Reading
60
Chapter
3
'
Supply Chain Dtivcrs and Metrics
Marien, Edward
SupplY Chairr
60-6lJ.
O'Marah, Kevin
Suppll,Chairt l6-22.
J.
"The Four
Supply Chain Enablers"
Mdntgement Reri{,lt
(March-APril 2000):
"Thc
Tirp
'lwenty
Five Supply Chains
Mdnagement Revier' (Septernbcr 2007):
"
Prcsutti,
William D., Jr.' ancl John R' Mawhinncy "Thc Supply
Chain-Finance
Link''
Srl/'/tv ChditI ManaSlnettl Revie\t
(Septcmber 2007): 32-38.
Slone, Rcuben E.,
J
Paul Ditttnan, and John
T
Mcntzcr
Supply Chain Agenda: Th? Fivc Stcps thal
lie
rVerv
Drie
R?dl vulue
Bostont HaNard Busincss Press, 20 lu'
Case StudY
Seven-Eleven JaPan Co.
Established set up its
Octotei t by comiany was first listed on the
Co.
Ltd., lrst
SZS.
Ito store
Yokado in Koto-ku' Tokyo' in
On September was established
in
l, 2005, Seven
& i Holdings as t973'
Tokyo Stock Exchange the
Seven-Eleven Japan
May holding
1974 The company in for
Seven-Eleven Japan- Ito-Yt-rkado. and Denny's a result, detailed financial results
Japan' As for Seven-Eleven Japan have no{ been available since then and are only reported as the convenience store portion
of
Seven
& i
Holdings'
Seven-Eleven
Japan
realized
a
phenomenal growth between 1985 and 2009.
Du
ng that period, the number of stores ircrea'sed fro
m2,29
to 12,753 and annual increased from 386 billion to 2,?85 billion sales yen in Japan'
Globally, the firm had over 40,000 convenience stores by
January 201 1 and was tlre world's largest chain in terms
of
&
i from convenretail outleLs. Global revenues for Seven ience store operations were 1'968 an operating income billion yen in 2009 with
of
183 8
billion
yen' The
ltrm
was present in 38 of Japan's 4? prefectures and opened 966 sores in Japan while closing 5l
i
stores in 2009' Customer visits to Seven-Eleven outlets totaled
4
l
bitlion in 2007' for averaging almost 35 visits lo a Seven-Eleven annually every penon in JaPan
Company History and Profile
Both lto-Yokado and Seven-Eleven Japan were founded
by
Masatoshi
Ito.
He
started
his retail
empire after
*otlA
W"t
lI,
when he
joined his
mother and elder brorher and began to work in a small clothing store in
Tokyo.
By
1960, he was
in
sote control, and store had grown the single into a $3 million company After a
tnp
to the United States
in
1961, Ito became convinced that suDerstores were the wave
of
the
future At
that time'
Japan was
still
dominated by mom-and-poP stores'
Ito's chain of superstores in the Tokyo area was instantly popular and soon constituted the core of lto-Yokado's retail oDerauons.
h
1972,
Ito first
approached
the
Southland
Corporation about tie possibility of opening Seven-Eleven
2002
2003
2004
2005
2006
2007
2008
2009
1914
1979
1984
1989
1994
1999
2000
2001 convenience stores
in
Japan.
Aftcr
rejecting his
initial
request, Southland agreed
in
1973 to a licensrlg agreement. ln cxchange for 0.6 percent of total sales, Southland gave Ito exclusive rights throughout Japan
ln
May 1974' the first Seven-Eleven convenience store oPened
This n€w concept was an immediate in Tokyo' hit in Japan'
and
Seven-Eleven
Japan cxperienced
(remendous growth.
By
1979, there were already 591 Seven-Eleven itores in Japan; by 1984' there were 2,001' Rapid growth continued (Table 3-2), resulting in 12,753 stores by 2009'
On October eotered
24,
199O' the Southland CorPoration into bankruptcy protection.
Ito-Yokado's help, and on March
Southland asked for
wrs
formcd
by
Sevcn-Eleven Japan
Ito-Yokado
(52
p€rcent).
