Case: 7-Eleven Japan Co. Essay

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 different 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. If demand patterns change dramatically, or the customer base changes, then Seven-Eleven is left with an operation that is not needed. Offering variety of services in the case of this case study Seven Eleven offered 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: 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 efficiently 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 efficient management of the inventory, the graphic order terminal, scanner terminal and store computers are used thus assists in improving both the efficiency 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 flexible 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 different types of products such as frozen/ chilled foods, processed foods etc. Facility location: 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 flow through its distribution center. What benefit 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, confidence 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 flexibility in the sense that it can alter the delivery schedules due to any demand fluctuations. 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 affected 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 efficiently 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? 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-off 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 effective and efficient 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 (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 efficiency. 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 efficiency. Cons There could have been a difference 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 specific, 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 effective. However outsourcing does have its repercussions as well. The control over the quality of items and the replenishment time might not be as effective as doing the distribution yourself. With the outsourcing of distribution the communication gap can affect the replenishment distribution. However taking the advancements in communication and technology this 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 affect both the efficiency and responsiveness of the supply chain. A retail store can achieve improved efficiency by having a distributor replenish its stock, but he does not put his heart and effect they can have on their long term aims.