Seven-Eleven Co. Japan

Case study on

Case study on Seven-Eleven Japan Co. Submitted to Mohammad Anwar Hossain Department of Marketing Faculty of Business studies University of Dhaka Submitted by Md. Ehsanul Hoque, Batch-18, ID:41018044 Md. Abdur Rahman Bhuiyan, Batch-10, ID: Md. Atikul Islam, Batch-18, ID: 41018030 Department of Marketing Faculty of Business studies University of Dhaka

Date of submission: November 26, 2011

Letter of transmittal November26, 2011 Mohammad Anwar Hossain Department of Marketing Faculty of Business studies University of Dhaka, Bangladesh

Sub: Submission of case study on Seven-Eleven Japan Co. Dear Sir, It is a great pleasure for me to submit the case study on Seven-Eleven Japan Co. You assigned me to prepare this report as a part of Supply chain management course (MKT-530) requirement. While preparing this report I have tried to follow your instruction given in the class. I hope that this report despite its lack of information will be a gateway to understand the Supply chain management course. I appreciate you will asses our report considering the limitations of the study. Your kind advice will encourage me to do further study in future. Sincerely yours, Md. Ehsanul Hoque, Batch-18, ID: 41018044 Md. Abdur Rahman Bhuiyan, Batch-10, ID: Md. Atikul Islam, Batch-18, ID: 410180 MBA(Evening) Department of Marketing University of Dhaka

Overview of the case Seven-Eleven Japan Co. Established in 1973, Seven-Eleven Japan set up its first store in Koto-ku, Tokyo, in May 1974.In 2004, it was owned by the Ito-Yokado group, which also managed a chain of supermarkets in Japan and owned a majority share in Southland, the company managing Seven-Eleven in the United States. Seven-Eleven Japan realized a phenomenal growth between the years of 1985 and 2003. During that period, the number of stores 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. Additionally, the company’s return on equity (ROE) averaged around 14 percent between 2000 and 2004. In 2004, Seven-Eleven Japan represented Japan’s largest retailer in terms of operating income and number of stores. Customer visits to Seven-Eleven outlets totaled 3.6 billion that year, averaging almost 30 visits to a Seven-Eleven annually for every person in Japan.

Company History and Profile Both Ito-Yokado and Seven-Eleven Japan were founded by Mr. Masatoshi Ito. He started his retail empire after the Second World War when he joined his mother and elder brother and began work in a small clothing store in Tokyo. By 1960, he was in sole control and the single store had grown into a $3 million company. In 1972, Ito first approached the Southland Corporation about the possibility of opening Seven-Eleven convenience stores in Japan. Southland agreed in 1973 to a licensing agreement. In exchange for 0.6 percent of total sales, Southland gave Ito exclusive rights throughout Japan. In May 1974, the first Seven-Eleven convenience store opened in Tokyo. Seven-Eleven Japan experienced tremendous growth. By 1979, there were already 591 Seven-Eleven stores in Japan; by 1984, there were 2,001. Rapid growth continued (see Exhibit 1), resulting in 10,356 stores by 2004. On October 24, 1990, the Southland Corporation entered into bankruptcy protection. On March 5, 1991, IYG Holding was formed by Seven-Eleven Japan (48 percent) and Ito-Yokado (52 percent). IYG acquired 70 percent of Southland’s common stock for a total price of $430 million. Seven-Eleven Japan contributed 87.6 percent of the total income received from convenience stores by Ito Yokado. Effectively, Seven-Eleven Japan had become the dominant part of the Ito Yokado group.

