Fusion of Short-term and Longterm SCM Strategies
-The Case of Seven Eleven JapanToru Higuchi
[thiguchi@sakushin-u.ac.jp]
School of Business and Public Administration
at Sakushin Gakuin University, Tochigi, Japan.
1
Purpose of Research
• Highlight the Importance of Long-term SCM Strategy
• Finding a Hint to Make a Long-term SCM Model
Competitive
Advantage
Changeable
Dynamic
Sustainable
Competitive
Advantage
Long-term SCM
Short-term SCM
2
Background of Research
Differences of Short-term SCM and Long-term SCM
SCM
Short-term
Static
Rigid
Quantitative
Partial
Practical
Operational
Long-term
Dynamic
Ambiguous
Qualitative
Global
Theoretical
Strategical
3
Case Study: Seven-Eleven Business in Japan
• In 1973, Ito-Yokado established York Seven Co., and concluded an
area service and license agreement with Southland Corporation.
• A first Seven-Eleven store in Japan opened in May, 1974.
• Seven-Eleven Japan, a franchiser, organized a huge number of
franchisees and achieved a great success.
• Japanese consumers visit Seven-Eleven stores very often to buy
fresh foods and other products.
• Southland Corporation became a wholly owned subsidiary of
Seven-Eleven Japan in 2005.
• Seven-Eleven Japan established a joint company, SEVEN-ELEVEN
(BEIJING) Co.., LTD. in 2004 and SEVEN-ELEVEN CHINA Co., Ltd. in
2008.
4
RANKING of Retail Dealers in Japan
1
2
3
4
5
Sales(FY 2014)
Ordinary Profit(FY 2014)
AEON
7079 Billion Yen
Seven & i Holdings
6039 Billion Yen
YAMADA DENKI
1664 Billion Yen
Fast Retailing
1383 Billion Yen
ISETAN MITSUKOSHI
1272 Billion Yen
Seven & i Holdings
341 Million Yen
AEON
153 Million Yen
Fast Retailing
135 Million Yen
Lawson
72 Million Yen
NITORI
68 Million Yen
Current Price
(as of 30 Dec. 2015)
Seven & i Holdings
4920 Billion Yen
Fast Retailing
4523 Billion Yen
AEON
1629 Billion Yen
NITORI
1171 Billion Yen
Lawson
988 Billion Yen
Source: http://www.nikkei.com/markets/ranking/index.aspx
5
Dramatic Japanese Lifestyle Changes by Seven-Eleven
1) Convenience: “Close and Convenient” is their slogan. SevenEleven stores are located near the customers and
allow them a convenient shopping and other services.
2) Business Hours: In 1970’s, most stores including the super
markets were open at 10:00 am and closed at 6:00
pm. Most Seven-Eleven stores started 24 hour
operation in 1975.
3) Eating Habits: Most Japanese people made the rice products,
such as Onigiri and Obento, by themselves. SevenEleven Japan succeeded in commercializing these
products.
6
Financial Performance of Seven-Eleven Japan
7
Three main drivers of Seven-Eleven’s Business
1. Effective Assortment (Wide and Flexible)
2. Efficient logistics system (High Service Level and Low Cost)
3. Useful Collaborative Information System
3. Useful Collaborative Information System
1. Effective Assortment
Raw
Materials
Customers
2. Efficient Logistics System
Makers or
Distribution
Stores
Wholesalers
Centers
Parts or
Finished Goods
Unfinished Goods
8
Seven-Eleven Stores Total Sales
9
Combined Distribution Center
Onigiri
POS System
Deliver Fresh Food Three Times a Day
87
10
Assortment of Seven-Eleven Stores in Japan
• An average store owns the laying in of stock, about 2800 items.
• The fresh foods are the mainstream of sales.
• The line of products is so changeable that 70% of products are
replaced within a year.
• Most products are sold without a discount.
• The more than half of items are Seven-Eleven’s private brand.
Wide and Flexible Assortment
Process Food Daily
Non-Food
Fresh Food
(25.9%)
(12.9%)
(32.7%)
(28.5%)
Handling with Special Care
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Foundation of Wide and Flexible Assortment
• Recommended Line of Products;
Seven-Eleven Japan prepared for
about 4800 items.
• Decision Making Support System;
Store owners should make a
decision on the selection and a
quantity of each product by
themselves.
• Combined Distribution Centers;
Seven-Eleven Japan built
distribution centers and started
collaboration with their vendors.
Makers
and
Vendors
Variety of
Products
Private
Brand
Products
SevenEleven
Japan
Recommended
Line of Products
Stores
Stock in
Products
12
Effect of Combined Distribution System
• Reduction of Delivered Trucks to Each Store;
In starting up, 1974, the items were delivered to the first
Seven-Eleven store by 70 trucks a day.
• Labor and Space Saving;
A store received and inspected all items put in a box or
case. After that, the products put in a warehouse were
picked up and placed on the shelves.
