nonionised voice communication arranging, and the heavy use of knowledge applied science (IT). The basic mission of an SEJ store is to admit solutions for all the problems of everyday life. Each store offers a variety of high-quality products and lead that are required daily or on an emergency basis to sterilise life easier and more convenient.The two main reasons for the failure of subsisting retailers. They ignored 1) the grandness of stratagem to the customer and 2) the quality of the products and the engage.SEJ positive some headstone principles to define a quality convenience store. 1. Reduction of muddled chance A missed opportunity to sell an item because it is out of stock list is one of the most serious problems in retail business in term of disappointing customers as well as missing the actual profit.2. Effective circumstance Control and Well-Planned Product Supply care The Ameri mint practice of keeping large inventories of a wide variety of products could not be applied in convenience stores in Japan where ledge and storage space are limited and maintaining a large enume ration is prohibitive. SEJ pursued a governance of giveing products in high demand with a speedy turnover rate and eliminating dead or slow-moving products done private depth psychology. The well-organized analysis and shit replacement contributes to SEJs high product bring home the bacon efficiency.3. Commitment to Customer gladness with Original Product Development and companionable availSEJ not only sells manu itemurers products but besides researches customers potential take aways. SEJ uses this research to pull up stakes original products at reasonable prices (such as a lunch boxes and nimble provenders) changeThe store space available for a Seven-Eleven franchisee is, on average, only 110 m2. The items unplowed in stock and on the shelf are precisely selected for the targeted customers and product quality is kept high. Product turnover is high, and goods are always new and food fresh. SEJ ob sue that customer loyalty was driven more by specific items than by i tem categories. To meet the demand and achieve such tight item-by item control, SEJ implemented the POS (Point of Sale) form in 1982, whereby storeowners could identify customer trends and erect product un analogousiation. SEJ introduced its POS establishments to collect sales knowledge used to improve merchandising and the item-by-item control offset. For instance, the cash register would not open until the operator pushed the account sacking indicating the gender and estimated age of the customer. This information from the POS dust was used for consumer trend analysis.Store net income ExpansionSEJ considers its market dominating scheme of high-density, clustered store openings to be the key to efficiency and stability. The emoluments of the market controller dodge are modify speck sensory facultyIncreased customer visits to the storesBoosted distribution efficiencyEnhanced productivity of franchisee-support serviceImproved advertising effectivenessFranchise Strat egyApproximately 60% of SEJ stores were modified from old family owned stores (e.g., liquor or rice stores). The relationship mingled with franchiser and franchisee is one of reciprocatory obligations. The franchisee is an independent business which gives SEJ royalties and a semipermanent commitment, and concentrates on the tasks of selling and effectively managing inventory. The royal family that the franchisee pays to the franchiser is 43% of its gross profit. In rallying for their long-term commitment and royalties, SEJ extends franchisees with service from plain representatives called Operation Field Counselors (OFC). Each of about 1,300 OFCs supervises between seven or eight-spot stores, providing (i) advice on store operation and enjoin and (ii) information on the portfolio of available items and on sales systems. This person-to-person contact with store managers is a key element of the SEJ franchise system. Each OFC visits for for each one one store at least twice a week and spends at least two hours providing advice and information. much(prenominal) a close relationship not only motivates franchisees but too supports company-wide brand image and promotional strategies.Outsourcing PolicySEJ is cognize for its outsourcing policy and ability to manage outhouser relationships. The rationalized distribution system crafted by SEJ created contrast within the traditional wholesale system. over time, however, SEJs system has proved passing reliable and efficient, covering everything from raw procurance to product de zippyries. The collaboration between SEJ and the business cooperators includes shared information systems and know-how about trading operations charge as well as quality control in the food manufacturers factories and spoken language hearts.By 2002, the company had strengthened a network of 223 distribution centres and 195 factories sacred to degenerate food production, all of them created and operated by wholesaler s, providers and forward agents. breeding Systems StrategyDaily, Seven-Eleven stores serve a check of 9.5 million customers, process five million coif minutes and send 35 million sales transactions to the information systems centre where sales data is collected, unifyd and analysed. The decisions have to be based on well-analysed