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Management Science:
Effective
Solutions in the Age of Globalization: By Professor Akira
Ishikawa Graduate School of International
Politics, Economics and Business Foreword:
“The era of dynamic
change is now upon us.” In this new age, consumer tastes have become evermore
whimsical, demanding and diverse. Only the companies that can positively incorporate
“change” as a major business and strategic ally will have the capabilities to
survive the ruthlessness of this new high competition era. In practice however
performing this feat is much easier said than done. How can “change” itself be
made the key ingredient in the recipe of success? The core objective of this
book is to find possible answers to this question through the exploration of
the knowledge and insights generated by our detailed case-study analysis of
7-Eleven Japan. As a standard bearer
of revolution in logistics systems, 7-Eleven Japan has consistently been
confronted with various business upheavals and uncertainties since her foundation
in 1973. Indeed many upheavals have required 7-Eleven Japan to conduct some
challenging reformations of her operations. Yet through these experiences, 7-Eleven
Japan has clearly been able to establish a unique management concept. It has
developed new management techniques and has created unique management systems
that have enabled her to cope with the tumultuous changes of the time.
Illustrations of these abilities are quite numerous. It is said that the
highly evaluated “item-by-item sale
management system” as developed by 7-Eleven Japan was in fact the principal
reason why such gigantic logistic groups such as Wall Mart in the US and Metro
in Europe made the decision to tie-up with the Ito-Yokado group. It is also
cited as the motivating factor as to why the usually reticent Chinese
government openly granted 7-Eleven Japan a full retail license to operate in
the Chinese market. Apart from this
particular management skill, 7-Eleven Japan has also been developing new epoch
making methods to be discussed later such as “joint distribution” and “co-development”
well ahead of her competitors. Also the existence of the “integrated information systems” must not be overlooked when talking
about 7-Eleven Japan’s innovative and advanced management style. Integrated
information systems play a key role not only in the strategy of all 7-Eleven
Japan companies but also in the individual strategy for headquarters logistic
support of individual stores and in turn the individual products on the
shelves. In this book, although
we will spend many pages analyzing the integrated information systems of
7-Eleven stores, it would be a little one-sided to claim the source of the
company’s strong competitive power lies exclusively in the hardware used. It is
very obviously the human elements who utilize the “integrated information
system” and actually run the organization helping it adapt to change. Therefore
we will importantly focus on the management concepts of Hirofumi Suzuki, the
charismatic owner of 7-Eleven Japan and pursue the reasons why 7-Eleven Japan
has established herself as such a successful and particularly robust organization. As there are so many
valuable things to be learned from the management systems employed at 7-Eleven
Japan, there already exists an absolute plethora of books praising and
illustrating the company as the perfect enterprise. This is certainly not the
purpose of this book. By using the business structural analysis model developed
by Michael Porter, we are aiming for a very objective analysis and in addition
to the excellence of the company, we will also look at some of the current
problems and difficulties facing 7-Eleven Japan. It is not only the
inclinations of customers that have been rapidly changing in this industry.
Several major external environmental factor transformations have occurred, such
as industry deregulation and the emergence of the use of electric money. These
are central issues that could potentially dominate the future of 7-Eleven
Japan. How can 7-Eleven Japan cope with these changes? In November 1997,
7-Eleven Japan adopted what is termed the “Fifth
integrated information system” for her stores as a measure to deal with the
demands of this new era. We will clearly explain the features of this system
that has allowed for such further progress and success. So when you have
finished reading this book, you will be aware of the reasons why in spite of
the tough economic conditions, only 7-Eleven Japan has: 1. Achieved
profits levels of over \111,000,000,000.
The first time such enormous profits have been achieved among retailers 2. Exceeded
her parent company in turnover and ordinary profits. 3. Managed
to consistently surpass competitors for nearly 20 years since her foundation. In addition to the
above, you will get a clear idea on how the convenience store industry will
continue to change and evolve in the 21st Century. If this book
could provide readers with a law for success in this “time of dynamic change”,
it would be a source of boundless joy for the author. Finally, I would like
to express my sincerest gratitude to Mr. Yoshio Nemoto, the publisher of Sanno
University Press who has been a constant source of valuable ideas and
suggestions during the entire writing process of this book. Chapter
1 “The information
industry converting the “change” into a “chance” Dealing with changing times, and 7-Eleven Japan’s continuing
self-reformations.
