Group 18

Case Study 1 Seven-Eleven Japan Co.

Members:
Apoorv Kumar
Ashik Muhammed
Diptadip Biswas
Garima Satsangi

1402022
1402029
1402053
- 1402056

Question

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?
To increase responsiveness, the convenience
store chain is exposed to greater uncertainty.
Responsiveness can be increased to this
uncertainty by using one of the following
strategies, especially for fresh and fast foods:
1) Rapid Replenishment
One approach is to set up rapid
replenishment and supply the stores with what
they need when they need it. This allows for
centralization of cooking capacity and low
levels of inventory, but increases the cost of
replenishment and receiving.

2) Local Inventory
Another approach is to have all inventory
available at the store at all times. This allows
for the centralization of cooking capacity. The
main risk is out of date inventory and the
need for extra space.
3).Local Capacity
The convenience store chain can provide
local cooking capacity at the stores and
assemble foods almost on demand. Inventory
would be stored as raw material. This can be
witnessed at various U.S. fast-food restaurant
franchises one of them is Subway, where
ordered sandwiches are assembled on
demand. The main risk with this approach is
that capacity is decentralized, leading to
poorer utilization.

The following are some ways to make convenience

stores more responsive To maintain high inventory level
By removing implied demand uncertainty.
By quick replenishment of products or time
management.
High Information system can also make
convenience store responsive and decrease the
other driver cost too e.g. transportation cost,
holding cost etc.
Facilitate the customer by location and
increase in capacity.
By making strategic fit in vertical and
horizontal strategies of convenience stores that
can make more responsive and support to achieve
the competitive strategy.
Risks:
If the convenience high level of inventory, it
increases the holding cost that make convenience
store less efficient.

Questions 2
Seven-Elevens 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?

Micro-matching supply and demand using rapid

replenishment assumes that each store will repeat the
same demand pattern on a daily basis. The tour bus
phenomenon, where a group of unanticipated customers
comes to the store and buys all of a type of product will
cause difficulty for regular customers. During such an
event, the store will likely stock out and customers may
visit the next Seven-Eleven site down the block to make
their purchases. Some of this demand may permanently
shift, causing a local ripple; the replenishment may be
excessive at one site and insufficient at an adjacent site for
the next cycle.
Another possible issue would result from delays in

Questions 3

What has Seven-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?
Seven-Eleven Japan has chosen to operate a highly responsive
operation and has chosen a supply chain design that supports
this strategy.
Facility Location Strategy:
Their facility location choices are to saturate an area with
stores, thereby making it easy for customers to shop and their
own delivery trucks to move from store to store to replenish
inventory. They had an extensive franchise network which
included both company owned stores and third party owned
franchises. Their main strategy is to look for demand where
Seven Eleven stores already exist based on fundamental area
dominance strategy. Since all manufacturing facilities are
centralized to get the maximum benefit of capacity
aggregation the inbound transportation cost from the
manufacturer to the distribution center (DC)is also lower.
Seven-Eleven also requires all suppliers to deliver to the DC

 Inventory and information infrastructure Strategy:

Seven-Elevens inventory system is run on an information system
that transmits directly to the supplier and distribution center; goods
are produced using a pull system to replace what has been sold during
that delivery period. The two way, high speed, online communication
capability of integrated services digital network (ISDN) enabled them
to process and feedback POS data quickly. Fifth generation Total
Information System was also introduced to maximize efficiency and
match supply with demand. Store staff could adjust the merchandising
mix on the shelves according to the consumption pattern throughout
the day.
Transportation Strategy:
The transportation system is linked with the entire supply chain for
all product categories. Each truck made deliveries to multiple retail
stores. The number of stores per truck depended on the sales volume.
All deliveries were made during the off peak hours and received using
the scanner terminal. The entire system worked on trust and did not
require the delivery person to be present when the store personnel
scanned in the delivery which in turn reduced the delivery time spent
in each store. This distribution system enabled seven eleven to reduce
the number of vehicle required for daily delivery service to each store
even though the delivery frequency of each item was quite high.