IYG
acquired 70 percent
of
Southland's common stock for
5, a t'otal
199l,IYG
Holding
(48
percen() and price of $430 million'
Numberof stores
15
801
2,299
3,954
5,905
8,153
8,602
9.060
9,690
10,303
10,826
11,310
11,735
12,034
12,298
12,753
Annual
(billion
Sales
Yen) o.7
109.8
386.7
780.3
'1,392.3
1.963.9
2,046.6
2,114-O
2,213.2
2,343.2
2,440.8
2,494.1
2,574.3
2,762.5
2,7A4.9
('haptcr.j
.
Supply ('hain Drivcrs rnd Mefrics 61
For Fiscal Years gnding
February 28/29
Total revenues (billion yen)
Total operating income lbillion yen)
Convenience store revenues (billion yen)
Convenience store operating income (billion yen)
2008
5,752.4
281.9
2,395.7
201.0
2009 2010
5,649.9
5,111.0
281.9
226.7
2,304.7
1,968.6
213.4
183.8
In
2005, Seven
&
i
Holdings
was established through a stock transfer combining Seven-Eleven Japan,
Ito-Yokado, and Denny's Japan.
ln
2009, convenience store operations
from
Seven-Eleven Japan and other subsidiaries
in
North America and China contributed
38.3 Errcent of total revenues from opcrations and 80.9
percent of operating income for the Seven
& i
Holdings
Company (see
Table 3-3
for
details). The
relative performance
of
convenience stores
within
Japancse operations was even more dominant. The drop in ftnancial performance in 2009 relative to 2008 was attributed largely to the drop
of
gasoline prices in North America and the skonger yen. The discrep:ncy between Tables 3-2 and 3-3 results because Table 3-2 reports sales (at both company owned and franchised stores), whereas Tablc
3-3 reporls revenues for only Seven
&
i.
The
Convenience Store Industry and
Seven-
Eleven in Japan
The convenicnca store sector was oDe of the few business arcas that continued to grow during the prolonged slowdown in Japan toward the end of the 20D ccntury and the start of the
2 I sr century. From
I
99 I to 2fi)2, the number
of
convenience stores
in
Japan increascd
from
19,603 to almost 42,000. As a perccntage
ofall
retail stores in Japtur,
this
representcd
an
increasc
liom
1.2 perccnt
to
3.2
percent. During that pcriod, annual sitles at convcniencc stores more than doublcd, from just over 3 trillion to 6.7
trillion yen. As a percentage
ofall
retail sales in Japan, this represcnted an incrcase fronr 2.2 perccnt to 5.0 pcrcent.
Japan's convenicncc
store secto.
gradually consolidated.
with
larger players growing and srnallcr operators shutting down. In 2004, the top l0 convenience store chains accountcd for approximately 90 percent
of
Japan's conveniencc sknes. As the chains improved their operating structures and bclter lcveraged economies
of
scale, smaller operators fbuncl it hitrd to compete.
Scven-Elcven Japan had increased convcnicnce storo markct sincc its share of the
it
oocned.
In
2008.
Scven-Eleven was Japan's leading convenience store operator, accounting for 34.3 percent market sharc in the convcnience store segnrent. Scven-Eleven was very eflective in terms
of
same-store sales. In 2004, average
daily
sales at the four major convenience store chains
excluding
Seven-Eleven Japan totaled 484,000 yen.
Seven-Eleven stores,
in
contrast, had
daily
sales
of
647,000
yen-more
than 30 percent higher than the competition put together. By 2009, average daily sales at
Seven-Eleven Japan stores had declined somewhat to
616,000 yen. In 2004, Seven-Eleven's operating income
of
165.7
billion
yen positioned it as a leader not only
of
the convenience store sector but also
of
Japan's retail industry as a whole. In terms of growth, its performance
was
even
mcre
impressive.
