Case Study- Seven-Eleven Japan

Case Study- Seven-Eleven Japan

OPERATIONS AND SUPPLY CHAIN MANAGEMENT [100]

QUESTION ONE [46]

Read the following and answer the questions that follow:

Seven-Eleven Japan

Established by Ito Yokado in 1973, Seven-Eleven Japan set up its first store in Tokyo in 1974. The company was first listed on the Tokyo Stock Exchange in October 1979. In 2005 Seven & I Holdings Co. Ltd. Was established as the holding company for Seven-Eleven Japan. Ito Yokado, and Denny’s Japan. Seven-Eleven Japan realised phenomenal growth between 1985 and 2013, when the number of stores in Japan increased from 2 299 to more than 16 000. Globally, the firm had more than 53 000 convenience stores by June 2014 and was the world’s largest chain in terms of retail outlets.

Customer visits to Seven-Eleven outlets averaged more than 1 000 per store per day in 2013. Both Ito-Yokado and Seven-Eleven Japan were founded by Masatoshi Ito. He started his retail empire after World War II. After a trip to the United States in 1961, Ito became convinced that superstores were the wave of the future. Ito’s chain of superstores in Tokyo were instantly popular and constituted the core of Ito-Yokado’s retail operations.

In 1972, Ito approached the Southland Corporation about the possibility of opening Seven-Eleven convenience stores in Japan. Southland agreed in 1973 to a licensing agreement and gave Ito exclusive rights throughout Japan. This new concept was an immediate hit in Japan, and Seven-Eleven Japan experienced tremendous growth. By 1979, there were 591 Seven-Eleven stores in Japan; by 1984, there were 2 001. Rapid growth continued, resulting in 16 086 stores by 2014. In 2005, Seven and I Holdings was established combining Seven-Eleven japan, Ito Yokado and Denny’s Japan. Case Study- Seven-Eleven Japan

The convenience store sector was one of the few business areas that continued to grow during the  prolonged slowdown in Japan toward the end of the twentieth century and the start of the twenty-firstcentury. From 1991 to 2013 annual sales at convenience stores more than tripled (from 3 trillion to 10 trillion yen). Japan’s convenience store sector gradually consolidated with larger players growing and smaller operators shutting down. In 2004, the top ten convenience store chains accounted for almost 90 percent of Japan’s convenience stores. By 2013 consolidation had resulted in the top five chains accounting for more than 90 percent of convenience store sales in Japan.

Seven-Eleven Japan developed an extensive franchise network that included both company-owned stores and third -party owned franchises. To ensure efficiency, Seven-Eleven Japan based its fundamental network expansion policy on a market-concentration strategy. Entry into any new market was built around a cluster of 50 to 60 stores supported by a distribution centre. Such clustering gave Seven-Eleven Japan a high density market presence and allowed it to operate an efficient distribution system. Seven-Eleven Japan felt that its market-concentration strategy improved distribution efficiency, brand awareness, efficiency of franchise support services, and advertising effectiveness. It also served as an effective deterrent to competition.

By 2014, Seven-Eleven had stores in 42 of 47 of the prefectures (provinces) within Japan. SevenEleven franchises were highly sought after, with fewer than one of 100 applicants being awarded a franchise. The responsibilities of the two parties were as follows:

Seven-Eleven Japan responsibilities Franchise owner responsibilities

 

·         Develop supply and merchandise

 

·         Operate and manage store

 

·         Provide the ordering system

 

·         Hire and pay staff

 

·         Pay for the system operation

 

·         Order supplies

 

·         Supply accounting services

 

·         Maintain store appearance

 

·         Provide advertising

 

·         Provide customer service

 

·         Install and remodel facilities

 

 
·         Pay 80 percent of utility costs  

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Seven-Eleven had more than 16 000 stores in Japan by January 2014. In 2004 Seven-Eleven Japan changed the standard size of new stores from 125 square metres to 150 square metres (significantly) smaller than the size of most US 7-Eleven stores. In 2013, daily sales at a store averaged $6 528, which was almost twice the average at a US store. Case Study- Seven-Eleven Japan

Seven-Eleven Japan offered its stores a choice from a set of 5 000 SKUs. Each store carried about 3 000 SKUs on average, depending on local customer demand. Seven-Eleven Japan emphasized regional merchandising to cater precisely to local preferences. Each store carried food items, beverages, magazines, and consumer items such as soaps and detergents. The food items were classified into four broad categories:

(1) Chilled-temperature items, including sandwiches, delicatessen products and milk.

(2) Warm-temperature items, including box lunches, rice balls and fresh bread.

(3) Frozen items, including ice cream, frozen foods and ice cubes.

(4) Room temperature items, including canned foods, instant noodles and seasonings.

Processed food and fast food items were big sellers for the stores. By 2013, Seven-Eleven Japan had 171 daily production facilities and 158 distribution centres across Japan. Other products sold at Seven-Eleven stores included soft drinks, nutritional drinks, alcoholic beverages such as beer and wine, game software, music CDs and magazines. Seven-Eleven also focused on the number of original items that were available only at their stores. In 2004 original items accounted for 52 percent of total store sales. In 2007, Seven & I launched ‘Seven Premium’ private brand products for sale at its stores. By 2010 Seven premium offered 1 035 SKUs. Private brand products were sold across all store formats.

Besides products, Seven-Eleven Japan gradually added a variety of services that customers could obtain at its stores:

  • In 1987 the first service offered was the in-store payment of Tokyo Electric Power bills. The company later expanded the set of utilities for which customers could pay their bills in the tores

to include gas, insurance and telephone. The bill payment service attracted millions of customers every year.