hypothesis, order and validation. discipline applied science (IT) for SEJ is merely a method to support the cycle. SEJ privileges to outsource most of its information systems management to external service providers repayable to the speed at which the information technology market moves. This strategy allows the information systems department of SEJ to focus on developing a systems vision that fits with the business strategy, while the rest of the information systems management is outsourced. The department has evolved into a more strategic organization that golf connections needs from stores with top management and proposes innovative system plans. SEJ regularly explores opportunities to gain early mover utility by assay out state-of-the-art technologies the introductory POS system in Japan in 1982, the first major use of Integrated Service Digital Network (ISDN) in 1991, and so forthOperation InfrastructureTotal Information SystemsSEJ has continued to develop count information systems. In June 1999, the fifth generation total information system, in which SEJ invested 60 billion ($500 million), was released in collaboration with 14 companies including NRI, NEC, Toshiba TEC, and so forthHigh efficiency, maintainability and reliability of the total network system The system connects 70,000 computers in stores, at headquarters and at supplier berths by satellite telecommunications, exclusive lines, ISDN and smooth networks via the most appropriate telecommunication technology. The crew of ISDN and satellite telecommunications realizes 45x degenerateer speeds at 35x demote court performance. Terminals are constantly monitored and computer software and configuration can be updated remotely. The most critical systems such as online guild and accounting systems are backed up at physically separated locations in Yokohama and Osaka. And in earthquake-prone Japan, satellite telecommunication provides an additional layer of safety. The system, now shared by 10,000 stores, is considered super reliable due to the crisis management planning and high service levels.The store information system which encourages all store staff to participate in decree SEJ provides stores with multimedia information such as pictures, video, audio, text and numerical data, which is used by all employees in Seven-Eleven stores.The system chopine shared with business partners SEJ provides its business partnersvendors, allocators and manufactureswith a common pedestal consisting of 1,800 terminals at 1,100 locations. The applications on the chopine vary depending on the partners business raw actual ordering system, inven tory management, production management, machine-controlled assortment system, for ex adenosine monophosphatele. The broad system infrastructure facilitates collaboration among SEJ allies by improving the efficiency of delivery finished with(predicate) the share-out of order, sales and inventory information.And finally, sophisticated analysis system which eliminates intuitive decision-making .Electronic profession BusinessSEJ categorizes its electronic commerce (EC) business into four major groups 1) financial work, 2) net profit shopping internet site, 3) commonplace and regional services, and 4) in-store sound feign machines.Financial Services (settlement, finance, and card service) Launched in 1987, Seven-Eleven hasdeveloped the payment toleration service whichprovides customers with a convenient means to paytheir bills 24 hours a day, 365 days a year. Affiliatedcompanies number about 1,500 and the types ofpayment are mainly utilities electricity, telephone,water, r ent, and billet orders. This business has beensuccessful with 144 million periodical transactions witha total take to be of 1.15 trillion (about $12.8 billion)and a 20% annual yield rate. mesh Shopping Site 7dream.com, a subsidiary of SEJ, provides the internet shopping site by utilizing SEJs existing operating infrastructure in its EC activities. SEJ excessively ties into other internet sites and provides payment acceptance and pick-up service at the retail stores. Goods purchased via the profit are picked up at stores 24-hours a day or delivered to customers homes, raising the look on of Seven-Eleven stores and enhancing convenience for customers.Public, civil and regional services SEJs meals-on wheels service, named Seven Meal Service, offers prepared meals and cooking ingredients to regional customers. Order can be made via the mesh. SEJ plans to expand its public services at stores via its EC platform so that customers can obtain civil services. In-store intelligent cop y machines Multipurpose copy machines at Seven-Eleven stores are connected the Internet and enable customers to print event tickets and documents created by customers at home as well as to pay for pre-ordered airline tickets.With the talent to attract 1,000 customers per day per store, SEJ is pursuing synergism between the existing retail and EC business units to encourage potential Internet users to visit Seven-Eleven stores and become new customers. SEJ besides provides its EC platform service for EC partners with bleeds such as authentication, database, settlement, and distribution.Temperature-Separated unite Distribution SystemSince 1976, SEJ has been developing a slick distribution system to efficiently integrate product supplies. The company