In
2004,
Seven-Eleven accounted for 60 percent of the total net increase in the number
of
stores among the
top
l0
convenience store
chains
in
Japan-
This
growth had bcen
carcfully planned, exploiting the core strengths that Seven-Eleven
Japan had developed in the areas of infbrmation systems and distribution systems.
The
Seven-Eleven Japan Franchise System
Seven-Eleven Japan developed an extensive franchise network and performed a key role in the daily operations
of
this network- The Seven-Eleven Japan network inoluded both company-owned stores and third-pany-owned franchises, In
2fiX,
foanchise commissions accounted for more than 68 percent of revenue from operations. To ensure cfficiency, Seven-Elevcn Japan based irs fundamental network expansion policy on a markct-dominance strategy. Entry into any new m:rket w:Ls built around a cluster of 50 to 60 stores supportcd by a distribution centcr. Such clustering gave Seven-Eleven Japan a high-density market presence and allowcd
it
to operate an efficient distribution system.
Seven-Eleven Japan, in its 1994 annual report, listed thc following six advantages of the markeGdominance strutegyi
.
.
.
.
.
.
Boostcd distribution efficiency
Improved brand awareness
Increascd system efficiency
Enhanced efficiency
Prevented of franchise support seryices
Improvcd advertising effectivenr:ss compctitors' entrance inlo the donlinant aret
62
Chirptcr
-l
.
Srrppll'('hain L)rivers and N'lellics
Japan
Adhering
to
its dominant stratc-qy, Sevcn-Elevcn opcned tho
maiority
ol
its
new stores
in
areas with existing clusters
of
stores. Rrr exanple, the Aichi prefccturc. whcre Sevcn Elevcn
bwan,rp\'nin!
slorcs in
2002, saw a large incrcasc in 2004,
witlt
108 ncw storc openings. This represented more than
l5
perccnt of the new Sevcn-Elcven stores opcned in Jrpan that year.
Seven-Elevcn had a
linited
gcog,raphic prescncc in Japan. In 2009, the conrpany had s(orcs in about 80
perc(rrt (3?
of
47)
of
thc prefectulcs within
Japan.
Howcver,
within
prefectures where they were present, stores tended
to
be dcnsc, As the 200'1 annual report stated,
"lrilling
in
the entire rnap
ol
Japan
is
not our
priority.
lnstead,
wc look for
demand where Seven-
Eleven stores already cxist, based on our fundamental area-dominance strategy
of
coDcentrating storcs in specific areas."
With
Seven-Elevcn lianchiscs
being
highly
sought after,
fewer
than onc
of
100 applicants was awarded a fianchise (a testament to store profitability).
The franchise owner was retluired to put a significant
anount
of
monoy up
front. Half of this
amount was used to prepare the store and train the owner. The rest was used
for
purchasing thc
initial
stock
for
the storc.
ln
1994, 45 percent of total gross profits at a store went
to
Scven-Elcven Japan, and the rest went
to
thc store owner. The responsibilities
of
thc
two
partics wcre as follows.
Seven-Eleven Japan responsibilities:
.
.
.
.
Devekrp supply and merchandise
Provide the
Pay ordering system for the system operation
Supply
.
Provide
.
Install
. accounting services advertising and remodel
Pay 80 percent of facilitie.,
utility
costs
Franchise owner responsibilities:
.
.
.
.
.
Operate and manage store
Hire and pay staff
Order supplies
Maintain store appgarance
Provide custolner service
Store
lnformation
and Contents
Seven-Elevcn had 12.753 stores in Japan as of 2009 (see
Table 3-2).
In
2004. Scven-Eleven Japan changed the standard sizc
of
new stores
fronr
125 squarc meters to
Processed foods
Fast foods
Fresh/daily toods
Nonfoods
Percentage of Total Sales
28.3
27.4
12.1
32.6
150 square metcrs,
still
significantly snlallcr than the size of Dost U.S. 7 Elevcn stores. In 2009, daily sales at a store averagcd 613,000 ycn (about
Xi?,558
in
March
201
|
at an cxchangc ratc
of
about
8l
yen to a U.S. dol lar), which was almost twice the averagc at a U.S. store-
Seven-Eloven Japan offered
its
stores a choice from a set of 5,00) SKUs. Each store carried on average
about 3,000 SKUs dcpending
on local
customer demand. Seven-Elevcn Japan emphasized regional mcrchandizing to cater precisely to local preferences. Each store carricd
food
items, beverages, magazines, and consumer items such as soaps and dctergents. The rclative sales across product categories
in
2009
for
Sevcn
Elcven Japan arc given in Table 3-4.
