7-11 Case SCM

Seven & I Holdings -> 7-11 Japan, Ito-Yokado and Denny’s Japan

Drop in financial performance in 2009 relative to 2008 was attributed to largely drop for
gasoline price in North America and stronger Japanese Yen.

2008, 7-11 is the leading convenience store operator, accounting for 34.3% market share in
the convenience store segment.

7-11 strength:
 Information System
 Good distribution System
 Boosted distribution efficiency
 Improved brand awareness
 Increased system efficiency
 Enhanced efficiency of franchise support services
 Improved advertising effectiveness
 Prevented competitors’ entrance into the dominant area

Strategy
7-11 has a market dominance strategy -> the market leader for convenience store
They look for demand where 7-11 stores already exist, concentrating stores in specific areas,

One distribution center, 50-60 stores cluster around.

 High density market presence -> allow it to operate with an efficient distribution
 system.

Everything more control from 7-11

Customised, stores may be near temple, school, districts  Customization

Store Products.
7-11 localized their products to suit local/regional demand.

As of 2004, 7-11 japan has 290 dedicated manufacturing plants that produced only fast-food
for their stores.

Add their own private brand products

Store Services
Include many services inside 7-11
- Pay Bills
- ATMS
- Buy tickets
- Pick up and drop off location
- 7 bank in japan
 - photocopy machine

Ecommerce
7dream is an ecommerce website – exploit existing distribution system and also the fact
that they are easily accessible.

Otoriyose-bin/ Internet shopping:

- Allow consumers to buy products that are not available on their retail store. Pay and
collect at the store without delivery charge.
- Nanoco Electronic money offered: Pay using prepaid or cell phone for small
purchases.

7-11 Information system

They have Total information system install to link all the stores, headquarters, suppliers and
distribution centers together.

Integrated Service Digital Network: Linking all stores together: Enable 7-11 to collect,
process and feedback POS data quickly.

Graphic Order Terminal: Contain all the items in 7-11 and their sales analysis and all the
analysis related to the product and the category of the product. The store owner will then
place order for the item which will then be send to appropriate vendors and distribution
center. (sales history, 10 days forecast  Can quickly decide how much to buy) – Ordering is
done easily

Scanner Terminal: To scan and check the incoming inventory against the order placed to
ensure that both tally, through scanning a barcode. Save time for receiving.

Store Computer: All the technology are used to tract store inventory, sales, placed orders,
detailed analysis of POS data, and maintained and regulate store equipment.

Point Of Sales register: An item purchase, pay at POS store, then product information
retrived from the store computer, it also records the age and sex of the customers and sales
results are ready for analysis the next day 11am.

Store Computer: Will automatically update its store inventory and analyze recent sales data
-> to improve the ordering process.

They will adjust the products based on consumers demand and meet their demand
accordingly.

7-11 Distribution System:

A tightly linked supply chain to track sales item and offer short replenishment cycle times.
Allow sales manager to forecast sales accurately.

 They have a flexible delivery schedule to cater to consumer demand.

  Combined delivery system: Trucks deliver like products to different suppliers based
on temperature. Drivers do not need to be present when scanning the inventory into
the shop, thus saving time.
 DC just handle inventory from suppliers and pack it to the necessary delivery truck
(cross dock) They outsource their transportation to transport their products.
(Transfleet Ltd). They can do milk run to transport the goods.

4 types of trucks: Room temperature, hot, frozen, chill

Trip made by each truck cover each time of the day

Manufacturing site: 171 factories supporting;

Dominant strategy – Supported by clustering

North America’s 7-11

They use direct distribution system: Manufacturer directly deliver to 7-11, with half coming
from wholesaler.

Then they introduce combined distribution center (CDCs) to support the local store and
introduce fresh food to compete with starbucks.
Supplier deliver fresh food to CDC -> CDC will deliver fresh food once per day to 7-11 stores
at 10pm everyday.