The Convenience Store Industry and Seven-Eleven in Japan From 1991 to 2002, the number of convenience stores in Japan increased from 19,603 to almost 42,000. As a percentage of all retail stores in Japan, this represented an increase from 1.2 percent to 3.2 percent. During that period, annual sales at convenience stores more than doubled from just over 3 trillion to 6.7 trillion yen. As a percentage of all retail sales in Japan, this represented an increase from 2.2 percent to 5.0 percent. Japan’s convenience store sector gradually consolidated, with larger players growing and smaller operators shutting down. In 2004, the top 10 convenience store chains accounted for approximately 90 percent of Japan’s convenience stores. In 2002, Seven-Eleven was Japan’s leading convenience store operator, accounting for 21.7 percent of all convenience stores and 31.5 percent of total store sales. Seven-Eleven was very effective in terms of same-store sales. In 2004, average daily sales at the four major convenience store chains excluding Seven-Eleven Japan were 484,000 yen. Seven-Eleven stores, in contrast, had daily sales of 647,000 yen—more than 30 percent higher than the competition. In 2004, SevenEleven’s operating income of 165.7 billion yen positioned it as a leader not only of the convenience store sector but also of Japan’s retail industry as a whole. 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 was possible because Seven-Eleven Japan had developed in the areas of information systems and distribution systems.

The Seven-Eleven Japan Franchise System Seven-Eleven Japan developed an extensive franchise network and performed a key role in the daily operations of this network. The Seven-Eleven Japan network included both company-owned stores and third-party-owned franchises. In 2004, franchise commissions accounted for over 68 percent of revenue from operations. Entry into any new market was built around a cluster of 50 to 60 stores supported by a distribution center. Such clustering gave Seven-Eleven Japan a high-density market presence and allowed it to operate an efficient distribution system. SevenEleven Japan, in its 1994 annual report, listed the following six advantages of the market-dominance strategy: 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 Geographically, Seven-Eleven has a limited presence in Japan. In 2004, the company had stores in about 70 percent (32 out of 47) of the prefectures within Japan. As the 2004 annual report stated, “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 areas.” To be a franchisee a franchise owner was required to put a significant amount of money up front. Half of this amount was used to prepare the store and train the owner. The rest was used to purchase the initial stock for the store. In 1994, 45 percent of total gross profits at a store went to Seven-Eleven Japan, and the rest went to the store owner. The responsibilities of the two parties were as follows: Seven-eleven Japan responsibilities: • Develop supply and merchandise • Provide the ordering system • Pay for the system operation • Supply accounting services • Provide advertising • Install and remodel facilities • Pay 80 percent of utility costs Franchise owner responsibilities: • Operate and manage store • Hire and pay staff • Order supplies • Maintain store appearance • Provide customer service

Store Information and Contents Seven-Eleven had 10,303 stores in Japan and Hawaii as of 2003. In 2004, SevenEleven Japan changed the standard size of new stores from 125 square meters to 150 square meters. 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 upon the local customer demand. Seven-Eleven emphasized regional merchandizing to cater precisely to local preferences. Each store carried food items, beverages, magazines, and consumer items such as soaps, detergents, etc. The food items were classified in four broad categories: (1) chilled items including sandwiches, delicatessen products, and milk; (2) warm items including box lunches, rice balls, and fresh bread; (3) frozen items including ice cream, frozen foods, and ice cubes; and (4) room-temperature items including canned food, instant noodles, and seasonings. Other products sold at Seven-Eleven stores included soft drinks, nutritional drinks, alcoholic beverages such as beer and wine, game software, music CDs, and magazines. In 2004, Seven-Eleven was focused on increasing the number of original items that were only available at their stores. At that time, original items accounted for roughly 52 percent of total store sales. The company aimed to grow the percentage to 60 percent in the medium to long term.

Store Services Besides products, Seven-Eleven Japan gradually added a variety of services that customers could obtain at its stores. The first service added in October 1987 was the in-store payment of Tokyo Electric Power bills, gas bill, insurance premiums, and telephone. The bill payment service attracted millions of additional customers every year. In April 1994, Seven-Eleven Japan began accepting installment payments on behalf of credit companies. In 1995, it began to accept payment for mail-order purchases. This was expanded to include payment for Internet shopping in November 1999. In August 2000, a meal delivery service company, Seven-Meal Service Co., Ltd. was established to serve the aging Japanese population. In 2001, IYBank Co. was established through a joint investment with Ito Yokado. By April 2004, ATMs had been installed in about 75 percent of the total store network in Japan, with the goal of achieving 100 percent ATM installation. Other services offered at stores include photocopying, ticket sales using multifunctional copiers, and being a pickup location for parcel delivery companies that typically did not leave the parcel outside if the customer was not at home. In February 2000, Seven-Eleven Japan established 7dream.com, an e-commerce company. The goal was to exploit the existing distribution system and the fact that stores were easily accessible to most Japanese. Stores served as drop-off and collection points for Japanese customers. A survey discovered that 92 percent of its customers preferred to pick up their online purchases at the local convenience store, rather than have them delivered to their homes. This was understandable given the frequency with which Japanese customers visited their local convenience store.

