1. 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. 1

2. Purpose of Research Highlight the Importance of Long-term SCM Strategy Finding a Hint to Make a Long-term SCM Model 2 Competitive Advantage Sustainable Competitive Advantage Changeable Dynamic Short-term SCM Long-term SCM

3. Background of Research Differences of Short-term SCM and Long-term SCM 3 SCM Short-termLong-term StaticDynamic RigidAmbiguous QuantitativeQualitative PartialGlobal PracticalTheoretical OperationalStrategical

4. Case Study: Seven-Eleven Business in Japan 4 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.

5. RANKING of Retail Dealers in Japan 5 Sales(FY 2014)Ordinary Profit(FY 2014) Current Price (as of 30 Dec. 2015) 1 AEON 7079 Billion Yen Seven & i Holdings 341 Million Yen Seven & i Holdings 4920 Billion Yen 2 Seven & i Holdings 6039 Billion Yen AEON 153 Million Yen Fast Retailing 4523 Billion Yen 3 YAMADA DENKI 1664 Billion Yen Fast Retailing 135 Million Yen AEON 1629 Billion Yen 4 Fast Retailing 1383 Billion Yen Lawson 72 Million Yen NITORI 1171 Billion Yen 5 ISETAN MITSUKOSHI 1272 Billion Yen NITORI 68 Million Yen Lawson 988 Billion Yen Source: http://www.nikkei.com/markets/ranking/index.aspx

6. Dramatic Japanese Lifestyle Changes by Seven-Eleven 6 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.

7. Financial Performance of Seven- Eleven Japan 7

8. Three main drivers of Seven-Eleven’s Business 8 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

9. Seven-Eleven Stores Total Sales 9

10. 10 Combined Distribution CenterPOS SystemOnigiri 87 Deliver Fresh Food Three Times a Day

11. Assortment of Seven-Eleven Stores in Japan 11 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 Fresh Food (28.5%) Process Food (25.9%) Non-Food (32.7%) Daily (12.9%) Handling with Special Care

12. Foundation of Wide and Flexible Assortment 12 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

13. Effect of Combined Distribution System 13 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)

14. Seven-Eleven Stores Total Sales 14

15. Dominant Strategy 15 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.

16. Omni Channel 16 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 Scale Bandwagon 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.

17. Seven-Eleven Japan’s Business from the Flow of Products 17 Raw Materials Parts or Unfinished Goods Finished Goods Makers or Wholesalers Combined Distribution Centers Stores Customers Set recommended Line of Products Consign goods for safekeeping and shipping Franchise Agreement Seven-Eleven Japan Organize a business model and informatio n system

18. Seven-Eleven Japan’s Revenue 18 Raw Materials Parts or Unfinished Goods Finished Goods Makers or Wholesalers Combined Distribution Centers Stores Customers Commission (the buying power) Center Fee(business practice) Difference between a center fee and a consignment fee Royalty (Sales) Seven-Eleven Japan

19. Product Life Cycle SCM Model 19 INTRODUCTION GROWTH MATURITY DECLINE Sales Amount Time Sales Per Store Time No. Stores

20. Product Life Cycle SCM Model 20 SalesIncreasing FactorsDecreasing Factors MarketingEffective 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

21. Product Life Cycle SCM Model 21 Time No. Stores Increasing FactorsDecreasing Factors MarketingSales 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

22. Product Life Cycle SCM Model 22 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

23. 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. 23 Potential Demand Time 24 Hour Convenience Store Operation Omni Channel Fresh Food Service Obento Shops EC

24. Assumed Sales Progress Based on the Logistics Curve 24

25. Set of Model 25 A Chain StoresRivals Sale(1)Sale(2)Sale(3)Sale(4)Sale(5) Start Beginning3 rd Year9 th Year11 th Year18 th Year k= 5,0008,00010,0001,0009,000 m=100 λ=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. Substitutio ns; Such as an electric commerce.

26. Assumed Net Sales Progress Subtracted Rivals Sales 26

27. 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. 27