  • In 1994 Seven-Eleven Japan began accepting instalment payments on behalf of credit companies.
  • It started selling ski-lift pass vouchers in 1994.
  • In 1995 it began to accept payment for mail-order purchases. This was expanded to include Internet shopping in 1999.
  • In 2000 a meal delivery service company, Seven-Meal Service was established to serve the aging Japanese population.
  • Seven Bank was set up as the core operating company for financial services. By 2013 virtually every Seven-Eleven Japan store had an ATM installed, with Seven Bank having almost 18 000 ATMs. The company averaged 111 transactions per ATM per day.

Other services offered at stores include photocopying, ticket sales (including baseball games, express buses and music concerts) and being a pick-up location for parcel delivery companies that did not leave the parcel if the customer was not at home. In 2010 the convenience stores also started offering some government services, such as providing certificates of residence. The major thrust for offering these services was to take advantage of the convenient locations of Seven=Eleven stores in Japan. Case Study- Seven-Eleven Japan

In 2000 Seven=Eleven Japan established 7dream.com, an e-commerce company. The goal was to exploit the existing distribution system and the fact that the stores were easily accessible to most Japanese. The stores served as drop-off and collection points for customers. In 2007 Seven-Eleven japan introduced “Otoriyose-bin” or Internet shopping. The service enabled customers to buy products that were typically not available at the retail stores. Customers could order on the Internet with both pick-up and payment at Seven-Eleven stores. No shipping fee was charged for this service.

The company built Seven Net Shopping, its Internet site, aimed at combining the group’s stores and Internet services. In 2007 ‘nanaco’’ electronic money was offered in Seven-Eleven stores. The service allowed customers to prepay and use a card or cellular telephone to make payments. The service was offered as a convenience to customers making small purchases and was also a reward system. By 2013 21 million nanaco accounts had been issued.

From its start, Seven-Eleven Japan sought to simplify its operations by using advanced information technology. Seven-Eleven Japan attributed a significant part of its success to the Total Information System installed in every outlet and linked to headquarters, suppliers and the Seven-Eleven distribution centres. The information system allowed Seven-Eleven stores to better match supply and demand.

The Seven-Eleven distribution system tightly linked the entire supply chain for all product categories.  All stores were given cut off times for breakfast, lunch and dinner ordering. When a store placed an order, it was immediately transmitted to the supplier as well as the distribution centre (DC). The supplier received orders from all Seven-Eleven stores and started production to fill the orders. The supplier then sent the orders by truck to the DC. Each store order was separated so the DC could easily assign it to the appropriate store truck using the order information it already had.

The key to store delivery was what Seven-Eleven called the combined delivery system. At the DC, deliveries of like products from different suppliers (e.g. milk and sandwiches) were directed into a single temperature-controlled truck. There were four categories of temperature-controlled trucks: frozen foods, chilled foods, room-temperature processed foods, and warm foods. Warm and chilled foods were delivered three times daily, whereas room-temperature products were delivered once a day. Frozen products were delivered three to seven times a week. Each truck made deliveries to multiple retail stores. The number of stores per truck depended on the sales volume. All deliveries were made during off-peak hours and were received using scanner terminals. The system worked on trust and did not require the delivery person to be present when the store personnel scanned in the delivery. That reduced the delivery time spent at each store.

This distribution system enabled Seven-Eleven to reduce the number of vehicles required for daily delivery service to each store, even though the delivery frequency of each item was quite high. In 1974 seventy vehicles visited each store every day. By 2006 only nine were necessary. This dramatically reduced delivery costs and enabled rapid delivery of a variety of fresh foods. By May 2013, Seven-Eleven Japan had a total of 171 daily production facilities throughout Japan that produced items that were distributed through 158 DCs that ensured rapid, reliable delivery. None of these DCs carried any inventory; they merely transferred inventory from supplier trucks to SevenEleven distribution trucks. Case Study- Seven-Eleven Japan

In 2013, Seven-Eleven’s operating income of 224.9 billion yen positioned it as a leader not only of the convenience store sector but also of Japan’s retail industry.

Adapted from Chopra S and Meindl P (2016) Supply Chain Management Strategy, Planning and Operation Sixth Edition Pearson

1.1 Seven-Eleven’s supply chain strategy in Japan can be described as attempting to micro-match supply and demand using rapid replenishment. Discuss the risks associated with this choice. (12)

1.2 Evaluate what Seven-eleven has done to support its supply chain strategy in Japan regarding facility location, inventory management, transportation and information infrastructure. (16)

1.3 Seven-Eleven does not allow direct store delivery in Japan but has all products flow through its distribution centre. Explain the benefits of this policy and consider whether direct store delivery would be more appropriate. (10)

1.4 Discuss the 7dream concept for Seven-Eleven Japan from a supply chain perspective. (8)

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QUESTION TWO [24]

No matter how much effort is put into improving operations, there is always the risk that something unexpected or unusual will happen that could reverse much, if not all, of the improvement effort. One way of improving operations performance is by reducing the risk of failure (or of failure causing disruption) within the operation. Case Study- Seven-Eleven Japan

With reference to this:

2.1 Explain what risk management is in the context of improving operations performance. (4)

2.2 Assess the potential causes of and risks arising from failure. (8)

2.3 Discuss how failures can be prevented and how operations can mitigate the effects of failure. (12)

QUESTION THREE [30]

All operations, no matter how well managed, are capable of being improved.

3.1 Explain the importance of improvement in operations management. (8)

3.2 Discuss the key elements of operations improvement. (12)

3.3 Discuss any two approaches to managing improvement. (10)

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NB- With references

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