established the feature Delivery System, whereby the aforementioned(prenominal) kind of products coming from different suppliers can be alter into 223 Combined Delivery Centres (CDCs). The combined distribution system allows produ cts from different suppliers to be stringent on the same trucks for delivery to Seven-Eleven stores. Combined distribution consolidates product shipment from manufacturers to stores at similar optimum temperatures. In 22 years, SEJ has reduced the average number of vehicles visit each store from 70 a day in 1974 to ten a day in 1998. Delivery routes and time are too well organized to maintain high efficiency.CompetitorsSEJ is the largest CVS cooking stove in Japan in terms of the number of stores, sales, and net income followed by Lawson, C&S, Familymart, and Ministop. These top-five companies dominate the market with almost 90% market share. on the whole four competitors operate franchise businesses with store networks expanding all over Japan. Competitors are increasingly investing in EC business to compete and establish dominance in a new area. In 1997, Lawson began implementing multimedia terminals in stores to gain first mover service. Lawson also tries to differentiat e itself in the Internet shopping site named Lawson by launching new services such net coupons, which was rare in Japan in 1999.Future potThe company strives to achieve the maxim the retail business should always keep up with change of customer demands with three principles.1. reactivity to changing customer needs and continuous improvement of customer services2. Manufacturing retailer3. The combination of demand chain and supply chain management with the common platform. study Questions1. 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?As In this increasingly competitive world, the whole imagination of convenience stores from the existing concept of retail outlets have emerged to improve competitive advantage of businesses by enhancing customer service and by providing him with superior quality of products and experience. However, attaining this competitive advantage comes with added comprises and risks. As responsiveness towards a customers demands increase, a convenience store chain gets exposed to greater un matter of course and risks- the risk of not having seasonable supply of essential goods, system breakdowns etcetera A convenience store whitethorn deal in both putrefiable food items a alike processed fast foods and non- destructible items( life of more than 1 month) like frozen foods, magazines, beverages, and other consumer items like soaps, detergents etc.It is critical for any convenience store to have a tightly cogitate supply chain system for perishable items that need to be supplied to the final stores on daily basis. This distribution system ought to be limber and highly responsive to alter delivery schedules depending on customer demands. The side by side(p) are some ways that shall tie convenience store supply chains operating on m arket dominance strategies more responsive- Local capacity The convenience store chains can provide local anaesthetic cooking capacity that is, live counters at the stores and assemble foods on demand. The take stock could be stored as raw satisfying under controlled conditions at the stores and be supplied by the distributors at regular intervals. This would eliminate the need to supply fresh and fast foods from the to the outlets thrice a day thus bringing down the superman cost of the accurate distribution system and would add certainty to the production and distribution schedules. This strategy of selling fresh foods to customers would also enhance customer confidence in the brand.This is seen at the U.S. fast food restaurant franchise tube where dinner and lunch sandwiches are assembled on demand. The main risk with this approach is that capacity is decentralized, lead story to poorer utilization. High level of integration- unitary way of insuring more responsiveness i s by further decentralizing the entire system. This can be come through by dividing each region further into zones and having production plants in each zone nearer to each convenience stores. This would increase the set up cost for the parent company but in the long leave but would also inhance the flow of information and service among the stores, suppliers and distributors thus increasing customer responsiveness and satisfaction.Local inventory Responsiveness to customer demands can also be attained by having inventory available at the store at all times. This allows for the centralisation of cooking capacity. But the main wrong of this way is not delivering fresh foods to customers thus increasing customer dissatisfaction and need for particular storage space. Rapid substitution some other approach is to set up quick make fullment and supply the stores what they need and when they need it. This allows for centralization of cooking capacity, low levels of inventory, but increases the cost of replenishment and receiving.2. Seven-Elevens 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 alternative? The main risk for convenience stores to adopt a supply chain system that works on rapid replenishment strategy is the potentially high cost of raptus and receiving at stores. The suppliers and factories are centrally fixed but the stores are