CASE Analysis: Seven-Eleven Japan Co. Essay

The case describes how seven any(prenominal) eleven has successfully established an innovative dividing line model. Toshifumi Suzuki, CEO of seven-spot eleven lacquer (SEJ), draw heptad Eleven Stores as Stores where you dirty dog interpret a solution for any of your daily lifes problems. We always try to plan and design a chime in in much(prenominal) a way that our barge in neighbours, in particular, asshole nonplus show up whatever they read at any time they want SEJ, headquartered in lacquer, leads the world wide seven Eleven set up, which had 24,912 shop classs in 18 countries in March 2003.In 2003 ranking of retailers by securities industry value, SEJ was turning ane in japan. Since its establishment in 1974, SEJ has never experienced a f whole in income or profits. With 9,757 lay ins as of May, 2003, SEJ is the astronomicst CVS bowed stringed instrument in Japan. Its computer memorys feature the same staple designs hulky, mellowedly visible sign in gr een, red and orange, a gigantic shop class window, much brighter than average lightning and a spotless(prenominal)ly clean reposition. SEJ identifies their guest orientation, offering non only a rich assortment of increases scarce hail comfort to nodes, as the source of SEJs rise to the crystalize of the Japanese retail industry.Industry BackgroundThe Japanese Distri yetion framePrior to 1974Traditional Japanese retailing consists of a conservative, multi-tiered body that combines bountiful numbers of sm on the whole wholesalers and retailers into complex exclusive fireworks. These lucres be not found solely on economic talent tho in homogeneous manner on stung human races.The wholesale to retail level ratios (W/R) is measure of layers deep d own statistical dispersion establishment.W/R ratio19921998US0.98Japan2.3Although the ontogenesis of entropy technology in the industry has gradu wholey im experimentd the power of the scattering frame of rules, sma ll-to-medium-sized retailers owe their existence mainly to the multi-tiered and vertically commingled structure.retail Business EnvironmentThe Japanese retail sector is still dominated by small retailers. Firms with one to quaternary employees get under ones skin up to a greater extent or less 70% of the count number of stores. In these small shops, CVS still accounts for only 3.2% of all stores and only 5% of total salesBeca employment of Japans small land ara, most Japanese retail stores conduct as well little blank space to maintain a wide assortment of products in either the store or inventory. These small, local anaesthetic mom-and-pop stores typically lack somewhat(prenominal) managerial know-how and planning skills. In addition, given their limited size, they be very much unable to bear large inventory risks and thus lease to deposit on manufacturers and wholesalers to bear part of that burden.Legal perspectiveJapanese regimen enforced in 1974 the Large-sca le Retail Store (LRS) Law which regulate the task hours of larger outlets. Initially use to stores over 1,500 m2, it was later encompassing in 1979 to stores with an ara of over 500 m2. The law mandated that stores close by 7 P.M. each daylight and remained closed at least 30 shop days per year. Fueled by heavy pressure from abroad, the deregulation trend ca role the LRS law to be changed in 1990 and practically abolished in 2001. firearm operating its large stores under the LRS law, Ito- Yokado, a pargonnt beau monde of SEJ, launched a saucy retail telephone line based on small regional stores, which can effectively co-exist with large stores. As a result, CVS shackles prove that small stores can compete a accumulatest larger retailers by improving the efficiency and productivity of their franchise and continual striving to meet guest ask.Because of the tautness of the store network, CVS chains argon not only mystifys to sell products, notwithstanding are alike beco ming an important part of the social base of operations.Seven-Eleven JapanIto-Yokado, a parent company of SEJ, was founded by Masatoshi Ito in 1964 as a 66-square-foot family turn store in Tokyo. After starting a new chain of super stores offering a range of food and clothing products, he expanded his business into former(a) distribution areas such as restaurants, discussion section, discount and dodge stores. By 2002, the Ito- Yokado group was one of the largest retail groups in Japan with 5,574 meg ($41.6 billion) in sales and 114,600 employees. Toshifumi Suzuki negotiated tellly with Southland, then possessor of Seven-Eleven, to capture the convenience store concept to Japan. Japanese consumers were generally to a greater extent than sensitive to product and good look, much fickle and less price-sensitive. thence products had to be fresh, and the turnover rate very gritty. To meet such node requirements within the constraint of limited ledge and repositing capacit y, it was necessary to count on nodes crave by the time of purchase, the store location and the weather. Providing the client with well-targeted, secernate products 24-hours a day, 7-days-a week was critical. As of 2003, SEJ is the largest convenience store chain with 2,213 billion ($17.5 billion) revenue and 5,061 employees. Its grocery store value of $21,721 gazillion and consolidated net income of 82,825 million ($690 million) are the highest in the whole of Japans retail industry. formationSEJ practice of continuous item check off and well-organized sales talk system, and the heavy use of information technology (IT). The basic mission of an SEJ store is to hand over solutions for all the problems of everyday life. apiece store offers a novelty of high- tincture products and attend tos that are required daily or on an emergency basis to get up life easier and more convenient.The two main reasons for the failure of living retailers. They ignored 1)the importance of convenience to the customer and 2) the quality of the products and the aid.SEJ developed some key fruit principles to define a quality convenience store. 