Seven Eleven Case Study Answer

Course: Supply Chain Management Assignment: Seven-Eleven Japan Co.

Q1 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 risk in each case? Ans: 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:

Method for Responsiveness

Risk of Method

Additional capacity (manufacturing, DCs, retail stores)

Incompatible systems, systems not completely integrated, but “piecemeal”, and breakdowns. Overinvestment in capacity, underutilized capacity

Increased safety inventory

Additional inventory carrying costs

Increased number of deliveries

Increased transportation costs

Increased product variety and availability

Additional inventory carrying costs

Integrated information systems

Q2. 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? Ans: The greatest risk occurs when the supply and demand are not matched, and inventory excesses and shortages occur. We also know that forecasts are most accurate for aggregate products, compared to the SKU level, making forecast accuracy absolutely crucial to micro-matching supply and demand. However, their information ordering and replenishment systems can respond quickly to changes in customer demand to account for forecast errors. This physical rapid response capability, however, also increases the risk of excess or insufficient capacity (capacity fluctuations), and additional transportation costs.

Q3. 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? Ans:

Facility location: Seven-Eleven places its stores in “clusters” that are supported by a single distribution center. Inventory management: They have dedicated manufacturing plants to produce fast food, and classify inventory according to 4 separate categories to assist in transportation. Although related to their information system, they manage inventory through their graphic order terminal and receive inventory using the scanner terminal. Their POS register also tracks inventory at a very detailed level. They also manage deliveries to match demand by time of day (e.g. dinner items delivered just before dinner time). Transportation (& distribution): Taking advantage of clustering stores around DCs allows Seven-Eleven to provide efficient and responsive deliveries to their stores. They use a “combined delivery system” in which single temperature-controlled trucks delivery one category of food to multiple stores. They also make deliveries during off-peak hours (although what is meant by “off-peak” is not defined). They also reduce delivery time by using the scanner terminal. The DCs do not carry inventory, but are really cross docking facilities.

Information: The information is key to each of the above drivers. Information is used to manage inventory and coordinate deliveries – from manufacturing to DC to the retail store. The ISDN system consists of four major components: graphic order terminal, scanner terminal, store computer, and POS register. The system uses a graphic order terminal to not only track and analyze POS data and place orders with vendors and the DC, but is also used to determine when to convert shelf space from slow moving to fast moving items. The scanner terminal improves the efficiency of the delivery process. The store computer, linked to the ISDN network, communicates among the various input sources to track inventory, sales, orders, and so on. Finally, the POS register keeps up to date information

on customer sales and demographic information (gender, age). In summary, the information system is used to “driver the drivers”, bringing together all the information necessary to manage facilities, transportation, manufacturing, and distribution.

Q4: 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? Ans: The benefits of this policy is coordination, flexibility, responsiveness, and managing fewer relationships – retail stores do not have to each work with vendors, but only the DC. Direct store delivery is more appropriate for the 7dream delivery concept. For Seven-Eleven Japan, it seems that direct store delivery would not be appropriate unless one store, in serving the local preferences, sold an item with high demand uncertainty that was not sold in any other stores. It may also be appropriate for an emergency shipment or unique “one-time” items that are heavy or bulky.

Q5: What do you think about the 7dream concept for SevenEleven Japan? From a supply chain perspective, is it likely to be more successful in Japan or the United States? Why? Ans: The 7dream concept for Seven-Eleven in Japan was established as an e-commerce company. Convenience stores served as drop-off and collection points for Japanese customers. I think this is likely to be more successful in Japan because the Seven-Eleven store network is not as dense as in the U.S. Also, it appears that Seven-Eleven Japan attracts a different type of customer. Although I can only speculate, I would be concerned about the security of packages in a Seven-Eleven store in

the U.S. preferring a home delivery even if I wasn’t at home. After all, that’s the appeal of e-commerce.

Q6: 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. Ans: The “pros” of this approach are illustrated by the success of this concept in Japan: highly responsive system that has increased its efficiency through the use of information. They are able to effectively match supply and demand. The cons of this approach in the U.S. stem from the geographic dispersion of Seveneleven stores. The fact that stores are not as clustered as in Japan will impede the responsiveness that is a cornerstone of Seven-Eleven Japan. Because DSD is also used, there is more coordination required in the U.S. and more relationships to manage. The CDCs may also be forced into holding some level of inventory because of the lack of clustering in the U.S., resulting in lower performance than that in Japan. If the CDCs become more of a distribution center than a cross docking operation, their strategic advantage is lost, and the investment may not have been worth it. An additional downside is the outbound costs, which could be quite high depending on the number of stores served.

Q7: 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? Ans; Pros: The largest benefit of having a distributor replenish the store is that they don’t have to invest in DCs or trucks to perform this task.

Cons: The downside is the lack of control and the increased number of relationships that must be managed at the store level. Responsiveness may also not be as great. Some store managers will be more adept at managing these relationships than others, and service levels will not be consistent among the stores. This also creates more potential problems for upper management in overseeing the franchises to ensure consistent customer service.