Box ⇒ [Pieces]
Small Warehouse
(Space Saving)
Less (Un)Loading,
Storage, Inventory
Management
(Labor Saving)
13
Seven-Eleven Stores Total Sales
14
Dominant Strategy
• Dominant strategy is the base of “Close and Convenient”.
• Seven-Eleven Japan implements high- density, concentrated store
openings, in a certain area and period.
• As a result of the dominant strategy, Seven-Eleven Japan can
increase the distribution efficiency,
the sales promotion,
the store operation consultation efficiency.
• The truck and driver’s working ratio
increase.
• The total Sales in the area increases.
• The operation consultants can visit
many stores easily.
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•
•
•
•
Omni Channel
Seven-Eleven Japan has been expanding the dominant strategy.
As a result, Seven-Eleven stores are everywhere in Japanese towns.
Seven-Eleven Japan arrived a stage for “Omni Channel” business.
It allowing customers including partner companies customers
to access to products what they want, anywhere and any time,
via smartphones and tablets.
Economy of Scale
Bandwagon Effect
Strategic Alliance with other companies which deal
with quality goods, baby goods, books, travels and etc.
Working Ratio
No. Stores
Omni Channel
Big Store Network
EC
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Seven-Eleven Japan’s Business from the Flow of Products
Seven-Eleven Japan
Set recommended
Line of Products
Organize a
business
model and
informatio
n system
Raw
Materials
Makers or
Wholesalers
Parts or
Unfinished Goods
Consign goods
for safekeeping
and shipping
Franchise Agreement
Combined
Distribution
Centers
Stores
Customers
Finished Goods
17
Seven-Eleven Japan’s Revenue
Seven-Eleven Japan
• Commission (the buying power)
• Center Fee(business practice)
Makers or
Wholesalers
Raw
Materials
Parts or
Unfinished Goods
Difference between
a center fee and a
consignment fee
Combined
Distribution
Centers
Royalty
(Sales)
Stores
Customers
Finished Goods
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Product Life Cycle SCM Model
Sales Amount
Time
INTRODUCTION
GROWTH
MATURITY
DECLINE
Sales Per Store
Time
No. Stores
Time
19
Sales Per
Product
Store
Epoch-making events or innovations
Life Cycle SCM Model
Time
Sales
Increasing Factors
Marketing Effective 3p(Product, Price and
Place), Recognition Rate, Brand
Royalty, Changing Life Cycle and
etc.
ShortHigh Service Rate, Efficient
term SCM Logistics, Decision Support System
Long-term Joint Research & Development,
SCM
Dominant Strategy, Design and
Advance of Information System
Decreasing Factors
Intensity of Competition,
Threats of New Entrants &
Substitution, Power of Suppliers
& Buyers, Cannibalism
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Product Life Cycle SCM Model
No. Stores
Time
No. Stores
Increasing Factors
Marketing Sales Per Store, Recognition
Rate, Brand Royalty,
Changing Life Cycle and etc.
Decreasing Factors
Intensity of Competition, Power of
Suppliers & Buyers, Threat of New
Entrants & Substitution, Cannibalism
ShortReliable and efficient
term SCM Delivery,
Decision Support System
Long-term Dominant Strategy,
SCM
Placement of Distribution
Centers, Omni Channel
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Product Life Cycle SCM Model
Sales Per Store
GROWTH
-Effective Assortment
-Distribution System
-Information System
INTRODUCTION
-Recognition Rate
-Trial & Error
Start
MATURITY
-Dematurity
-Improvent
DECLINE
-Rivals
-New Entrants
-Substitute
-Strong Power of Suppliers
-Strong Power of Buyers
No. Stores
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Simple Hypothetical Model
Assumptions
• The effect of innovations can be expressed numerically,
• Innovations can increase an upper limit, a potential demand.
• All innovations diffuse at the same speed.
• In the convenience store industry, the effect of innovations can be
accumulated.
• Innovations in rival industries can rob a potential demand of the
convenience industry.
Potential Demand
Omni Channel
Fresh Food Service
24 Hour Convenience Store Operation
.
Obento Shops
EC
Time
23
Assumed Sales Progress Based on the Logistics Curve
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Set of Model
Sale(1)
Start Beginning
k=
5,000
m=
λ=
An Initial
Innovation;
such as 24
Note
hour store
operation.
A Chain Stores
Sale(2)
3rd Year
8,000
Sale(3)
9th Year
10,000
100
1
Additions; such Additions;
as fresh foods
such as an
based on the
omni
combined
channel
distribution
system.
Rivals
Sale(4)
11th Year
1,000
Sale(5)
18th Year
9,000
Substitutional
Innovations;
such as obento
chain.
Substitutio
ns;
Such as an
electric
commerce.
25
Assumed Net Sales Progress Subtracted Rivals Sales
26
Conclusion
• SCM includes the short-term , operational, SCM and the longterm, strategical, SCM.
• SCM can create or accelerate the innovations and change the
lifestyle.
• Seven-Eleven combines the short-term and the long-term
SCM and succeeds in changing the lifestyle a few times
dramatically.
• It is very difficult to create a long-term SCM model because it
is dynamic and ambiguous.
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