1. Reduction of broken opportunity A missed opportunity to sell an item because it is out of stock is one of the most serious problems in retail business in terms of disappointing customers as well as wanting(p) the actual profit.2. Effective Item Control and Well-Planned Product Supply oversight The American practice of keeping large inventories of a wide variety of products could not be applied in convenience stores in Japan where shelf and storage space are limited and maintaining a large inventory is prohibitive. SEJ pursued a scheme of bringing products in high demand with a rapid turnover rate and eliminating dead or slow-moving products by item-by-item analysis. The well-organized analysis and frequent replacement contributes to SEJs high product preparation efficiency.3. Commitment to Customer Satisfaction with certain Product Development and Friendly ServiceSEJ not only sells manufacturers products but excessively researches customers potence requires. SEJ uses this research to provide original products at sound prices (such as a luncheon boxes and prepared foods)MerchandisingThe store space available for a Seven-Eleven franchisee is, on average, only 110 m2. The items kept 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 discovered that customer loyalty was driven more by particular items than by item categories. To meet the demand and achieve such tight item-by item control, SEJ implemented the POS (Point of Sale) system in 1982, whereby storeowners could identify customer trends and levy product differentiation. SEJ introduced its POS systems to collect sales data used to improve change and the item-by-item control process. For instance, the cash register would not openuntil the manipulator pushed the account button indicating the gender and estimated age of the customer. This information from the POS system was used for consumer trend analysis.Store internet ExpansionSEJ considers its market dominating strategy of high- niggardness, clustered store openings to be the key to efficiency and stability. The advantages of the market ascendency strategy areImproved brand awarenessIncreased customer visits to the storesBoosted distribution efficiencyEnhanced productivity of franchisee-support swear outsImproved denote effectivenessFranchise StrategyApproximately 60% of SEJ stores were modified from erst objet dart(a) family owned stores (e.g., liquor or rice stores). The relationship among franchiser and franchisee is one of reciprocal obligations. The franchisee is an independent business which gives SEJ royalties and a long commitment, and concentrates on the tasks of change and effectively managing inventory. The royalt y that the franchisee pays to the franchiser is 43% of its gross profit. In exchange for their long-term commitment and royalties, SEJ provides franchisees with service from field representatives called Operation Field Counselors (OFC). for each one of about(predicate) 1,300 OFCs supervises between seven or eight stores, providing (i) advice on store exploit and establishing and (ii) information on the portfolio of available items and on sales methods. This person-to-person contact with store managers is a key element of the SEJ franchise system. Each OFC visits each store at least twice a week and spends at least two hours providing advice and information. Such a close relationship not only motivates franchisees but alike supports company-wide brand image and promotional strategies.Outsourcing PolicySEJ is known for its outsourcing policy and ability to manage provider relationships. The rationalized distribution system crafted by SEJ created conflict within the traditional wh olesale system. everyplace time, however, SEJssystem has proved highly reliable and efficient, covering everything from tender procurement to product deliveries. The coaction between SEJ and the business partners includes shared information systems and know-how about operations management as well as quality control in the food manufacturers factories and pitching messages.By 2002, the company had make a network of 223 distribution centres and 195 factories dedicated to fast food production, all of them created and operated by wholesalers, suppliers and forward agents.Information outlines StrategyDaily, Seven-Eleven stores serve a total of 9.5 million customers, process five million order transactions and send out 35 million sales transactions to the information systems centre where sales data is collected, integrated and analysed. The decisions have to be based on well-analysed hypothesis, order and validation. Information technology (IT) for SEJ is merely a method to suppor t the cycle. SEJ prefers to source most of its information systems management to external service providers due(p) to the pelt along 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 links needs from stores with top management and proposes innovative system plans. SEJ regularly explores opportunities to gain first mover advantage by exhausting out state-of-the-art technologies the first POS system in Japan in 1982, the first major use of Integrated Service Digital Network (ISDN) in 1991, etc.Operation InfrastructureTotal Information SystemsSEJ has proceed to develop total information systems. In June 1999, the fifth generation total information system, in which SEJ invested 60 billion ($500 million), was re leased in collaboration with 14 companies including NRI, NEC, Toshiba TEC, etc.High efficiency, maintainability and reliability of the total network system The system connects 70,000 computers in stores, at headquarters and at supplier sites through satellite telecommunications, exclusive lines, ISDN and mobile networks via the most appropriate telecommunication technology. The junto of ISDN and satellite telecommunications realizes 45x faster speeds at 35x better woo practiceance. Terminals are unceasingly monitored and software and configuration can be updated remotely. The most critical systems such as online ordination and accounting systems are backed up at physically separated locations in Yokohama and Osaka. And in earthquake-prone Japan, satellite telecommunication provides an unembellished