Seven-Eleven Japan’s Integrated Store Information System From its start, Seven-Eleven Japan had 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 the Seven-Eleven distribution centers. The first online network linking the head office, stores, and vendors was established in 1979, though the company did not collect point-of-sales (POS) information at that time. In 1982, Seven-Eleven was the first company in Japan to introduce a POS system comprising POS cash registers and terminal control equipment. In 1985, the company developed, jointly with NEC, personal computers using color graphics that were installed at each store and linked to the POS cash registers. These computers were also on the network linking the store to the head office as well as the vendors. Until July 1991, head office, stores, distribution centers, and suppliers were linked only by a traditional analog network. At that point in time, an integrated services digital network (ISDN) was installed. Linking more than 5,000 stores, it became one of the world’s largest ISDN systems. Seven-Eleven Japan spent 2.4 billion yen setting up this network. The two-way, high-speed online communication capability of ISDN enabled SevenEleven Japan to collect, process, and feed- back POS data quickly. Sales data gathered in each store by 11:00 p.m. was processed and ready for analysis the next morning. In 1997, Seven-Eleven Japan introduced its fifth generation of the Total Information System, which was still in use in 2004. The hardware system at a 1994 Seven-Eleven store included 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 • POS registers were linked to the store computer Each piece of hardware had a role. Graphic Order Terminal. This was a handheld device with a wide-screen graphic display, used by the store owner/manager to place orders. The items were recorded and brought up in the order in which they were arranged on the shelves. The store manager/owner walked down the aisles and placed orders by item. When placing an order, the store manager had access to detailed analysis of POS data related to the particular item. The store manager used this information when placing the order, which was directly entered into the terminal. Once all the orders were placed, the terminal was returned to its slot, at which point the orders were relayed by the

store computer to both the appropriate vendor and the Seven-Eleven distribution center. Scanner Terminal. These scanners read bar codes and recorded inventory. They were used to receive product coming in from a distribution center. This was then automatically checked against a previously placed order and the two were reconciled. The driver simply dropped the delivery in the store, and a store clerk received it at a suitable time when there were few customers. The scanner terminals were also used when examining inventory at stores. Store Computer. This linked to the ISDN network, the POS register, the graphic order terminal, and the scanner terminal. It communicated between the various input sources, tracked store inventory and sales, placed orders, provided detailed analysis of POS data, and maintained and regulated store equipment. POS Register. To better understand the functioning of this information network, one needs to consider a sampling of daily operations. As soon as a customer purchased an item and paid at the POS register, the item information was retrieved from the store computer and the time of sale was automatically recorded. In addition, the cashier recorded the age and sex of the customer. To do this, the cashier used five register keys for the categories: under 13, 13–19, 20–29, 30–49, and 50 and over. This POS data was automatically transmitted online to a host computer. All sales data collected by 11:00 p.m. was organized and ready for analysis by the next morning. The data was evaluated on a company-wide, district, and store basis. The analyzed and updated data was then sent back to the Seven-Eleven Japan stores via the network. Each store computer automatically updated its product master file to analyze its recent sales and stock movements. The main objective of the analysis was to improve the ordering process. The information system allowed Seven-Eleven stores to better match supply with demand.

