Products And Processes
Q1. Seven-Eleven’s supply chain strategy in Japan can be described as attempting to micro-match supply and demand using rapid replenishment? Are there any risks associated with this choice? What are these risks?
Seven-Eleven Japan sought to simplify of its operations through use of advanced information technology, a factor to which its success is significantly attributed. This technology consists of a total information system installed in each outlet and linking their headquarters, their suppliers and their distribution centers. The system also includes an online network link; Point-of-sales (POS) system consisting of cash registers and terminal control equipment; personal computers linked to the POS cash registers and to the online network; and, an integrated services digital network (ISDN), an online communication system which enables quick collection, processing and feedback of data (Dai 2004). The hardware components of this system include: hand-held graphic display devices with access to the POS data in relation to each item which aid order placements; scanner terminals that read bar codes and reconcile inventory; store computers that interlink all these other components and track all the data; and the POS registers which record sales and customer details such as age (Dai 2004).
The POS data comprises of; sales analyses, waste analyses, and analyses of trends including daily sales, number of customers in relation to sales, slow product movement, and growth of sales per category. With this information system, the stores have better capacity to match their supply with demand. Through such data analyses, staff in the store can make adjustments through the day depending on consumption patterns, adjusting merchandise mix on store shelves, best described as rapid replenishment (Kumar 2001).
This strategy of rapid replenishment though quite useful in maintaining efficiency and responsiveness, however, has risks associated. Among the risks, is an over-reliance on information technology systems which could be disastrous in case of system failures. A de-link of the several operations could disrupt the supply chain (Kumar 2001). Also a challenge is finding the right balance in the number of transport units due to the wide range of product quantities that are in demand. This could most likely result in increased costs of ordering and transport due to the high frequency of orders that earn this system the term “rapid replenishment”. This system also makes production and manufacturing quite an expense as the producers are limited by demand data flowing back to them, as they seek to match need. It would otherwise be cheaper if products were mass produced as the economies of scale would be favorable to such an arrangement (Chopra 2004). With an increase in product variety and availability, there is also an attendant risk of higher inventory costs and culpability towards capacity fluctuations.
Q2. Discuss how Seven-Eleven’s choice of facility location, inventory management, transportation and information infrastructure support its supply chain strategy in Japan?
Choice of facility location
Seven-Eleven places its stores in clusters of over 50 stores supported by a distribution center. This choice of facility location is influenced by its market-dominance strategy in which Seven-Eleven Japan sought to open its new stores in areas already having clusters of stores (Li 2003). This arrangement of its facilities helps the company in its rapid replenishment strategy as the high density and geographical concentration boosts its efficient distribution system and enhances its system efficiency. This enables it to consolidate its warehousing and transport functions. The main advantage of this arrangement of clusters of stores around a delivery center is enhanced responsiveness core to the enhancement of efficiency in the supply chain.
The centralized delivery center is essentially a cross-docking center, an essential node that enables consolidation and combination of product categories. Items supplied by different manufacturers are combined at the delivery center into distribution trucks which then service the stores depending on their individual orders (Li 2003). This use of distribution centers helps the company in its supply strategy by reducing lead time as well as the inventory and logistical costs throughout the chain. It enables faster replenishment through frequent supply by its distribution trucks several times a day.
Seven-Eleven’s inventory management system is composed of three levels; the manufacturers or suppliers, the delivery centers and the stores. The manufacturers or suppliers receive orders for goods from the stores and supply them through the distribution centers. The Seven-Eleven distribution centers do not carry any inventory as they only serve in cross-docking, transferring inventory from supplier trucks to distribution trucks that then serve the stores. At the store level, inventory management entails the use of bar code scanners to record inventory received from the distribution center which is reconciled against orders placed, the store computer, point-of-sale terminal and graphic display terminal which are useful in tracking all items in the inventory and guiding subsequent orders to replace sold items (Li 2003).
All these levels are useful in the chain’s replenishment strategy through the tracking of inventory from supplier to the store and the provision of useful data to all parties in the chain through the communication interlink. This is quite significant in strengthening efficiency as parties seamlessly work together to enable rapid supply of products to meet demand from the stores.
Meeting demand from the stores in rapid sequence requires a robust transport system backing the supply side. Seven-Eleven’s transport system consists of two segments; supplier trucks that transport goods from the manufacturers to the distribution center; and the company’s distribution trucks transporting products from the distribution centers to the stores. This segmentation enables the reduction of vehicular traffic to stores as the combination process at the distribution center makes it tenable for fewer distribution trucks serving the stores (Chopra 2004).