layer of safety. The system, now shared by 10,000 stores, is considered highly reliable due to the crisis management planning and high service levels.The store information system wh ich encourages all store staff to participate in ordering 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 course of study shared with business partners SEJ provides its business partnersvendors, electrical distributors and manufactureswith a common infrastructure consisting of 1,800 terminals at 1,100 locations. The applications on the platform transform depending on the partners business raw clobber ordering system, inventory management, production management, automated sorting system, for example. The broad system infrastructure facilitates collaboration among SEJ allies by improving the efficiency of delivery through the sharing of order, sales and inventory information.And finally, sophisticated analysis system which snuff outs splanchnic decision-making .Electronic Commerce BusinessSEJ categorizes its electronic commerce (EC) business into iv major g roups 1) financial services, 2) profits obtain site, 3) public and regionalservices, and 4) in-store quick-witted copy machines.Financial Services (settlement, finance, and card service) Launched in 1987, Seven-Eleven hasdeveloped the payment sufferance 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, rent, and mail orders. This business has beensuccessful with 144 million yearly transactions witha total value of 1.15 zillion (about $12.8 billion)and a 20% annual growth rate.Internet Shopping post 7dream.com, a subsidiary of SEJ, provides the internet shopping site by utilizing SEJs existing operating infrastructure in its EC activities. SEJ also ties into other internet sites and provides payment acceptance and pick-up service at the retail stores. Goods purchased via the Internet are picked up at stores 24-hours a day or delivered to customers homes, ski lift the value 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 Internet. SEJ plans to expand its public services at stores via its EC platform so that customers can obtain civil services. In-store intelligent copy machines utile copy machines at Seven-Eleven stores are connected the Internet and enable customers to cross event tickets and documents created by customers at home as well as to pay for pre-ordered airline tickets.With the capability 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 also provides its EC platform service for EC partners with functions s uch as authentication, database, settlement, and distribution.Temperature-Separated Combined Distribution SystemSince 1976, SEJ has been developing a streamlined distribution system to efficiently integrate product supplies. The company established the Combined actors line System, whereby the same potpourri of products coming from different suppliers can be centralized into 223 Combined Delivery Centres (CDCs). The combined distribution system allows products from different suppliers to be loaded on the same transports 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 visiting each store from 70 a day in 1974 to ten a day in 1998. Delivery routes and time are also well organized to maintain high efficiency.CompetitorsSEJ is the largest CVS chain 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 closely 90% market share. All four competitors operate franchise businesses with store networks expanding all over Japan. Competitors are more and more investing in EC business to compete and establish agency in a new area. In 1997, Lawson began implementing multimedia terminals in stores to gain first mover advantage. Lawson also tries to differentiate itself in the Internet shopping site named Lawson by launching new services such net coupons, which was rare in Japan in 1999.Future VisionThe company strives to achieve the maxim the retail business should always keep up with change of customer demands with three principles.1. Responsiveness to changing customer needs and continuous improvement of customer services2. Manufacturing retailer3. The combination of demand chain and show chain management with the common platform.Case Questions1. A convenience store chain attempts to be responsive and provide customerswhat they need, when they need it, where they need it. What are some different ways that a convenience store come forth chain can be responsive? What are some risks in each case?As In this increasingly competitive world, the whole concept 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 speak tos and risks. As responsiveness towards a customers demands increase, a convenience store chain gets exposed to greater uncertainty and risks- the risk of not having seasonable provision of essential goods, system breakdowns etc. A convenience store may deal in both perishable food items akin processed fast foods and non-perishable items( life of more than 1 month) like glacial foods, magazines, beverages, and other consumer items l ike soaps, detergents etc.It is critical for any convenience store to have a tightly linked supply chain system for perishable items that need to be supplied to the final stores on daily basis. This distribution system ought to be flexible and highly responsive to alter delivery schedules depending on customer demands. The following are some ways that shall make convenience store supply chains operating on market dominance strategies more responsive- Local capacity The convenience store chains can provide local cooking capacity that is, live counters at the stores and assemble foods on demand. The Inventory could be stored as raw material 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 transport make up of the entire 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 Subway where dinner and lunch sandwiches are assembled on demand. The main risk with this approach is that capacity is decentralized, guide to poorer utilization. High level of integration- One way of insuring more responsiveness is by further decentralizing the entire system. This can be attained by dividing each region further into regularises 