Seven-Eleven

Case Essay

Renata M. Ribeiro

Convenience stores have challenges related to growing market uncertainties and the

maximization of local capacity. If fresh foods are prepared after customer order (pull-process), the
store is utilizing its local capacity to fulfill demand. This approach can reduce excess inventory and
costs associated with it. The risk with this method is that by decentralizing capacity, available
resources might be poorly utilized. Relying heavily on suppliers is another risk. As the textbook
states, a facility with large amount of excess capacity allows for more demand responsiveness but
also costs more money and can decrease efficiency. In the other hand, a high-utilization facility cant
respond as well to demand fluctuations but will be more efficient per unit of product it produces.
Achieving a balance between both methods, tailored to each facility, would be the best approach for
any convenience store, including Seven-Eleven.

The benefits of Seven-Elevens strategy, aiming to closely match supply and demand are

that stores have more control of consumers purchasing patterns, allowing for fast replenishment
or replacement of products and better inventory turnover (INVT). Also, it allows for bigger
responsiveness to seasonal demand through modern information systems and the consolidation of
warehousing and transportation. The downturns of such strategy are the implicated high costs with
transportation and delivering methods associated with it, inconsistence of demand (including
seasonal demand) resulting in over or under stocking and risk of information systems failure.
Regarding the adoption of its own distribution centers (CDCs) in the United States (US), the
company would have difficulties created by the lower density of its stores in the country. In Japan,
they can benefit from a high-density market presence and a single CDC supports clusters of 50 to 60
stores, whether in the US this wouldnt be feasible, considering the larger distances between stores.
It would be also hard to achieve the same high level of transportation aggregation and efficiency in
the US, given the maintenance of the wholesaler deliveries and direct store delivery (DSD) systems,
which are still necessary in the broader market environment.
By having outside distributors replenishing its stores, Seven Eleven could benefit from
overall cost reduction. These would include reducing transportation and delivery costs by the
aggregation of deliveries through diverse suppliers and also costs associated with product handling
and labor. It may also make it possible for distributors to perform its functions more smoothly and
without interference, with regards to aggregation and demand. But the risk of having a single
distribution system linked to the entire supply chain is that problems and breakdowns could result
in service disruption and high costs. Furthermore, by outsourcing its replenishment cycle, Seven
Eleven would have less control of its supply chain, making it harder to integrate its information
systems through different partners and possibly increasing the number of deliveries to its stores.