A central business
creed of 7-Eleven Japan is concerned with “dealing with the change of the
times.” 7-Eleven Japan by making a friend of “change” has often managed to
convert the change and uncertainty into a lucrative business chance. Perhaps it
is more accurate to say that 7-Eleven Japan by taking on the change of the
times before others, she has been able to better adapt due to a process of
conducting rapid reformations of herself. “Change and reformation” are the key
words when analyzing 7-Eleven Japan. Since the establishment of operations in
1973, 7-Eleven Japan has performed several of these major reformations. Firstly, we must look
at out the distribution system of the retail industry prior to the
establishment of 7-Eleven Japan. The system was dominated by the major
manufacturers and by their appointed wholesale stores. These appointed
wholesale stores in turn handled goods made exclusively by those certain
manufacturers. This did not match the requirements of 7-Eleven Japan who needed
a flexible system with the ability to deliver products rapidly and whenever
necessary. Therefore, 7-Eleven Japan created a wholesale store for every major
area and established a distribution system called “intensive delivery”. In this way, it became possible that products
from multiple manufacturers were delivered quickly and efficiently to stores.
This had the ancillary benefit of reducing the number of delivery vans required
which also contributed importantly to cost savings. This intensive delivery
method has since developed into a system called “joint delivery” which became even more effective. This is the major
first reformation/transformation performed by 7-Eleven Japan. In the 1970’s,
7-Eleven Japan was constantly expanding the overall numbers of stores. However
in the 1980’s, a chronic situation of over-supply was apparent in the market.
In addition, an increasingly diverse pattern of individualization among
consumers had developed in the market and competition within the industry
itself had greatly intensified. In order to cope with these changing external
factors, 7-Eleven Japan pursued a core strategy of getting rid of non-selling
products from the store shelves. To this particular end, 7-Eleven Japan
developed the skill of “item by item
management” and introduced POS (Point of Sale) technology, which was
utilized as the primary tool for handling this management process. POS
information was also directly used for new product development with the result
that 7-Eleven Japan’s ability to develop new products made very substantial
progress. The introduction of “item by item management” by 7-Eleven Japan is
worthy of being described as the second major reformation/transformation. It
moved the competition of the convenience store industry from a “quantitative
expansion” ideal to a more “quality improvement” type concept. In 1990, 7-Eleven
Japan established the “fourth integrated
information system” which connected all chain stores using ISDN lines. As
the transmission of large volumes of information became possible, other new services
such as that of acting as the intermediary for payment acceptance were rapidly
developed one after another. This meant the store was not only a place where
products were sold but also a place that offered consumers several useful
services. This change is the third major reformation achieved by 7-Eleven
Japan. In 1997, the “fifth integrated
information system” which connects all chain stores with a multimedia
function started operation. As on-line image data transmission to member stores
became possible, 7-Eleven Japan could pay even closer attention to the
education and information provision of her stores. One of the key features of
this system is the ability it possesses to deal with the emergence of
electronic money and business expansion. This fourth reformation has just begun
and aims to assist 7-Eleven Japan’s fortunes well into the 21st
Century. So in conclusion, it cannot be denied that 7-Eleven Japan indeed has a
rich history of reformations. Establishment
of a business creed to meet social change. In the early 1970’s,
the competition among small to medium sized retailers, department stores and
supermarkets in the retail industry had greatly intensified. At this particular
time, after experiencing the oil shock in 1973, the Japanese economy was at the
turning point of moving from a period of high economic growth to a much slower
rate of growth. It is worth pondering how 7-Eleven Japan accomplished such a
successful entry to the retail industry under such unfavorable economic conditions? In 1974, the “Large Scale Retail Store Law” regulating
the set-up of a large-scale retail stores and new rules on business hours was
introduced. This law was primarily designed to protect existing small to medium
sized retail stores. Essentially, it aimed to restrict the set-up of
large-scale retail stores in prime shopping districts and other favorable
locations such as train station squares. As a consequence, large-scale
mass-market retail stores were forced to set up stores in less favorable
locations in the outskirts of the city center and suburbs. However the small to
medium sized retail stores despite being under the protection of this new law
began to lose their competitiveness due to inefficiency, lack of effort and the
difficulty in finding successors to take over the business when they retired.
As a result of this, many such shopping districts lost their customers and set
off on the road to decline. Customers were instead attracted to the bigger
stores in the suburbs. At this time, Ito-Yokado Co. Ltd. looked at the
possibility of setting up small sized stores that would not be in conflict with
the “Large Scale Retail Store Law”. However they would be located in the prime
shopping districts and other restricted key locations including train station
squares. The exploitation of this legal loophole so to speak was also the
reason why many other small sized chain stores in the name of convenience
stores were born. Also at the same time big social changes were
taking place in Japan. The expression “workaholic” became very common at this
time, as many working men and women had become bound by very long working
hours. There was a large element of personal sacrifice for the benefit and
loyalty of the company to which they belonged. Some workers were even transferred
away from their families to a new company working locations. Other social
changes included the increased amount of part-time work by housewives, and even
young people tending to go to bed later than before was another factor. People’s
daily schedules became increasingly busier and this left people with
insufficient time to do shopping at their leisure. Convenience became the new
buzzword. People tended to look for “time
convenience” which would enable them to do their shopping at night. “Convenience of being just around the corner”
which allowed them to do shopping near home or at least in the station square. “One stop shopping” which gave shoppers
the chance to purchase all the necessary things they wanted in one place.