Seven-Eleven’s Distribution System The Seven-Eleven distribution system tightly linked the entire supply chain for all product categories. The Seven-Eleven distribution centers and the information network played a key role in that regard. The major objective was to carefully track sales of items and offer short replenishment cycle times. Since March 1987, Seven-Eleven had offered three-times-daily store delivery of all rice dishes (which comprised most of the fast-food items sold). Bread and other fresh food were delivered twice a day. The distribution system was flexible enough to alter delivery schedules depending on customer demand. As discussed earlier, the store manager used a graphic order terminal to place an order. When a store placed an order, it was immediately transmitted to the supplier

as well as the distribution center. The supplier received orders from all SevenEleven stores and started production to fill the orders. The supplier then sent the orders 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 key to store delivery was what Seven-Eleven called the combined delivery system. At the distribution center, delivery of like products from different suppliers (for example, milk and sandwiches) was directed into a single temperature-controlled truck. There were four categories of temperature-controlled trucks: frozen foods, chilled foods, room-temperature processed foods, and warm foods. Each truck made deliveries to multiple retail stores. All deliveries were made during off-peak hours and were received using the scanner terminals. The system worked on trust and did not require the delivery person to be present when the store personnel scanned in the delivery. This distribution system enabled Seven-Eleven to reduce the number of vehicles required for daily delivery service to each store, even though the delivery frequency of each item was quite high. In 1974, 70 vehicles visited each store every day. In 1994, only 11 were necessary. This dramatically reduced delivery costs and enabled rapid delivery of a variety of fresh foods. As of February 2004, Seven-Eleven Japan had a total of 290 dedicated manufacturing plants throughout the country that only produced fast food for Seven-Eleven stores. These items were distributed through 293 dedicated distribution centers (DCs) that ensured rapid, reliable delivery. The transportation was provided by Tran fleet Ltd., a company set up by Mitsui and Co. for the exclusive use of Seven-Eleven Japan.

Seven-Eleven in the United States Seven-Eleven has expanded rapidly around the world .The major growth has been in Asia, though the United States continues to be the second-largest market for SevenEleven. In the initial years, several Seven-Eleven stores in the United States were shut down. The number of stores started to grow beginning in 1998. Historically, the distribution structure in the United States was completely different from that of Japan. Stores in the United States were replenished using direct store delivery (DSD) by some manufacturers, which accounted for about half the total volume. The remaining products were delivered by wholesalers. With the goal of introducing “fresh” products, Seven-Eleven introduced the concept of combined distribution centers (CDC) around 2000. By 2003, Seven-Eleven had 23 CDCs located throughout North America supporting about 80 percent of the store network. CDCs delivered fresh items such as sandwiches, bakery products, bread, produce, and other perishables once a day. A variety of fresh-food suppliers sent product to the CDC throughout the day where they were sorted for delivery to stores at night. Fresh-food sales in North America exceeded $450 million in 2003. During this period, DSD by manufacturers and wholesaler delivery to stores also continued.

In 2003, revenue in the United States and Canada totaled $10.9 billion with about 69 percent coming from merchandise and the rest from the sale of gasoline. The North American inventory turnover rate in 2003 was about 17 compared to over 50 in Japan. This performance, however, represented a significant improvement in North American performance.

Answer to the questions provided in this case 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 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 going haywire in case of network failure. The fixed cost involved is very high. 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.

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? 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, SevenEleven 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.

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? 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. 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

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The supplier that received orders from all Seven –Eleven stores, it will start to production to fulfill the order

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Then supplier sent the orders to the distribution center by truck

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The distribution center will assign different store truck accordingly to the different store order separately

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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 temperaturecontrolled trucks. The truck comes in four categories: frozen foods, chilled foods, room-temperature processed foods and warm foods.

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Each truck then made delivery to multiple retail stores. The numbers of retails stores are per truck are dependent on the sales volume.

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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 fresh foods once a day. A variety of fresh-food suppliers sent product to the CDC throughout the day and products will 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. Q4: Seven-eleven does not allow direct store delivery in Japan, with all products flowing through its distribution center. What benefit does seveneleven derive from this policy? When is direct store delivery more appropriate?