To further ease transport, inventory is classified into four categories of temperature-controlled trucks including; frozen foods, chilled foods, processed foods at room-temperature, and warm foods. Goods in a similar category are combined in a single truck for delivery to multiple stores with the number of stores served by a truck depending on sales volumes (Li 2003). This arrangement gives Seven-Eleven the capacity to reduce number of vehicles that would be required for daily delivery to each store, even though the frequency of delivery is high. It consequently, also, reduces delivery costs and enables the rapid delivery of a variety of fresh foods thus enhancing efficiency and reducing costs in inventory management and transportation. This enhanced efficiency and reduced costs favors the rapid replenishment strategy as goods at stores are replaced faster and more efficiently.
This infrastructure is what gives Seven-Eleven much of its capacity and efficiency in its entire system, the backbone of its rapid replenishment strategy through the micro-match of demand and supply. This infrastructure consists of a total information system installed in each outlet and linking them to headquarters, their suppliers and to distribution centers through an online network link, the integrated services digital network (ISDN). This enables the sharing of actionable information in real time which serves to enhance responsiveness throughout the system. At the store, there is the Point-of-sales (POS) system consisting of cash registers and terminal control equipment and personal computers linked to the POS cash registers and to the online network (Kumar 2001).
These components are useful aids in the analysis of a variety of data necessary for the realization of the supply chain strategy, through the tracking of inventory and a simplified process of placing orders. Data accrued from the various analyses is essential for the generation of projections enhancing the capacity to micro-match demand and supply. This infrastructure is key in bringing together all the information necessary to manage facilities, transport, manufacturing and general distribution, thereby enabling the smooth conduct of operations and management of the entire system at greater levels of efficiency.
Q3. Seven-Eleven does not allow direct store delivery in Japan but has all products flow through its distribution centre. What benefit does Seven-Eleven derive from this policy? When is direct store delivery more appropriate?
The decision to move all product deliveries through distribution centers came about as a result of Seven-Eleven’s endeavor towards efficiency in the supply chain. In its early life, up to 70 supplier trucks visited each store daily but with the distribution center arrangement, it has drastically reduced to 11 distribution trucks. Manufacturers supply the ordered products to Seven-Eleven’s distribution centers which then combines several items of similar category into a single distribution truck (Li 2003). This enables the supply of multiple stores by a single distribution truck for a particular category of products.
The benefits of this supply mechanism include the reduction of vehicular traffic whereby only 11 distribution trucks with combined product categories are sufficient for daily supplies to stores. This enhances efficiency and responsiveness enabling a reduction in transport and inventory handling costs. Also beneficial is the resultant flexibility of the supply system as the distribution trucks are Seven-Eleven’s own (Chopra 2004). Delivery schedules can, through coordination, be altered easily and efficiently to enable the micro-matching of demand and supply, offering shorter replenishments cycles as per requirement and thus, enhancing responsiveness. The managing of fewer relationships is also a benefit of this indirect system as stores do not deal directly with vendors but leaves that to the distribution center. A store’s relationship in the chain is only with the distribution center and trucks (Li 2003). This partitioning enhances efficiency in the supply chain through the separation of scope of work for each player in the supply chain.
Direct store delivery would, however, be more appropriate in instances when there is need for supply of unique “one-time” items that are heavy or bulky that would be inconvenient to pass through the distribution center (Chopra 2004). Direct delivery by supplier trucks would be appropriate in this case. It would also be appropriate when one among the stores is selling items with high demand uncertainties that are not sold in other stores as would be in cases when there is a difference in local preferences in the store locations. Another instance would be in cases in which emergency shipment of products is required necessitating straightforward supply path to the store (Dai 2004).
- Chopra, S., and P. Meindl., 2004. Supply Chain Management, 2d ed. Upper Saddle River, NJ. Prentice-Hall.
- Dai, S., 2004. “Knowledge Creation System in Seven-Eleven Japan”. In: Journal of Electronic Science and Technology. Vol 2 , 92-97.
- Kumar, K., (ed), 2001. “Technology for Supply Chain Management”. In: Communications of the ACM( June, special issue).
- Li, L., 2003. Seven-Eleven Japan. Centre for Business Education, St. Andrews University.