SUPPLY CHAIN MANAGEMENT

ASSIGNMENT-1

CASE: SEVEN-ELEVEN JAPAN CO.

GROUP MEMBERS:
KANIKA SHARMA DIPALI BAMZAI AVINASH SINGH (12 A DEBARATHI

Question: 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 system?

Answer:
Seven-Eleven is a chain of convenience stores located at different places in Japan. It is setup in Japan inspired by the super stores in the United States. The customers to these stores are egalitarian. And processed food, fast foods are the two major revenue generators for the organisation. The sale figure of processed food in 2004 was 724.5 billion yen and the next highest was fast foods with 704.4 billion yen. The major reason for the processed food consumption in Japan at a large scale was the small households and the preference of most of the people was eating outside rather than cooking at home. 7-Eleven followed a market dominance strategy by concentrating on this specific segment of the market and setting up clusters of stores around a certain area supported by a distribution centre. This gave an advantage of keeping the competitors at bay due to 7-Elevens dominance. Also because of proximity of the distribution centre and presence of many other stores, there is no issue of lost sales on the grounds of disappointed customers or increase in costs due to additional transportation between different centres. . Distribution System :- In United States the distribution chain is decentralized. Stores use DSD (Direct stores delivery) for replenishment by some manufactures with the remaining products delivered by wholesalers. Whereas Japan has a centralized distribution system for the stores. In the new system of centralised distribution systems, there is an additional lead time in routing the goods through the distribution system, there is an additional lead time in routing the goods through the distribution centres increasing the logistics cost. PRO:

The distributors bring much more value in the United States than in Japan. As the density of stores is low in US, a distributor is able to aggregate deliveries across many competing stores. This allows the distributor to reach levels of aggregation that cannot be achieved by single chain management such as Seven-Eleven. Also, a large benefit of having a distributor replenish the convenience store is that the stores dont have to invest transportation and trucks to perform this task.

Management of the distribution system is the job of the distributor and not of Seven Eleven. This gives Seven-Eleven the time to focus on its core competencies.

May be this system proves to be cost effective in the long run when the distributors are completely acquaint with the replenishment cycle, quality requirement etc. of the convenience store.

CONS: Major disadvantage of such a system is the lack of control and increased number of relationships that must be managed at the store level. Responsiveness may also not be as up to the mark as required. Some store managers may be more adept at managing these relations than others. This also creates potential problems for upper management in overseeing the franchises to ensure consistent customer service. Seven Eleven would have less control over the replenishment cycles. There would also be less control over the quality of the items delivered. The system may not be as responsive as having own distribution system. Seven- Eleven may not be able to exploit having a large number of stores.