New Philosophy Breathes New Life Into 7-Eleven Japan

Every day, seven million customers visit a 7-Eleven Japan (SEJ) store. In a year's time, that's store traffic equivalent to 20 times the total population for Japan. 7-Eleven Japan prospers today, with combined sales in fiscal 1998 of $17.6 billion and sales profit of almost $3 billion. SEJ attributes a large part of their success to the implementation of demand chain management and the associated business processes.

Currently operating over 7,500 stores, SEJ has improved from 30-day inventory turns in the mid-1970's to an astounding seven-day turn rate today. Over the past two decades, 7-Eleven Japan has doubled the average store's sales, dramatically cut inventory, and now claims the world's most advanced retailing system.

The History

In November of 1973, Ito-Yokado Group (IY) entered into an agreement with U.S.-based 7-Eleven, Inc. (formerly The Southland Corp.) to introduce the convenience store concept to Japanese customers under the 7-Eleven name. Despite skeptical industry specialists, Toshifumi Suzuki, chairman and representative director of 7-Eleven Japan, and then a director of parent company IY, believed these smaller stores could prosper if they were alert to consumer needs. Initially, SEJ based their product mix on the fastest-selling supermarket items, and items that would be consumed within one hour of their purchase. However, consumers demanded something new and store performance was showing it - per store daily sales were about $2,500 against per store inventory of $100,000. Clearly, the majority of merchandise in stock was not being sold, and the cost for carrying this dead stock was enormous. Realizing that demand is constantly changing, the company began to think like the consumer. A manual system was developed that could identify specific customer needs at the local store level and anticipate the impact of their sales. In addition, this "demand information" was communicated throughout the franchise.

In 1975, a decision was made to introduce a computer system to exchange order information online between stores and suppliers. SEJ entered into a joint agreement with NEC to develop such a system. The result was DCM1, which accommodated smaller, more frequent orders helping stores to better respond to customer demand. The outcome was remarkably faster moving merchandise ¾ 40% decrease in stock ¾ and streamlined logistics.

The Next Step

DCM2 was developed in 1982, and 7-Eleven Japan became the first company to use Point-of-Sale (POS) data for merchandising. Consisting of POS cash registers and terminal control equipment, this system enabled SEJ to accumulate and analyze each store's data on the sale of specific products. This empowered SEJ with an understanding of demand at the local level and they put this information to work across the enterprise.

In '85, DCM3 was introduced; integrating POS data with merchandising to enable the company to better ascertain customer needs and improve operating efficiency. New in-store personal computers featuring a color user interface, made it easier for store personnel to order. The introduction of new cash registers facilitated information exchange between headquarters, franchises and suppliers. This interactivity was utilized by a number of other companies, including Tokyo Electric Power Company, Tokyo Gas Company, Dai-Ichi Mutual Life Insurance Company, and Mitsui Marine and Fire Insurance Company, who began offering online bill payment services in SEJ stores.

Full Utilization of Information

The growth of the volumes of information and the success of its applications lead SEJ to introduce the DCM4 store system in 1990. The ISDN-based network converted information into knowledge by compiling POS and local data. SEJ made full use of this new knowledge for merchandising, and enhanced their ability to predict consumer needs and changes due to influences like time of day and the weather. Voice, digital and visual data were also transmitted across the network improving communication. DCM4 grew into one of the world's largest networks and became the focus of industry attention.

In November of 1997, a new large-scale network integrating ISDN and satellite capabilities was installed. This system, DCM5, incorporated Internet access, multi-media, and other new technologies. Operators could now view new product information on screen and even see SEJ's latest commercials. The system made specific product information, like sales, displays and other points of shared interest, easily accessible. It was also possible to display character and voice messages along with traditional data on the screen when ordering. This functionality enabled store employees working on different shifts to share the same information.

A Quicker Response to Change

Consumer buying trends are constantly changing. Of the 3,000-4,000 products on sale in an SEJ store, 70% are obsoleted and replaced each year. To quickly respond to these changing needs and stock accordingly, SEJ partners with representatives from the manufacturing and distribution industries to share the company's demand chain, POS and other data for use in product development.

The use of Team Merchandising with an ice cream manufacturer resulted in an impressive 40% sales increase, rare for a mature market product. This method is now applied to lunch boxes, confectionery, soft drinks, stationery and many other products.

Today, 7-Eleven remains the largest convenience store chain in the world with over 18,000 stores in 22 countries. As its most profitable group of stores, SEJ is committed to continuing to meet market challenges, think like the consumer, and use demand chain management to further its growth. This demand chain management methodology, developed and perfected for over 25 years, has revolutionized the way this retailer manages its business. The result of implementing the methodology and the system is a more profitable, customer-focused and optimized retail environment that thrives within a competitive buying community. Success is realized not by heavy discounting, but by simply having the tools in place to efficiently give the customers what they want.

Demand Chain Enriches Supply Chain

This same concept has been reengineered for the global market by DCM Solutions. DCM's core competency is the continual alignment of products and services to match ever-changing customer demand. The principles of demand chain management complement traditional supply chain management efficiencies by optimizing the demand chain from consumer to individual store to distribution center(s) to corporate headquarters and continuing on into the supply chain. Marketed under the name e-demand, this integrated merchandising, replenishment and ordering system is centered on consumer demand. It is a fundamental infrastructure component for retailers implementing systems conventionally or in a hosted model. The bottom line benefits of e-demand include increased profitability, revenue and daily sales and reduced inventory, lost sales, waste and write-offs. In today's environment, this translates into increased profits, operating capital and a tremendous competitive advantage.

DCM Solutions, Inc.