3/17/2019 Case: 7-Eleven Japan Co.

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Case: 7-Eleven Japan Co. Essay

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Question 1:

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 di erent ways that a convenience store
supply chain can be responsive? What are some risks in each case?

A convenience store can be more responsive by doing exactly what Seven-Eleven Japan is
doing; many locations, rapid replenishment, appropriate technology deployment, and an
equally responsive supplier (vertical integration for many of their SKUs). The risks associated
with this system are the costs coupled with demand uncertainty.

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If demand patterns change dramatically, or the customer base changes, then Seven-Eleven is
left with an operation that is not needed. O ering variety of services in the case of this case
study Seven Eleven o ered attractive services to customers such as ski lift voucher pass,
payment of mail order purchases, internet shopping, a meal service delivery, automatic teller
machines installation in each store, pick up online services, electronic money service that allow
customers to prepay and use a card or cell phone to make payments etc. on the other hand, a
short coming might result due to the failure of one or more information system due to failure
or break down.

Question 2:
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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?

Question 3:

What has 7-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?

Information infrastructure:

7-Eleven implemented a Total Information System through which the company could e ciently
share its information thus making its supply chain responsive. The system was installed within
each store, headquarters, suppliers and vendors. And also the system linked all the stores with
each other. The Total Information System comprises of POS registers, Integrated Services
Digital Network (ISDN), Graphic order terminal, scanner terminal and store computers. The
data related to the sales as well as the purchaser is collected through the POS register for
analysis. For e cient management of the inventory, the graphic order terminal, scanner
terminal and store computers are used thus assists in improving both the e ciency and
responsiveness.

Inventory management:

The store owner or the manager makes use of the graphic order terminal to place orders so as
to replenish inventory in order of their arrangement on the store shelf. The owner had access
to analysis of waste, 10 day and 10 week sales trends SKU, sales trends of new products, sales
analysis by day and time etc that help him in forecasting demand. On the other hand, the
Scanner terminal receives products from a distribution center and therefore monitors
inventory by checking whether the order received matches with the original order placed. The
store computer helps in tracking store inventory.

Transportation:

Trucks are used to transport goods to the stores. 7-Eleven makes use of a exible distribution
system which means that it can alter the delivery schedules according to the varying customer
demand. Also, the suppliers send orders via trucks to the distribution centers. The latter cross
docks inventory from supplier truck to distribution trucks. Moreover, to maintain the quality of
the products, the distribution trucks are temperature controlled of four categories for di erent
types of products such as frozen/ chilled foods, processed foods etc.

Facility location:
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The facility location of 7-Eleven comprises of two types namely, the distribution centers and
retail stores. 7-Eleven follows a market or area dominance strategy through which it forms
clusters of stores in the area where already a 7- eleven store exists rather than having a
handful of stores dispersed over a wide geographical area. Among the clusters there’s a
distribution center which is surrounded by 7-Eleven stores. Approximately, there are 50-60
stores in each cluster.

Question 4:

7-Eleven does not allow direct store delivery in Japan but has all products ow through its
distribution center. What bene t does 7-Eleven derive from this policy? When is direct store
delivery more appropriate?

7-Eleven has the policy of delivering its products to the retail stores via the distribution centers.
Through these distribution centers, the replenishment cycles are reduced and a proper sales
record can be maintained and monitored. Through the Point of Sale registers, signals can be
transmitted to both the distribution centre and the supplier hence orders can be organized
accordingly. Also, orders are sent directly to the distribution centre so that they can be allotted
to the appropriate vehicle. A combined delivery system is used by 7- Eleven, in which four
groups of temperature-controlled trucks are used to send fresh products. The trucks are sent
several times a day during peak hours in order to avoid delays.

Also, con dence is maintained between the supply chain partners and an additional person is
not needed while the load is being received and checked. The process reduces delivery time.
However this system might require a number of daily deliveries, but the number of trucks
needed is much lesser therefore it reduces the delivery cost and facilitates a more prompt
fresh food delivery. And hence the stock is continuously replenished. This network process
ensures exibility in the sense that it can alter the delivery schedules due to any demand
uctuations. There is a twelve-hour limit upon the restocking of food items.

The disadvantages however include that the retail stores will have little control when the
restocking takes place. Also, a number of stores rely on just one combined distribution centre.
Also, if the system goes down while the delivery is at CDC, then all the stores can be a ected
and timely deliveries might not be possible. Hence accurate forecasts are needed. Direct
delivery system might be a useful technique as the stores follow variant patterns. If the
demand increases and a store require a greater number of deliveries then the demand can be
met more e ciently as the deliveries can be made directly to the stores.

