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Group 1 | Sec B |

Seven-Eleven Case
Study

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

Integrated information systems

Incompatible systems, systems not


completely integrated, but piecemeal,
and breakdowns.

Additional capacity (manufacturing,


DCs, retail stores)

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

Q2. 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 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


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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.

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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 wasnt at home. After all, thats the appeal of ecommerce.

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.

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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
dont 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.

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