Answer: There has been useful advantage of Seven-Eleven upon CDC and DSD as

the centres allow smoothing of distribution operation to the stores and the provision of better quality and better information on supply and deliveries is available and there was control of the supply chain as achieved. The presence of technology like the adaptation of the POS system can possibly move ahead and do aid the store employment and management situation by freeing up staff time. Seven-Eleven U.S. has begun introduce the Combined Distribution Center daily delivery of fresh-prepared foods around 2000. By partnering with multiple food companies, the convenience retailer will be able to offer fresh-made-daily and delivered-fresh-daily pastries, gourmet sandwiches, wraps, entrees, as well as other perishable and ready-to-eat foods once a day. This was a challenge because the CDCs are operated by several different third-party partners, and Seven-Eleven felt it did not have effective metrics for comparing performance to a reliable benchmark. This was due to many factors, including different facility sizes, building layouts and the variety of products handled by each CDC. Pros •

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Added choices to customers in perishable consuming. Seven-Eleven can add other specialty items to its selection such as fruit salads, seasonal whole and cut fruit, fresh-squeezed juices and produce from a farmer’s market. The consumers can easily get the fresh perishable products near their house. Daily delivery means just that Seven-Eleven stores can place orders to the CDC and get fresh product by sorting for delivery to stores at every night With the company’s proprietary retail information system, each store can customize its order to provide the exact items the customers in their neighborhood want. Receiving fewer deliveries to your store during the day. In this advantages, the stores no need to waste the time to check through each delivery because all needed products will be set up and combined since the Distribution Centers. Expedite business for local food companies, which can now make one delivery to a central location for distribution to local stores. Reduce the holding Inventory Cost. Stores can order just the amount they sell in a day or two, so they don’t have product sitting around on the shelves. That means that they can guarantee the freshness in the perishable products at Seven-Eleven. The staffs are able to consolidate work and spend more time with your customers, growing your business. As they will check the stock and place the order to the CDC and receive the product at night.

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The suppliers can delivery in large amount with one full truck load as there has a store big enough to keep the products with the method to keep the product longer and still perish. Cons Much lower density (hence longer distance) of U.S. Seven-Eleven stores. Deliver a few product everyday may using too much cost with the longer distance of each branch. Need to increase density, even though setting up own system only reduce problems by eliminating delivers Increase transportation cost at stores because of increased delivers. As Distribution Centers need to deliver the product everyday with a few amounts in order to keep the freshness of the product. Losing the economics of scale advantages, as Seven-Eleven need to order the product everyday in the fewer amounts. High costs of keeping the products as some products need a specific temperature to keep them

Q5: What do you think about the 7dream concept for seven-eleven Japan? From a supply chain perspective, is it likely to be more successful in Japan or the United States? Why?

Answer: 7dream makes sense given that Japanese customers are happy to receive their shipments at the local convenience store. From a logistics perspective, online deliveries can piggy 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 destined for a store. This should increase the utilization of outbound transportation allowing Seven-Eleven to offer a lower cost alternative to having a package 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 retrieve specific packages for customers. One can argue that the concept may be more successful in Japan given the existing distribution network of Seven-Eleven and the frequency of visits by customers. Online delivery is able to link with the existing network. The high visit frequency ensures that packages are not occupying valuable store shelf space for a long time. Also, the frequent visits ensure that the marginal cost to the customer of picking up at a Japanese Seven-Eleven is small. This is less likely to be the case in the United States.

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. 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. 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 goods 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. 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.

Q7: The United States has food service distributors like McLane that also replenish convenience stores. What are the pros and cons to having a distributor replenish convenience stores versus a company like seveneleven managing its own distribution function?

Answer:

Pros 

Having a distributor replenish convenience stores means that they do not have to invest anything in distribution centers, fleet, personnel.

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Proximity of distributors to distribution convenience stores added value as they very well understand customer demands.

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Outsourcing encourages specialization hence quality.

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The company will be able to focus on her core business.

Cons

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An additional cost for the company for outsourcing the service.

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Lack of control and responsiveness, because there is no direct link between the company and the convenience stores and customers.

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The level of service consistency cannot be fully monitored by the company.