The food items were clnssified in lbur broad cate gories:
(l)
chillcd-temperature iterns including sandwiches, delicatessen products, and milk; (2; wam-temperature iterns including box lunches, ricc balls, and lresh brcad;
(3) frozcn itcms including ice cream, frozcn fotxis, and ice cubes; (4) and rcxrm-tcmperature items including canned food, instant noodles, and scasonings. Prosessed food and fast-food items were big sellers for the stores.
ln
2009,
Focessed and fast foods contributed about 55 percent the total sales at each store. More than
of
I
billion rice balts were sold in 20O4: this amoutlted to each Japauresc cilizen eating approximately eight Scven-Eleven rice balls a ycar.
Thc top-selling products in the fast-food category wcre lunch boxes, rice balls, bread-based products, and pasta.
As of February 20O4, Seven-Elevcn Japan had 290 dedicated manufacturing plants that produced only fast f(rcd for their stores.
Other products sold at Sevcn-Eleven steres included soft drinks, nutritional drinks, alcoholic bevcrages such as becr and wine, gamc soltware, rnusic CDs, and magrzines.
Seven-Eleven was fbcused on increasing the number
of original
items that werc available
only
at their stores. ln 2004, original itcrns accounted for roughly 52 percent of total store sales. In 200?. Scven
&
i launched
Scven Prcnriurn
plivatc
brand products
for
sale
al
its
Chuplcf
J
'
SLrpply
('haiD Drilers irDd
\4clrics stores.
By
February
2010,
Sev{rn Premium off-ered
1.035 SKUs. and this number was expected to grow ln the future. Private brand products were sold across all storg formats and were viewed by the complny as an imponant part
of
the expansion
of
synergies across its vari(,us retail formats.
Store
Services
Besides proclucts, Sevcn-Elevcn Japan gradually added a variety
of
services th4t customcrs could obtain at its stores. The tirst service, added in
October 1987, was the in-store payment
of
Ttrkyo
Elcctric
Power
bills.
The company later cxpanded the sct
of utilities for
which cusk)mcrs could pay their
bills
in the stores to include gas, insurance
premiuns,
and tclePhone.
With
more convenient operating hours and locations
tian
banks or other
financial
institutions,
thc
bill
payment servlce attracted millions of additional customers every year'
In
April
1994, Seven-Eleven Japan began accepting ment paynlents on behalf of credit companies install-
lt
startcd selling
ski-lift
pass vouchers
in
November 1994'
ln
1995, it began to accept payment es. lor mail-ordcr purchas-
This was expanded to include paynent for Internet shopping in November 1999.
In
August 2000, a meal delivery scrvice company, was established to servs
Seven-Mcal the
Service aging Japanese
Co
Ltd population'
'
Seven Bank was sct up as the core opcratlng company for Seven
& i
in financial services. l3y 2009, virtually evcry Seven Eleven Japan storc bad an ATM installed with Seven Bank having morc than 14'000
ATMs
Thc company averaged I 14 transactions per
ATM
per day'
Other scrvices offered
at sbres
include photocopying, ticket salcs
(inclucling baseball games, cxpress buses.
and music concerts) using
multifunctional copiers, and bcing a pick-up location for parccl delivery companies that typically do not leave the parccl outside
if
the customer is not at holDc. ln 2010' the convcnience skxes also started
oflcring
some governmenl servlces such as provitling cerlificates
of
rcsidencc. Thc major thrust for offering thcse servicus was to take advantage
of
thc convenient locations
of
Scven-Eleven stores in
Japan. Besidcs providing additional revcnue, thc servicos also got customors to visit the stores more frequently'
Scveral
of
thcse scrvices cxploited the existing Total
Information Systetn (see tcxt fi)llowing) in the store
In Febrtrary 2000, Seven-Eleven Japan established
?dream.com, an e-conlmerce company.
