CASE STUDY seven-Eleven Japan Co. Established in 1973, z3 Seven-Eleven Japan set
ID: 346613 • Letter: C
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CASE STUDY seven-Eleven Japan Co. Established in 1973, z3 Seven-Eleven Japan set up its first store when he joined his mother n May 1974. The company was first listed work in a small clothing s and elder brother and began to store in Tokyo. By 1960 he was in sole on the Tokyo Stock Exchange in October 1979. In 200 was owned by the Ito-Yokado group, which also m chain of supermarkets in Japan and owned a 4 it control, and the single store had grown into a anaged a pany After a trip to the United States in 1961, Ro became con- superstores were the wave of the future. At that majority share vinced that anaging 7-Eleven in the United time, Japan was still dominated by States On September 1. 2005. Seven & 1 Holdings Co. Ltd.,, chain of superstores in the Tokyo area was instantly popular was established as the holding company for Seven-Eleven and soon constituted the core of lto-Yokado's retail operations. Japan, Ito-Yokado, and Denny's Japan. Seven-Eleven Japan realized a phenomenal growth between the years of 1985 about the possibility of opening Seven-Eleven convenience and 2007. During that period, the number of stores stores in Japan. After rejecting his initial request, Southland increased from 2,299 to 12,034, annual sales increased from agreed in 1973 to a licensing agreement in e 386 billion to 2,574 billion yen, and net income increased o.6 percent of total sales. Southland gave tto exclusive rights from 9 billion to 91.5 billion yen. Additionaly, the company's throughout Japan. In May 1974, the first Seven-Eleven conven- return on equity (ROE) averaged around 14 percent between ience store opened in Tokyo 2000 and 2004. In 2004, Seven-Eleven Japan represented Japan's largest retailer in terms of operating income and Seven-Eleven Japarn number of stores. Customer visits to Seven-Eleven outlets there were already 591 Seven-Eleven stores in totaled 4.1 bilion in 2007, averaging almost 35 visits to a there were 2,001. Rapid growth continued (see Table 3-1), Seven-Eleven annually for every person in Japan In 1972, lto first approached the Southland Corporation This new concept was an immediate hit in Japan, and experienced tremendous growth. By 1979 resulting in 12,034 stores by 2007 On October 24, 1990, the Southland Corporation entered into bankruptcy protection. Southland asked for Company History and Profile Both to-Yokado and Seven-Eleven Japan were founded by Ito-Yokado's help, and on March 5, 1991, IYG Holding was Masatoshi lto. He started his retail empire after World War i formed by Seven-Eleven lapan (48 percent) and lto-Yokado TABLE 3-1 Stores and Annual Sales for Seven-Eleven Japan Annual Sales billion yen) Number of Stores Number of Year 1991 Year Stores 1,081.8 1,194.9 1,281.9 1,392.3 1974 69 1977 375 72.5 1961314 109.8 1,609.0 1979 1997 1998 1999 2000 2001 2002 2003 1,740.9 1,848.1 1,963.9 2,046.6 2,114.0 2,213.2 202.1 256.5 1981 1,643 2,001 2,299 9,690 10,303 10,826 6863 2005 11,310 931.9 2006 11,735 12,034 453.6 521.9 2,343.2 2,440.8 3.304 2,533.5 2,574.3 1990Explanation / Answer
7-Eleven growth and expansion strategy has been dominant market strategy thus creating high entry barriers for competition and building efficient distribution network. This pivoted around centrally controlled distribution center delivery where distribution centers will collect, segregate and deliver items to stores. 7 Eleven has lot of fresh products on offer and through distribution centers 7 Eleven controlled replenishment cycles and careful sales tracking. Store manager was provided a graphic order terminal through which orders are placed, which are immediately sent to the supplier as well as the distribution center. Suppliers then manufacture and produce the items to DCs, where they segregate by each store and requirements of the products.
Due the market dominant strategy followed by 7 Eleven expansion strategy is for opening stores very close by. Because of the high density of the stores and the variety of products (fresh fast-moving food items, chilled and warm products), distribution center delivery model is beneficial for 7 Eleven. If for these requirements, direct store delivery model is adopted, then the transportation costs and management (managing supplier relationships, deliveries, truck labor etc.) will be very high. Through distribution center model, all suppliers handling, segregation and truck operations are managed by DCs thus leaving store management to look after sales and inventory management. Also, as mentioned in the case, trust factor drives the deliveries rather than placing manual labor to check the deliveries etc. This manual inspection will be needed when each individual store is directly interacting with hundreds of suppliers. Along with lower costs and increased efficiency, distribution center model offers high control over the supply chain network through aggregation and segregation of deliveries. This control provides lever for 7 Eleven to alter deliveries frequency as per requirement.
DSD is the term used to describe a method of delivering product from a supplier/manufacturer directly to the stores, thus bypassing the supply chain network of the retailer like distribution center or warehouses. Direct store delivery is more beneficial when full truck load items or products in bulk are being delivered to the stores. In addition to volume, when fast moving items like newspapers, companies wouldn’t like wasting time in segregating at a distribution center and then segregate to a store. DSD advantages include reduced labor costs at warehouses, company’s distribution centers. DSD items data is typically managed by manufacturers and suppliers thus reducing load on the firms’ IT assets. Speed to market new items improves a lot through DSD as the products bypass firm’s distribution center network.
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