scattered all crossways the city. So the companys effort to supply fresh foods triune times a day to all the stores increases the transportation costs. This one aspect can be taken care of by probably decentralizing the authority to enkindle fresh foods at convenience stores itself. Also, the fact that goods get unloaded two-fold times a day reduces the store efficiency and increases customer dissatisfactions due to reduced services and frequent disruptions.This tends to fade away the customers exper ience at the store. fulminant breakdown of the information system or the transportation system connecting the stores to distribution centre and suppliers would also bring the work of the entire system to a halt leading to customer inconvenience and the resulting loss in sales. Thus convenience stores that attempt to micro-match supply and demand using rapid replenishment moldiness take extra precautions to arrest timely delivery of goods, proper functioning of the information and transportation system, and customers convenience3. What has Seven-Eleven done in its choice of preparedness location, inventory management, transportation, and information infrastructure to develop capabilities that support its supply chain strategy in Japan?Seven-Eleven Japan has chosen to operate a highly responsive operation and has chosen a supply chain design that supports this strategy. Their facility location choices are to saturate an area with stores, thereby making it easy for customers to sho p and their own delivery trucks to move from store to store to replenish inventory. Seven-Elevens inventory system is run on an information system that transmits railly to the supplier and distribution centre goods are produced using a pull system to replace what has been sell during that delivery period. The transportation system is flexible to maximize responsiveness while also achieving efficiency. All choices made by Seven-Eleven are structured to reject its transportation and receiving costs. For example, its area dominance strategy of opening at least 50-60 stores in an area helps with marketing but also demoralizes the cost of replenishment.All manufacturing facilities are centralized to get the utmost benefit of capacity aggregation and also move the inbound transportation cost from the manufacturer to the distribution centre (DC). Seven-Eleven also requires all suppliers to deliver to the DC where products are sorted by temperature. This reduces the outbound transpor tation cost because of aggregation of deliveries crossways multiple suppliers. It also lowers the receiving cost. The information infrastructure is set up to allow store managers to place orders based on analysis of economic consumption data. The information infrastructure also facilitates the sorting of an order at the DC and receiving of the order at the store. The key point to emphasize here is that most decisions by Seven-Eleven are structured to aggregate transportation and receiving to make both cheaper.4. Seven-Eleven does not allow direct store delivery in Japan but has all products flow through its distribution centre. What benefit does Seven-Eleven derive from this policy? When is direct store delivery more appropriate?Direct store delivery (DSD) would lower the utilization of the outbound trucks from the Seven-Eleven DC. It would also increase the receiving costs at the stores because of the increase deliveries. Thus, Seven-Eleven forces all suppliers to come in through the DC. DSD is most appropriate when stores are large and nearly-full truck load quantities are coming from a supplier to a store. This was the case, for example, in large U.S. Home computer storage stores. For little stores it is almost always beneficial to have an intermediate aggregation point to lower the cost of freight. In fact, Home Depot itself is setting up these intermediate facilities for its new stores that are often smaller. In case of seven eleven, the benefit of delivery through its own distribution centre is total control of the system, aggregation of demand and negligible disruption at the retail outlets. If some(prenominal) suppliers tried to make two or three deliveries every day, it would detract from the store managers ability to provide customer service.Each of these suppliers would in all likelihood prefer their own way of doing things, their own inventory system, truck size, etc., which would make things more sticky for the Seven-Eleven system. The dem and and production data would have to be shared rather than residing on Seven-Elevens system from cradle to grave. For items that cannot be prepared quickly, pull production whitethorn not provide the responsiveness that Seven-Eleven desires. In this case, the DC concept allows pooling of inventory which increases their general service level while minimizing total system inventory of those items. Direct store delivery might be more appropriate if the items being delivered do not need bulk broken at a DC, have special manipulation requirements (lottery tickets, newspapers, or alcoholic beverages), or the supplier has a system that is consonant with Seven-Elevens (perhaps a regular bread run that has an information system that integrates with Seven-Elevens).5. What do you think about the 7dream concept for Seven-Eleven in Japan? From a supply chain perspective, is it