Question 4

Seven-Eleven does not allow direct store delivery in

Japan but has all products flow though its distribution
center. What benefit does Seven-Eleven derive from this
policy? When is direct store delivery more appropriate?
The benefit of delivery through its own distribution center is total
control of the system, aggregation of demand and minimal disruption
at the retail outlets. If several suppliers tried to make two or three
deliveries every day, it would detract from the store managers ability
to provide customer service. Each of these suppliers would likely
prefer their own way of doing things, their own inventory system,
truck size, etc., which would make things more difficult for the SevenEleven system. The demand and production data would have to be
shared rather than residing on Seven-Elevens system from cradle to
grave. For items that cannot be prepared quickly, pull production may
not provide the responsiveness that Seven-Eleven desires. In this
case, the DC concept allows pooling of inventory which increases their
overall service level while minimizing total system inventory of those
items. Direct store delivery (DSD) would lower the utilization of the
outbound trucks from the Seven-Eleven DC. It would also increase the
receiving costs at the stores because of the increased deliveries.

Direct store delivery might be more appropriate in the

following cases:
Products such as potato chips and fresh bread which has low
value density and can be easily damaged if they are handled
through too many touch points

Products with very low shelf life/critical freshness requirements

such as milk and eggs are sent through direct to store delivery
chains to reduce the time the product spends within the supply
chain

Product lines that are costly to transport and that are

distributed from points close to high volume store location

Supplier with a high variety of low value merchandise that can

easily be shipped from the point of production to retail stores in
small parcels. Eg-Greetings card

Product lines that require specific type of storage and handling

that cannot be provided by retailer or wholesaler distribution
network. Apparel and footwear is often shipped to retail stores
using VMI systems whereas goods are ticketed and prepared by
producer and then shipped directly to the store via small parcel

Question 5
What do you think about the 7dream concept for
Seven-Eleven in Japan? From a supply chain
perspective, is it likely to be more successful in
Japan or the United States? Why?
Considering the frequency of Japanese customers
visiting the convenience store and the survey
results showing the shipping preferences, 7dream
would be an innovative approach to leverage the
well established distribution system of Seven
Eleven. The idea of each convenience store acting
as a drop off and collecting point would bring in
more revenue without much investment in the
current system.

7dream: US and Japan

Prevailing customer behavior patterns are

extremely different in USA when compared to
Japan. Customers in US may not prefer drop off
concept to home delivery systems as the stores
are more scattered in nature. The dominance of
semi urban areas in the US market makes the
home delivery system more acceptable and
convenient for US customers. From a supply chain
perspective, the fact that the reach of each
convenient store in US is less when compared to
Japan would make the 7dream delivery system
slower and inefficient.

Question 6
CDC in US :Pros and
CONS:
Cons
Presence of other alternatives
Would need different supply chain strategies
depending on whether urban, semi urban or rural
Cost of running would be so high
Corporate and cultural differences
PROS:
Will have good control over the quality of goods
delivered.
Less replenishment time
Better knowledge on product demand.

Question 7
Pros and cons of having a distributor
replenish convenience stores v/s a
company like Seven-Eleven managing its
own distribution function

Replenishment by
Distributor
Cost Choose distributors with minimum
Pros:
price
Less transportation No investment on
transport on part of store
Material handling Save on warehousing
and spillage costs
Aggregation of demand by distributor and
minimal intervention by the individual
Seven-Eleven franchise

Replenishment by
Distributor
Reliability Less reliability with respect to supply
Cons:
of food products on time
Quality The store may suffer the consequences
of inferior quality product supplied by the
distributor and may lose consumers
Rapid Replenishment Distributors may not be
in position to replenish at higher frequencies,
especially when dealing with the effect of
multiple trends on demand
Information Flow The company may find it
difficult to integrate product flow data that can
be used to gain insights into demand

Replenishment by Store
Pros:
Reliability More reliability with respect to supply
of food products on time
Quality Seven - Eleven can ensure that good
quality food products are supplied to company
owned and franchise stores, thus helping in
converting and retaining consumers
Rapid Replenishment The company can ensure
timely replenish at higher frequencies, especially
when dealing with the effect of multiple trends
on demand
Information Flow The company can better
integrate product flow data that will be used to
gain insights into demand

Replenishment by Store
Cons:
Cost Cost is higher but the store can reduce
this by pooling in demands of an entire region
Transportation Investment on transport by
the store
Material handling Warehousing and spillage
costs to be borne by the store
Aggregation of demand by the store and
intervention by the individual Seven-Eleven
franchise would mean higher manpower
requirements