Put in store ID  Ensure efficiency (so that the manufacturing site can properly allocate to
the various DC)

Combining CDC  Reduce trips  Many factories to 1 DC, 1 DC to many stores

(CDC is a natural way for them to reduce the number of trips and help milk run)

Outsourcing trucks: Mystery give them dedicated trucks (the trucks are not shared with
other customers)

Top 5 make up 50% of convenience stores

7-11 make up more sales than top 5 combined

Look at the gender, age,

Parent company of 7-11 in Japan  Southland (US)

Services provided in 7-11  Increases traffic (one of the highest foot traffic)

Franchising – Franchisor  Role: What the individual country decide, what the headquarter
decide (balance must be good) 7-11: Branding is important  Standardized infrastructure so
that it is more efficient,
Japan culture: Japanese value privacy a lot, seldom reveal home address, do not like delivery
to their home (rather pick up at 7-11)

1. A convenience store chain attempts to be responsive and provide customers with

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?

Responsive:

Facilities: Have in store kitchen. Staff will help to make fresh food such as sandwich, sushi
and salad for grab when customer order. Risk: Have to keep raw materials as inventory in
the store, they are perishable and hard to maintain. Need to train the people to cook, space
limitation.

Cost and Quality Control

Have cooking equipment like microwave, oven for the consumers. Capacity decentralized,
low utilization, more responsive but cost inefficient.

Is there a thing called overreliance on IT system?

- No such thing, no technology, cannot do business
- Key is business continuity plan (BCP): if system fails, must have contingency plan

Replenish many times a day  More responsive; but overall cost may increase
Key is to think about JIT  7-11 is doing JIT (small batches & frequently)
Most challenging part of JIT: More JIT, set up cost go up (set-up cost is required every trip;
cost associated with every replenishment per batch)  Ordering, checking etc.
Ordering made easier through the graphics terminal
Receiving made easier through the scanner terminal  Scan the barcode
There is ordering & receiving cost for every batch  Must be reduced so you can replenish
frequently without having high set-up cost

Customize each store to tailor suit

2. 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?

High cost transportation - Milk run, risk of breakdown.

Micro Matching: They constantly increase the product and yet very efficient in space.
(higher shelf space) Changing the whole stock in the afternoon. Time: They look at demand
by day, 3 section of the day, or by hour. Very tough to do. Batches: Batches are small. JIT:
Micro manage and matching supply and demand.

Cost, transport, forecast inaccuracy.

7-11’s rapid replenishment attempt to replenish the stocks of all stores 3 times a day. This
result in low inventory in store. If there is a sudden demand rise, they are unable to match
the demand to their supply of good in store. This will decrease customer service level.
(tourbus phenomenon cannot be forecasted)  Exceptions

How they do to improve better forecast?

Point of sales data help to improve better forecast.

To match within 2 hours, it is quite hard

Cut-off time for breakfast, lunch, dinner  To better match supply and demand

Is it good to micro-manage supply and demand?  Good, because you will be very
responsive

Risk: Need to have good relationship with suppliers (supplier must be more responsive, pass
information to them)

3. 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?

Facility Location: Main strategy is market dominance and have its stores nearby each other.
The main purpose is to provide convenience for consumers. This strategy increase
responsiveness of 7-11 to consumers. Good for milk run as they are close to each other.

(Clustering strategy is the key success factor)

Transportation: Cross dock, outsource, deliver during off peak -> minimize the risk of any
congestion

Inventory Management: 7-11 manages its inventory by using systems such as POS to track
the inventory level. When the inventory level is low, staff will order for the inventory using
graphic order terminal. The orders are send to the suppliers and consolidated in the DC, to
send out. 7-11 send out inventory in batches which increase the utilization of the outbound
transportation -> no of transportation truck minimize -> increase cost efficiency

The POS system allow 7-11 to analysis daily sales and forecast demand for the different
products everyday to match with customer demand. This increases responsiveness as
demand are met. The POS system also allow flexible ordering of inventory based on the
demand forecast of consumers.