Thc go'll was to oxploit the existing clistribution system and the facl that storcs wcte casily acccssible to most Japlness Stores servcd as drop olT and
collection
points
lbr
Jrpanese customers.
A
survey tomers preferre<i by esBook (a
joint
venture among
Softbank,
Seven-Eleven
Japan,
YahoolJapan, and
Tohan. a publisher) discovered that 92 percent of iis custo pick up their online purchases at thc local convenience store, rather than have them delivered
to
their
homes.
This
was understandable
given
th€ tiequency
with
whieh Japanese customers
visit
their
lcral
convenience store; Tdream hoped to build on this prefereDce along
with
the synergies from the existing distribution system.
In
March 200?, Seven-Eleven Japan introduced
"Otoriyose-bin"
or
Internet shopping The
servica enabletl customers to buy products that were typically not available at the retail stores. Customors were alk)wed to ordcr on the Web with both pick-up and payment at
Seven-Eleven stores. There was no shipping fee charged for this service. Thc company built Seven Net
Shopping'
its
lntcrnet site aimed at combining the group's stores and Intemet services. In April 2007, "nanaco" elechonlc money was otTered in Seven-Eleven stores.
The service allowed customers to prepay and use a card or to make payments.
'fhe service was cell phone offered as a convcDience to customers making small purchases and was also a reward system offering one yen worth
of
points
tbr every
100 yen spent
by
thc customer.
By
the end
of
2007, nanaco was used by customcrs to make more than
30 million payments each morth.
(;ivcn
Japan's aging population and an increase in thc number of womcn working outside thc home (Seveo
Eleven
(slimatcd that
in
2009 nrore than 70 percent o[ women
ir
their 40s worked outside the home), Seven
Eleven wanted to exploit its "close by convenient stores" t.r
better.cne
ils cuslotners. Thc company atlcmpled to do
this
by
offcring "meal
solutions" that speeded up cooking at honte and services like "honte meal delivcry-"
Seven-Eleven Japan's
Information
System
Integrated Store
From its
sta
. Seven-Eleven Japan soughl k) sirnplify its opera(ions by using advanccd inftlnnation technology
Sevcn-Eleveu Japan slrccess altributed a significant part
oi
its
to
the
Total Information
System installed in every eutlet and linked
to
headquarters, suPplicrs, and lhe Seven-Eleven distlibution centcrs. The
first
online network linking
fic
head officc' stores, and vendo$ was establishecl
in
1979, though lhe cornpany did not collect poinrof-sales (POS) intbrmation at thal
tirne
ln
1982,
Scven-Eleven became
thc first
company
in
Japan to inlrrrducc a POS srstcm culnPrising POS cash reAi\ler\ and tcnninal control cquipment.
In l9li5.
thc company
._:i
'!
:l
,s
I
I
) i
64
Chapter
I '
Supply Chain Drivers and Mctrics developed,
jointly wilh
NEC. personal compulers
color
graphics that were
installed at
gach using store and linked to the POS cash registers, These computers were also on the net)vork linking the store to the head office as well as the vendors Until July 1991, head oflice' stores' distribution cente$, and suppliers were traditional analog
nelwork
linked only by a
Al
that
lime'
an integraled services digital network
(ISDN) was installed Linking more than 5,000 stores,
it
became one
of
the world's largest ISDN systems at lhat lime
The two-way, high-speed, online commumcahon capability
of
ISDN enabled Seven-Eleven Japan to
col'
lect, process, an<t feed back POS data quickly' Sales data gathe;ed ieady in each store
Eleven Japan by I l:0O r'r'''r' were processed and
for
analysis the next
morning
introduced its
ln
199?, Seven-
fifth
generation
of
the Total lnformation System' which was
still
in use in 20O4'
The
hardware system
at
a
1994 Seven-Eleven store included the following:
.