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 stick out but would also inhance the merge 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 generation. This allows for the centralisation of cooking capacity. But the main injustice of this way is not delivering fresh foods to customers thus increasing customer dissatisfaction and need for limited storage space. Rapid replenishment Another approach is to set up rapid replenishment 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 victimisation rapid replenishment.What are some risks associated with this choice? The main risk for convenience stores to adopt a supply chain system that works on rapid replenishment strategy is the potentially high cost of transferral and receiving at stores. The suppliers and factories are centrally located but the stores are scattered all across the city. So the companys effort to supply fresh foods multiple times a day to all the sto res increases the transportation costs. This one aspect can be taken care of by probably decentralizing the self-confidence to produce fresh foods at convenience stores itself. Also, the fact that goods get drop off multiple 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 experience at the store. Sudden breakdown of the information system or the transportation system connecting the stores to distribution centre and suppliers would also bring the functioning 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 must take extra precautions to ensure timely delivery of goods, proper functioning of the information and transportation system, and customers convenience3. What has Seven-Eleven done in its choice of set location, i nventory 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 shop 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 directly to the supplier and distribution centre goods are produced using a pull system to replace what has been sold during that delivery period. The transportation system is flexible to maximize responsiveness while also achieving efficiency. All choices made by Seven-Eleven are unified to set out its transportation and receiving costs. For example, its area dominance strategy of opening at least 50-60 stores in an area helps with marketi ng but also refuses the cost of replenishment.All manufacturing facilities are centralized to get the maximum make of capacity aggregation and also start out 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 transportation cost because of aggregation of deliveries across multiple suppliers. It also cast downs the receiving cost. The information infrastructure is set up to allow store managers to place orders based on analysis of 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 dis tribution 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 change magnitude 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 Depot stores. For smaller stores it is almost always beneficial to have an average 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 minimal disruption at the retail outlet s. If several(prenominal) suppliers tried to make two or three deliveries every day, it would take away from the store managers ability to provide customer service.Each of these suppliers would likely prefer their own way of doing things, their own inventory system, truck size, etc., which would make things more difficult for the Seven-Eleven system. The demand and production data would have to be shared rather than residing on Seven-Elevens system from birthplace to grave. For items that cannot be prepared quickly, pull production may not provide the responsiveness that Seven-Eleven desires. In this case, the DC concept allows pooling of inventory which increases their overall 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 handling requirements (lottery tickets, newspapers, or alcoholic beverages), or the supplier has a system that is co nsonant 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 likely to be more successful in Japan or the United States? Why?7dream makes whizz 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 distributionnetwork 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 particularized packages for customers. O ne 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 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 super successful a recent survey 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 inconveni ent and avoid it unless home delivery was not mathematical 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 United States.6. Seven-Eleven is attempting to duplicate the supply chain structure that has succeeded in Japan in the United States with the presentment of CDCs. What are the pros and cons of this approach? Keep 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 just now 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 incarnate culture. Regardless of how like-minded supply chain partners claim to be, it would be extremely difficult to duplicate the collective spirit thatpermeates 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 umpteen alternatives that have 24 hour operations and are within a short drive.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 giv en 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 case-by-case Seven-Eleven franchise. One can contend that a distributor brings much more value to the table in the United States relative to Japan. Given the lower density of stores, a distributor is able to aggregate deliveries across many a(preno minal) competing stores.This allows a distributor to reach levels of aggregation that cannot be achieved by a single chain such as Seven-Eleven. The disadvantage of the outsourced replenishment service is an overall loss of control, an increasednumber of deliveries to each store, and the difficulty of integrating information flows across disparate systems. Also, Seven-Eleven is unable to exploit having a large number of stores. In fact, it may be argued that going through the distributor has Seven-Eleven subsidize deliveries to competing smaller chains that may also be using the same distributor