The supplier will send out per store. They use store ID, and send it to CDC. It increase
efficiency for the CDC and 7-11.

Planning will be more convenient, easier to fill up the whole truck. Able to reduce the
number of trucks used for transportation.

CDC – consolidation point, transportation cost will come down for 1st or 2nd system.
 4. 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?

Benefit: Low inventory level as orders are sent to the supplier and they will prepare the
appropriate amount and send to DC to consolidate and send out to various 7-11, without
stocking up in DC.

Information a lot easier for having a DC.

BTO: Order then build then send over.

DC able to consolidate all products into similar temperature product and send out to various
store -> reduce transportation cost.

DC helps to reduce receiving cost as 7-11 receives inventory in batches of inventory with
similar temperature.

Direct Store: Most appropriate for large stores that are able to fill up the whole truck of
inventory. This will fully utilize transportation -> lowering transportation cost -> increase
efficiency.

Direct delivery  More trips made per day to 1 store

Density of each stores  Scattered stores = DSD more useful

Special Event: Festival happen happen near the store, you can do direct store selling.

Established product: eg. Newspaper. Newspaper will send to the store directly. Milk, very
established system, will send directly to the shop. (no need to go through CDC)

Even if all products come from same manufacturer  No point in using DSD also

5. 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?

7dream concept allow users to order products from their website and pay and pick up in
local 7-11 24/7. Allow them to pay using prepaid or mobile -> more convenient.

Exploiting 7-11 distribution system: as pick up location. Piggy Back on the supply chain, send
to DC to sort and increase utilization of outbound distribution -> increase cost efficiency
allowing them to charge free for the delivery to 7-11 stores.

Save cost on building pick up point and last leg delivery to consumers.

Easier returnable of goods to 7-11.

Increase frequency for customer to visit the store as people pick up their parcel at 7-11.
They may buy some stuff at the same time and increase revenue.

However, more inventory builds up and waste of space for 7-11.

Risk: Storage space, distract them from the business.

More likely to succeed in Japan. 7-11 has became part of their life and it is very convenient
for them to pay and pick up at 7-11. US has lesser store and 7-11 may be more wide spread
then in Japan. Very hard for 7-11 to make use of the “convenience” strategy to attract
citizens to opt for 7dream services. People are more open to shopping online and receiving
parcel at their home. They may not fully utilize the services provided by 7 dream and thus
reduce efficiency of the service. US people like to deliver to their home -> social norm. Pick
up is what Japanese like. It is cheaper in Japan, DC -> decrease transportation cost. Turnover
rate lower in US, than in Japan, it will be better in Japan.

6. Seven-Eleven is attempting to duplicate the supply chain structure that has succeeded in
Japan and 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
manufacturers.

Pros: CDC better responsiveness. Milk run reduce transport cost. Return ability easier.

Cons: Facility Cost increase, Milk run does not work for USA, stores are far from each other.

Nature of biz is different  Japan is urbanized, does clustering; US scattered (hybrid system
– in the city – use clustering; but suburban – use scattered system)

Vast, Volume, Established system

Big City use CDC (city area is more dense) city’s stall should be more dense and small, well
managed, suburban area use direct.

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?

Pros:

Outsourcing to distributor to replenish the store. Piggy back on their system -> Lower cost
as distributor may consolidate orders from other shops and deliver altogether

Dense area: Probably 7-11 can do for cheaper cost -> can do milk run.

Disperse: Outsource, distances are far, truck will not be full -> less efficient. Distributor has
already an established transportation system.

If outsource -> they dedicate truck for you, you cant piggyback on their system -> expensive
-> rather don't do.
Cons:

Less control of the replenishment system -> will never change and adjust schedule for you.

Quality control will be compromised if outsource.

Outsource company may use a different information system -> very hard for 7-11 to
coordinate for 7-11.

May be less responsive as 7-11 cannot control the system for the distributor.

Control, information, coordination

Frequent replenishment