Graphic order
terminal:
This was a handheld by device with a wide-screen graphic display, used the store owner or manager to place orders The in items were recorded and brought up in the order
which
they were arranged
on
the shelves The store manager/owner walked down the aisles and placed orders by item. When placing an order, the storc manager had access
(from the storc computer) to detailed analysis
of
POS
dat
related to the
particuldi item. This
included sales analysis product
-of categories and SKUs over waste, lO-week sales trends by
of
lime. analysis
SKU'
l0-day sales trends by
SKU,
sales trends
for
new products, sales analysis by day and time, list
of
slowmoving items, analysis
of
sales and number
of
customers sections over time, contribution
of
product to
in
store display, and sales growth by product categories, The store manager used this information when antered
placing
an order,
which
was
directly into
the terminal- Once
all
the orders were placed. rhe lerminal was retumed to its slot, at which point tbe orders were relayed by the store computer to both the appropriate vendor
. and the Seven-Eleven
Scanner
distribution center'
terminal:
These
scanners
read
bar codes and recorded invenlory' They were used to receive products coming
in from
a distribution cenler,
This was automatically checked against a previously placed order' and the two were reconciled. Before the scanner terminals were rntroducad, ftuck drivers waited
in
the store
until
the delivery was checkecl. Once they were introduced' the driver simply dropped the delivery in the store' and a store clerk .eceived if at a suitable time when
{here were few custonters The scanner lernlinals
were also
used when examining
inventory
at stores.
.
Slore
computer:
This linked to the ISDN netterminal' work, the POS register, the graphic order and lhe scanncr terminul. lt communicated among thc various input sources. traeke''l slorc inventory and sales, placed orders' provided detailed analysis
of
POS data, and maintained and regulated store equipment.
.
POS
regkter:
To better unde$tand the functioning of this information network, one needs to consider a sampling of daily operations Assoonasa customer purchased an item and paid at the POS register, the item information was retrieved from the store computer and the time
of
sale was automatically recorde<1.
In addition' the cashier recorded the age and sex of the customer. To do this, the cashier used hve register keys under-13, 13-19,
20-29,30
for the categortes:
49,
and 50+' This
POS data was automatically transmitted online
to
a host computer.
All
sales data oollected by
I I
:00 P.M. were organized and ready for analysis by the
text
moming. The data were evaluated on a company-wide, district' and store basis' back
The analyzed and updated data were lo the Seven-Eleven Japan stores thsn sent via the network'
Each store computer automatically updated its product master ments.
file
to analyze its recent sales and
The main objective
stock move-
of
the
analysis was to improve the ordering process.
All
this information was uuuilubl" on the graphic order terminal used for order
Dlacement.
slores
The information
system allowed Seven-Eleven to better match supply with demand' Store staff
could
adjust
the
merchandising
lnix
on the
shelves according to consumption patterns throughout tbe day'
For example, popular breakfast items were stocked earlier during the day, while popular dinner items wcre stocked
later
in
the evening.
The identification
of
slow and nonmoving items allowed a store to convert shelf
to
introduce new items. More than 50 percent space
qf
the items sold at a Seven-Eleven store changed in the course
of
a year.
This was due partly to seasonal demand and
parlly ro
new products When
a
new
product wa\
introiuc"d,
the decision whether to continuc stocking it was made wilhin the first lhrcc wcek\. Each item on th(
( haPlcr.l '
SupDl) ('hltin Dri\crs and l\,letrics shelf contribuled to salcs and nlargin and did not wastc vltluablc shell space.
Seven-Eleven's
Distribution
System
The Sevcn-Elevcn distuibution sysrem tighrly linked the entire supply chain for all product categories. The disrribution centers and the infonnalion network played a key role in thal regard. The major objective was to carefully track sales
of
itcurs and offer shori replenishment cycle times. This allowed a store manager
to
forecast sales correspqrding to each order accurately.