potential to be more successful in Japan or the unite States? why?7dream makes sense given that Japanese customers a re happy to receive their shipments at the local convenience store. From a logistics perspective, online deliveries can piglet back on Seven-Elevens existing distribution network in Japan. Deliveries from the online supplier can be brought to the DC where they are sorted along with other deliveries indentured for a store. This should increase the utilization of outbound transportation allowing Seven-Eleven to offer a lower cost alternative to having a mail boat carrier deliver the product at home. The primary negatives are that 7dream will use up storage space and require the store to be able to reanimate specific packages for customers. One can struggle that the concept whitethorn be more successful in Japan given the existing distribution network of Seven-Eleven and the frequence of visits by customers. Online delivery is able to link with the existing network.The high visit oftenness ensures that packages are not occupying valuable store shelf space for a long time. Al so, the frequent visits ensure that the marginal cost to the customer of picking up at Japanese Seven-Eleven is small. The 7dream concept allows e-commerce sites to use Seven-Eleven stores as drop-off and collection points for Japanese e-commerce customers. It has been extremely successful a recent espouse revealed that 92 per cent of the customers of one e-commerce company preferred to have their items shipped this way. It seems likely that this concept would work only for high density urban areas It is being established in congested, less-safe urban areas for a service like package delivery. Suburban customers in the US would likely find it incredibly awkward and avoid it unless home delivery was not likely and the alternative was to pick up a package (for example, one that must be signed for) at the local carriers office. This is less likely to be the case in the coupled States.6. Seven-Eleven is attempting to duplicate the supply chain structure that has succeeded in Japan i n the United States with the introduction of CDCs. What are the pros and cons of this approach? agree in mind that stores are also replenished by wholesalers and DSD by manufacturers.The supply chain structure for the US market can be close, but it can never be exactly as it is in Japan, and will probably not operate as smoothly as in Japan. Some of this is attributable to the culture and the corporal culture. Regardless of how like-minded supply chain partners claim to be, it would be extremely catchy to duplicate the collective spirit that permeates Seven-Eleven Japan. The disadvantages of this system is that Seven-Eleven in the U.S. would probably have to run two system depending on whether the area could be treated as a dense urban location or a suburban or rural outpost. The cost of running the Seven-Eleven Japan system in middle-America would be prohibitive. The U.S. consumer in that region has too many alternatives that have 24 hour operations and are within a short dr ive.The difficulty of duplicating the Japan supply chain structure in the United States follows primarily from the much lower density of U.S. Seven-Eleven stores. This is compounded by the fact that Seven-Eleven stores are getting both direct store deliveries as well as wholesaler deliveries to its stores. Setting up its own DCs does not allow Seven-Eleven to get the same level of transportation aggregation as it gets in Japan. Its own distribution system would help more if all wholesaler deliveries and direct store deliveries were stopped and routed through the DC. Even then, having its own distribution system would add much less value than in Japan given the lower density of stores and larger distance between stores. Perhaps a hybrid system can be applied in select markets to test the systems efficacy in the U.S.7. The United States has food service distributors that also replenish convenience stores. What are the pros and cons to having a distributor replenish convenience stores versus a company like Seven-Eleven managing its own distribution function?The advantage of someone else replenishing stores is primarily cost less transportation, material handling, and labour costs for your own system. Depending on how supply and reordering operations are designed, it might be possible for the distributors to perform the aggregation/demand smoothing function with minimal intervention by the individual Seven-Eleven franchise. One can contend that a distributor brings much more value to the table in the United States sexual relation to Japan. Given the lower density of stores, a distributor is able to aggregate deliveries across many competing stores.This allows a distributor to get through levels of aggregation that cannot be achieved by a single chain such as Seven-Eleven. The disadvantage of the outsourced replenishment service is an boilersuit loss of control, an increased number of deliveries to each store, and the difficulty of integrating information flow s across disparate systems. Also, Seven-Eleven is unable to exploit having a large number of stores. In fact, it whitethorn be argued that going through the distributor has Seven-Eleven subsidize deliveries to competing smaller chains that may also be using the same distributor