Fusion of Short-term and Long-term SCM

Strategies -The Case of Seven

Eleven Japan-

Toru Higuchi[thiguchi@sakushin-u.ac.jp]

School of Business and Public Administration at Sakushin Gakuin University, Tochigi, Japan.

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Purpose of Research•Highlight the Importance of Long-term SCM Strategy• Finding a Hint to Make a Long-term SCM Model

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Competitive Advantage

SustainableCompetitive Advantage

ChangeableDynamic

Short-term SCM

Long-term SCM

Background of ResearchDifferences of Short-term SCM and Long-term SCM

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SCMShort-term Long-term

Static DynamicRigid AmbiguousQuantitative QualitativePartial GlobalPractical TheoreticalOperational Strategical

Case Study: Seven-Eleven Business in Japan

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• 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.

RANKING of Retail Dealers in Japan

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Sales(FY 2014) Ordinary Profit(FY 2014) Current Price(as of 30 Dec. 2015)

1 AEON7079 Billion Yen

Seven & i Holdings341 Million Yen

Seven & i Holdings4920 Billion Yen

2 Seven & i Holdings6039 Billion Yen

AEON153 Million Yen

Fast Retailing4523 Billion Yen

3 YAMADA DENKI1664 Billion Yen

Fast Retailing135 Million Yen

AEON1629 Billion Yen

4 Fast Retailing1383 Billion Yen

Lawson72 Million Yen

NITORI1171 Billion Yen

5 ISETAN MITSUKOSHI1272 Billion Yen

NITORI68 Million Yen

Lawson988 Billion Yen

Source: http://www.nikkei.com/markets/ranking/index.aspx

Dramatic Japanese Lifestyle Changes by Seven-Eleven

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1) Convenience: “Close and Convenient” is their slogan. Seven-Eleven 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. Seven-Eleven Japan succeeded in commercializing these products.

Financial Performance of Seven-Eleven Japan

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Three main drivers of Seven-Eleven’s Business

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1. Effective Assortment (Wide and Flexible)2. Efficient logistics system (High Service Level and Low Cost)3. Useful Collaborative Information System

Raw Materials

Parts or Unfinished Goods Finished Goods

Makers or Wholesalers

Distribution Centers

Stores

1. Effective Assortment

2. Efficient Logistics System

Customers

3. Useful Collaborative Information System

Seven-Eleven Stores Total Sales

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Combined Distribution Center

POS System

Onigiri

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Deliver Fresh Food Three Times a Day

Assortment of Seven-Eleven Stores in Japan

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• 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 AssortmentFresh Food

(28.5%)Process Food

(25.9%)Non-Food

(32.7%)Daily

(12.9%)

Handling with Special Care

Foundation of Wide and Flexible Assortment

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• 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.

Seven-Eleven Japan

Recommended Line of Products

Makers and

Vendors

Variety of Products

Private Brand

Products

Stores Stock in Products

Effect of Combined Distribution System

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• 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)

Seven-Eleven Stores Total Sales

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Dominant Strategy

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• 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.

Omni Channel

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• 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.

No. Stores

Economy of ScaleBandwagon Effect

Big Store Network Omni Channel

EC

Working Ratio

Strategic Alliance with other companies which deal with quality goods, baby goods, books, travels and etc.

Seven-Eleven Japan’s Business from the Flow of Products

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Raw Materials

Parts or Unfinished Goods Finished Goods

Makers or Wholesalers

Combined Distribution

CentersStores

Customers

Set recommended Line of Products

Consign goods for safekeeping and shipping

Franchise Agreement

Seven-Eleven Japan

Organize a business model and information system

Seven-Eleven Japan’s Revenue

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Raw Materials

Parts or Unfinished Goods Finished Goods

Makers or Wholesalers

Combined Distribution

CentersStores

Customers

• Commission (the buying power)• Center Fee(business practice)

Difference between a center fee and a consignment fee

Royalty (Sales)

Seven-Eleven Japan

Product Life Cycle SCM Model

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INTRODUCTION GROWTH MATURITY DECLINE

Sales Amount

Time

Time

Sales Per Store

Time

No. Stores

Product Life Cycle SCM Model

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Sales Increasing Factors Decreasing FactorsMarketing Effective 3p(Product, Price and

Place), Recognition Rate, Brand Royalty, Changing Life Cycle and etc.

Intensity of Competition, Threats of New Entrants & Substitution, Power of Suppliers & Buyers, Cannibalism

Short-term SCM

High Service Rate, Efficient Logistics, Decision Support System

Long-term SCM

Joint Research & Development, Dominant Strategy, Design and Advance of Information System

Time

Sales Per Store

Epoch-making events or innovations

Product Life Cycle SCM Model

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Time

No. Stores

No. Stores Increasing Factors Decreasing Factors

Marketing Sales Per Store, Recognition Rate, Brand Royalty, Changing Life Cycle and etc.

Intensity of Competition, Power of Suppliers & Buyers, Threat of New Entrants & Substitution, Cannibalism

Short-term SCM

Reliable and efficient Delivery,Decision Support System

Long-term SCM

Dominant Strategy, Placement of Distribution Centers, Omni Channel

Product Life Cycle SCM Model

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GROWTH-Effective Assortment -Distribution System-Information System

MATURITY-Dematurity-Improvent

Sales Per Store

No. Stores

INTRODUCTION-Recognition Rate-Trial & Error

DECLINE-Rivals-New Entrants-Substitute-Strong Power of Suppliers-Strong Power of Buyers

Start

Simple Hypothetical ModelAssumptions• 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.

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Potential Demand

Time24 Hour Convenience Store Operation

Omni Channel

Fresh Food Service

Obento　 Shops

EC

Assumed Sales Progress Based on the Logistics Curve

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Set of Model

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A Chain Stores RivalsSale(1) Sale(2) Sale(3) Sale(4) Sale(5)

Start Beginning 3rd Year 9th Year 11th Year 18th Yeark= 5,000 8,000 10,000 1,000 9,000

m= 100λ= 1

Note

An Initial Innovation; such as 24 hour store operation.

Additions; such as fresh foods based on the combined distribution system.

Additions; such as an omni channel

Substitutional Innovations; such as obento chain.

Substitutions;Such as an electric commerce.

Assumed Net Sales Progress Subtracted Rivals Sales

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Conclusion• SCM includes the short-term , operational, SCM and the long-

term, 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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