Frorn
March
1987, Seven-Eleven offered threetimes-a-day store delivery of all ricc dishes (which comprised most of the fasrfood items sold). Bread and other frcsh food were delivered twice a day. The distribution system was flexible enough to alter dclivery schedules depending on customer demand. Rtr example, ice cream was delivered
daily
during the summer but
only
three times a week at other times. Thc replenishment cycle time
lbr
fresh and fast-food itcms had been shortened to fewer than
l2
hours.
A
store order
for
rica balls by l0:00 e.trr. was delivered before thc dinncr rush.
As
<liscussed earlier,
thc
storc managcr uscd a graphic order terminal lct place an ordcr.
All
storcs were given cukrff timcs for brcakfast, lunch, and dinner ordering. Whcn a store placed an
orde(
it
was imnrediately transmitted to the supplier as wcll as the distribution cen-
tsr
Thc supplier receivcd ordcrs fronr
all
Scven-Eleven stores and startcd pKxluction to
fill
thc orders. The supplier then scnt the orders by truck to the
distributiol
centcr.
Each store order was separated so the disaibution center could easily assign
it
to the appropriate sbre
tuck
using thc order information
it
already had. The key to store
dclivcry
was what Seven-Eleven called the conbined dolivcry systcn. At the distribution center, delivery of like products fronr cliffercnt supplicrs (e.g.,
milk
and sandwichcs) wirs directetl
truck. There were
into a single tempcrature-controlled
four
calcgories
of
teIr1peraturecontrollcd
lrucks: lrozet
foods,
chilled
foods. roomternpcrature processcd li)ods, and warm forxls. Each truck madc deliveries to mulliplc retiril stores.'Ihc nunrber stores pcr truck (lepcndcd on the salcs volumc.
All of
dcliveries were midc during
off
peak hours and wcre rcceived using the scanner terminals. The systctn worked on lrust and did lrot rcquire the dclivcry person to be present when the storc persontlcl scalned in the delivcly. That reducctl thc delivcry tirne spcnt at
c
ch storc.
This distribution syslcm cnublcd Scven-Elevt:n to reducc the number ofvchicles rcquired tbr daily dclivery sctvice to cach store. even though the delivery frcqucncy ofeach itenr was quitc high.
In
1974, 70 vehiclcs visitcd each sk)re every day. By 20O6, only 9 were nccessary.
This dramatically reduccd delivery costs and cnabled rapid delivery of a varicty of liesh foods.
As
of
Fcbruary 2004, Seven-Eleven Japan had a total
of
290 dedicated manul'acturing plants throughout the country that produccd only fast food f<rr Seven-Eleven storcs. These itcms were distdbuted through 293 dedicared distribution centers (DCs) rhat cnsured rapid, reliable delivery. None of thesc DCs carried any invenlory; thcy merely transferred inventory
from
supplier trucks to
Seven-Eleven distribution trucks. The tansDortation was providerJ by Transfleer Ltd.. a company sel up by Mitsui and Co. fbr the exclusiye use of Seven-Eleven Japan.
7-Eleven
in
the
United
States
Seven-Eleven had expanded rapidly around the world
(Table 3-5). The major growth was in Asia, although the
Uniled States continued to be the second largest market
for
Sevcn-Eleven. Oncc Seven-Eleven Japan acquired
Southland Corporation,
it
set about improving operations in the United
States.
7-Eleven stores
In
the
initial
years, several
in
the United States were shut down.
The number of stores started to grow beginning in 1998.
Country
Japan
United States
Taiwa n
Thailand
South Korea
China
Malaysia
Mexico
Canada
Australia
Singapofe
Ph ilippines
Norway
Sweden
Denmark
Inoonesra
Tota
I
Stores
't3,049
6,126
4,190
5,840
3,150
1,1t7
1
,250
1
,223
465
415
549
567
173
189
129
23
40,255
66
Chaptcr 3 ' Supply Chain Drivers
'nd
Mctrics
Historically, the distribution
structure
States was completely
in
the United
different from that
in
Japan'
Stores store in the United Siates were replenished using direct delivery (DSD) by some manufacturers, with the remaining products
delivercd
by
wholesalers. DSD accounted for about half thc total volume, with the rcst coming from wholesalers.