Question 5:

What do you think about the 7dream concept for 7-Eleven Japan? From a supply chain
perspective, is it likely to be more successful in Japan or the United States? Why?
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In February 2000, 7-Eleven established 7dream.com, an ecommerce company, the goal of

which was to exploit the existing distribution system and the fact that stores were easily
accessible to most Japanese Stores served as drop-o and collection points for the customers
and proved successful as 92% of their customers preferred to just pick up their goods from the
local convenience store which they ordered online rather than have them delivered to their
homes. This was understandable given the frequency with which Japanese customers visit their
local convenience store. 7dream hoped to build on this preference along with the synergies
from the existing distribution system as the company required an e ective and e cient supply
chain to cater to the demand of the customers who ordered online and provide the company
with a time frame for delivery.

From a supply chain perspective, it is believed that the 7dream concept is likely to be more
successful in Japan than in the United States. The reason for saying so is that, the Japanese
market is much smaller as compared to that of United State. In 2008, there were 12,071 stores
in Japan where as the stores were nearly half the number in U.S that is 6,262. The density of
stores in Japan was hence greater as the area of Japan is much smaller as compared to that of
the U.S. and therefore, in Japan the company had a greater customer reach as 7–Eleven stores
are easily accessible throughout Japan.

The ecommerce company itself could probably be a greater success in U.S. however; it would
be a better idea if the orders are directly sent home rather than have them delivered to the
nearest 7-Eleven store. In this way, the company can tap in to a bigger market that is the U.S.
market but get the goods delivered to the customer’s doorstep would be a better idea. Also,
the stores in the U.S. were replenished using direct store delivery (DSD) by some
manufacturers, with the remaining products delivered by wholesalers. DSD accounted for
about half the total volume, with the rest coming from the wholesalers. This meant that direct
delivery is a more popular concept in the U.S.

Keeping into consideration the current strategy of the 7dream concept, it is more likely to be
successful in Japan than in the United States. However, if the strategy is molded according to
the U.S. market, it can become a greater success.

Question 6:

7-Eleven is attempting to duplicate the supply chain structure that has succeeded in Japan in
the United States with the introduction of CDC’s. What are the pros and cons of this approach?
Keep in mind that stores are also replenished by wholesalers and DSD by manufacturers.

After 7 Eleven acquired Southland Corporation they tried to improve their operations in
America. The main improvement was an introduction of a new component in the supply chain
completely novel to the US market. This component, the Combined Distribution Centers

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(CDCs), was however used in Japan at that time. Initially the stores in US used the Direct Store
Delivery (DSD) in which stores were replenished by manufacturers accounting for half of the
goods volume and the rest half was done by whole sellers. CDC delivered perishable products
like bread, sandwiches and the rest of the bakery products. Pros

Using CDC all perishable -food items would be delivered by a single distributor which would
increase overall e ciency. Having fresh-food items at 7-Eleven convenience stores helped in
users getting variety of fresh food from convenient locations. Uncertainty of delivery times was
minimized by systematic delivery system. The inventory costs were low as fresh food items
cannot be inventoried. With daily replenishment of fresh-food items, the stock would be fresh
and it reduced consumer concerns of stale items to a large extent. Centralization gave a
greater control to the management and more processes were now under the supervision of
the company hence improving e ciency.

Cons

There could have been a di erence in quality delivered through CDC and DSD. DSD was a
tested system so company might be unwilling to shift to the new system as there is always a
reluctance to change. In US stores fresh products may not sell very well.

Training would be required for all the supply chain members as the new system tends to be
more time sensitive. Manufacturers might not be willing to go with the idea of CDC’s as they
might lose on their relative dollar revenues and with the loss in revenues they might also
reduce control. As the new system would be very time speci c, the supply chain might not be
very responsive and if updates are required the company might lose on its sales.

Question 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 7-Eleven managing its own distribution function?

With the outsourcing decision in mind an organization always tries to outsource activities that
lie beyond their core competencies and their scarce resources are wasted in performing tasks
that they are not specialized at. With outsourcing the organization tries to focus on activities
that they can do best. The advantage is that managing the distribution is the sole headache of
the distributor and with his specialized expertise it might be more cost e ective. However
outsourcing does have its repercussions as well. The control over the quality of items and the
replenishment time might not be as e ective as doing the distribution yourself.

With the outsourcing of distribution the communication gap can a ect the replenishment
distribution. However taking the advancements in communication and technology this
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statement may be rendered void. Convenience stores are successfully communicating with
their distributors and make uninterrupted storage of data and information transmission from
3PL WMS to internal systems for real-time visibility of stock in hand and customer service.
Moreover outsourcing decisions a ect both the e ciency and responsiveness of the supply
chain. A retail store can achieve improved e ciency by having a distributor replenish its stock,
but he does not put his heart and e ect they can have on their long term aims.

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