Competitive Advantage of Seven-Eleven Company
The Seven-Eleven Company
The company was established in 1973 in Tokyo, Japan and was first listed in the Tokyo Stock Exchange in 1979 and continues to expand. Over the past ten years, the company has experienced a phenomenal growth in profitability, sales and increase in store outlets. The Seven-Eleven is currently the largest retail outlet in Japan and serves approximately 1.8 billion customers a year. In the United States, the Seven- Eleven convenient stores operations began in 1991 with a franchise network extended to other parts of Asia. The corporate network comprises of both the company-owned stores and third-party franchisees.
Seven Eleven is a part of the international chain of convenient stores that are stocked with a variety of goods. The company is the world largest licensor, franchisor and operator of renowned convenient stores with over 50,000 outlets (Ikuta, Kimura & Sato, 2006). The branded stores operate under the Seven & I Holdings Limited in approximately 16 countries with Japan being the largest operation base. The goods in stock range from a wide variety of candies, groceries, snacks, drinks, nutritional bars, magazines, and other consumer products offered at competitive prices.
In order to ensure efficiency, the Seven-Eleven commercial network expansion policy is based on a market dominance strategy. Each new market entry is built on a cluster of 50 to 60 store outlets. With such a clustered network, the company creates a presence of high-density market that allows for economies of scale in its distribution. The company has a strong and active relationship with franchises. On average, a total of 45% of the gross profits goes to the company while the rest is taken by the store owners.
The Seven- Eleven Competitive Advantage
Consumer Focus Strategies
The main reason that SEJ has become successful is adapting to the strategies of consumer focus based on the use of information system. This business information system has helped the company in understanding and controlling its market. Operations based on the IT support have contributed to a sustainable competitive advantage (Ishikawa & Nejo, 1998). SEJ regards information system as a simple tool, but the introduction of a proactive in technology and strategies has enabled the SEJ to concentrate on developing a vision aligned with its business strategy.
The SEJ management regularly explores the available opportunity in order to obtain a first mover advantage to introduce state-of-the-art business technologies. For example, the introduction of the Integrated Service Digital Network (ISDN) and the Point-of-Sale systems enabled the company to serve the customers 30 times faster. In addition, the technology allowed SEJ to shorten the analysis processes of its daily forecasts by relying on the POS data to expose changes in the preferences of consumers. These kinds of innovations have helped in improving the replenishment process and maintaining products availability. The presence of fast moving stock and fresh products can be used to sustain the flow of customers and increase their loyalty as the main competitive advantage.
Retail Information System
In the United States, the SEJ was the first big convenient store company to introduce and develop a proprietary Retail Information System (RIS) as a support feature of the POS program. This system linked automated back office functions like sales report, inventory control, and payroll, as well as item level sales analysis. RIS is also connected to the gasoline pricing functionality and then linked with the company’s accounting system. This system has facilitated the creation of efficient operations in ordering, distribution and merchandising process. The process is similar to that used in Japan where most of the RIS services are outsourced to third-party providers.
The use of RIS both in Japan and the United States has helped the company in providing timely and accurate sales information based on item-by-item approach. This form of inventory management has turned to be a key success factor in convenient stores business where the rate of inventory turnover is very fast and where the replenishment process has to be fastened to catch up with the pace. Consequently, the input of technology has contributed to the source of sustainable competitive advantage in retail business operations.
In the early 1990s, SEJ had a very poor planning strategy, and the company was losing much in terms of money and market share. It was because most oil companies had begun introducing mini-marts to the gas stations. On the other hand, the convenient stores were becoming more and more crowded, and cutthroat competition put both the revenues and profit margins under intense pressure. In order to attract and retain customers, the SEJ was forced to cut the operating costs, expand product range and increase the product freshness (Briggs & Shore, 2007).
As part of the cost-cutting strategy, Seven-Eleven Japan applied the Keiretsu model of tight partnership with the suppliers by relying on a carefully orchestrated and extensive network of suppliers to provide the routine functions of the business. It helped the company in reducing the operation cost, increasing the quality of the operations, which spurred rapid growth and increased productivity. After a series of successful outsourcing experiences, the company’s top management resolved that all Seven-Eleven businesses should adopt the Japanese system of outsourcing. Thus, with the outsourcing of non-mission critical activities, the company marked the abrupt break with its vertical integration strategy of the past. According to Gottfredson, Puryear and Phillips (2005), capacity outsourcing has helped SEJ in reducing material handling costs and created an opportunity for value addition through the company’s process design.
Effective Distribution Network
The strength of its distribution system is thus tightly linked to the entire supply chain for all product categories. In this regard, the distribution centers and information network play a crucial role in ensuring effective distribution. The main objective of the Information System at this point is to track sales of items after shorter re-order cycles. This strategy has enabled the management of each store to accurately forecast sales that are correspondent with one another and thus reducing chances of pilferage and wastage of merchandise.
Currently, the Seven-Eleven stores offer three-times-a-day delivery of dishes and other food items. The distribution system for foodstuff and other perishable items is very flexible in altering delivery schedules depending on the prevailing demand. For instance, ice cream supplies are delivered daily during summer and twice or three times a week during other seasons; in addition, the replenishment cycle of fast foods and fresh items has been shortened to only 12 hours.
Data-Rich System and Agile Logistics System
Under the strong leadership of the company’s CEO, Suzuki Toshifumi, SEJ has significantly enjoyed higher sales per square foot for more than a decade. The average inventory turnover ranged to 7 days. It implies that the stores have to replenish the stock every week. Effective demand-chain management has been a key success factor behind the achievement of SEJ. It has been facilitated by effective and solid Information Management System that helps in data analysis for operational decision making. This data dependent decision support system provides timely and comprehensive signals about the market demand. The system also runs an intelligent process that turns the data into valuable information for stock replacement and formation of new products. The decision support system is reinforced by an extremely agile logistics system that helps in quick stock replenishment in the stores. In a real sense, the SEJ’s sharp eyes help in focusing on the market status at different times and react immediately.
The approaches adopted by SEJ have provided the company with a competitive advantage that the competitors will take years to build. According to Nonaka, Toyama and Hirata (2008), SEJ uses its operations generated data to create knowledge. Stock replenishment is based on a sound analysis of the existing data, which in return provides smart decisions. The success of these strategies is reflected in operation results of the company. With such effectiveness in operations, SEJ can afford to create an intensive human resource input analysis as an effort of managing knowledge within the company.
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The main advantage of implementation of the Information systems is that it allows the company to effectively match the supply with demand. This system also allows the staff members to adjust the existing merchandise mix on the shelves in accordance with the consumption patterns at different times of the day. For example, the employees stock popular breakfast items earlier in the day, and the popular dinner items are stocked later in the day. Identification of slow and less moving goods allow the store management to create shelf-space that can be used for introduction of new items. Over half of all merchandise sold in the stores change patterns in the course of the year due to seasonality of demand. When a new product is introduced, the decision of whether to continue or decline the restocking of old products is made within the first month since each shelf is accountable to sales and no amount of valuable shelf space is wasted.
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