With the goal
of
introducing "fresh" products in thc Uniled Slates, 7-Elcven introduced lhe concepl
of
combinetl distribution centers (CDCs) around 2000. By
2003, 7-Eleven had 23 CDCs lmated throughout North
America supporting about 80 percent
of
the store network. CDCs delivered fresh items such as sandwiches, bakery products, bread, produce, and other perishables once a day.
A
variety of fresh-food suppliers sent product
lo
the CDC throughout the day. where they were soned for delivery to stores at
night
RequesB lrom store managers were sent to the nearcst CDC, and the products were en routg by 10:00 PM
'
to
the stores. Relative to
Japan, a greatcr fraction of the food sold' especially hot food such as wings and pizza, was prePared irt the store'
Fresh-food sales
in
North America
exceeded $450
million
in
2fi)3.
During this period, DSD by manufactutcrs and wholesaler delivery to stores also continucd'
This was a period when 7-Eleven worked very bard to introduce new fresh-food items ing more directly with the likes widr a goal of compet-
of
Starbucks than with traditional gas station food mans. 7-Eleven in the United
States had more than 63 percent
of
its sales from nongasoline products compa.red to the rest of the industry,
for
which this number was closer to 35
Percent.
The goal was to continue
to
increase sales in the fresh-food and fast-footi categories with a special focus on hot foods'
ln
2009, revenue in the United States and Canada totaled $16.0 billion, with about 63 percent coming from merchandise and the rest from the sale
of
gasoline. The
North
American inventory turnover rate
in
2004 was about 19, compared to more than 50 in Japan This, however, represented a significant improvement
in
North
American performance, whe.e inventory turns
in
1992 were around 12-
Study Questions
1. A convenience store chain attempts to be responslve ano provide customer$ with what they need, when they need wherc they nced it,
it
What are some different ways that a convenience store suPply chain can be responsive'l What are some risks in each case?
2. Seven-Eleven's supply chain strategy in Japan can be described as attempting
to
micro-match supply and dcmand using rapid replenishment. whal are some risls associated with this choice?
3. what has Seven-Eleven done in its choice of facility l(xation, inventory management, tnnspottatioD, and information inftashucture to develop capabi.lities that support its suPply chain stratcgy in Japan?
4. Seven-Eleven does not allow direct store delivery in Japan but bas all products no\" througb ils distribulion center'
What benefit does Seven-Eleven derive from this policy?
When is direct stot€
delivei
more appropriate?
5. what do you think about the Tdream concept for Sevcn-
Eleven Japan? From a supply chain perspective, is
it likcly to
be more successful
in
Japan or thc United states? Why?
6. Seven-Eleven is attemPting to duplicate thc supply chain structurc that has succeeded in Japan and the U.ited States with the introduction of CDCs. What are the pros and cons of this approach? Keep in mind that stores are also replenished by whole$alers and DSD by manufacturers'
7. The United States has food service distributors that also replenish convenience stores. What axe thc pros and cons to having a distributor rcplenish coDvenience storcs versus a company like Seven-Eleven managing its own distribution function?
Case
Study
Financial Statements for wal-Mart
Stores lnc.
Table 3-6 contains the financial resuls for Wal-Mart for
2008 and 2009 (declared on January year). Evaluate
3l
of the following
Wal-Mart's financial performance ba-sed on the various metrics discussed in Section 3.1, such as ROE,
ROA, profit margin, asset tums, APT, C2C' ART' II'IVT' anrl PPET. Compare the metrics for Wal-Mart with simi-
lar
metrics for Amazon from Table 3-1. Which metrics does Amazon perform better on? Which metrics does
Wal-M:m perform better on? What supply chain driYers and metrics might explain this differcnce in
In
2010, Wal-Mart announced that
Performanc€?
it
planned to move into urbzn areas in the United States by building and operating smaller format stores compared
to
the large stores it had operated up to that point. Which supply chain metrics
will
be impacted by this move? How
will
this move imDact the various financial metrics? Why?