However on the other side of the fence, the medium and small sized stores were
not able to cope with these new demands from customers. It was the convenience
stores who were able to bridge the gap. The concept of “offering convenience” simply could not be found in the convention
retail industry. Therefore we must commend 7-Eleven Japan’s foresight in
spotting this change ahead of the pack and committing to the tie-up with
Southland USA in order to launch the first group of full-scale convenience
stores in Japan. So we can see that the business creed of 7-Eleven Japan of a “quick
response to change” was already well practiced even at the time of her
establishment. Converting
“problems” into “ opportunities” At the time of rapid
economic growth in the 1960’s, supermarkets also enjoyed a period of rapid
growth. However this clearly posed a large threat to the management of medium
and small sized retail stores of this time. As previously described the “Large
Scale Retail Store Law” was supposed to protect the medium and small retailers
by enforcing very strong regulation in the setting up of large scale retail
stores in the shopping districts. A key management philosophy of Ito-Yokado
Co., Ltd., a parent company of 7-Eleven Japan was “co-existence and
co-prosperity.” For Ito-Yokado Co., Ltd., not only “co-existence and
co-prosperity” with suppliers but also “co-existence and co-prosperity” with
the local community is very important. Under the auspices of
the “Large Scale Retail Store Law”, Ito-Yokado Co., Ltd. judged that it was not
possible to avoid opposition from the small to medium sized retail stores
simply by the setting up convenience stores. Therefore she tried to minimize
the amount of stores under her direct management and deployed the strategy of
the franchise system. The purpose of this strategy was to give local stores the
opportunity to become convenience stores. This was considered a major
contribution to the local community. Many small-sized stores lagged behind the
times and have since been obliged to stop business completely or totally change
their method of business. Therefore the franchise stores of 7-Eleven Japan
offered good opportunities for the local stores to change to a method with a
better chance of survival into the future. Generally speaking, franchised
stores run by self-employed owners have much better results than stores that
are run by salaried employees acting as the manager. Due to the franchise
system, the burden of providing funds on the part of the headquarters could be
minimized and the headquarters was
able to obtain stores in the best locations. The higher ratio of franchised
stores contributed to the high gains of 7-Eleven Japan. Therefore 7-Eleven
Japan converted problems of “co-existence” and “co-prosperity” to a “structure
with high gains.” 7-Eleven
Japan becomes an “information industry” 7-Eleven Japan could
be viewed as an “information industry” in two ways. The first is due to the dependence
of the headquarters on her satellite income sources and the second is the
information system employed throughout the entire chain. Basically 7-Eleven
Japan consists of the headquarters and her member stores dotted all around the
country. All member stores except those stores under direct management of HQ
are franchised stores run by self-employed managers. The headquarters connect
all member stores online and furnish them sales results, inventory information,
new product information, weather information and general information and
know-how on store management. Member stores pay 40% to 45% of their total gross
margin to headquarters as a royalty for their membership. Approximately 85% of
headquarters total operating profit is composed of these royalties received
from member stores. Therefore it seems quite appropriate to label 7-Eleven
Japan as an “information industry” as most of the income is reward for offering
information and know-how. Information and
know-how is primarily transmitted from the headquarters to member stores via an
integrated information system that connects all chain stores. The information
systems of 7-Eleven Japan connect some 7,000-member stores and over 1,000 other
business connections making it the world’s largest network in the retail
industry. The headquarters make full use of POS information in order to control
the strategy in the distribution of products and the strategy of individual
stores. For member stores this integrated information system is an indispensable
tool especially for ordering procedures. Therefore 7-Eleven Japan is an enterprise
with high dependence on information. It merits being classified as a “strategic
information industry” judging from the features of her management style. Using
the improvement of information technology to conduct self-reformations. Transaction volumes in
the provision of the payment acceptance service of utility bills such as
electricity and gas etc amounted to nearly \300 million in 1996. Also the
service range now extends to the payment acceptance of mail-order sales
organized by Senjukai Co., Ltd. Although this service does not produce big
profits in itself, many customers are attracted to the store by this service.
In addition, new sources of business using information systems such as payment
by prepaid card etc have also been extended. Since adopting the interactive POS
system in 1995, it enables a direct access to a host computer from a POS
register. Before the store was a place for selling goods, but now it has become
the place to offer many useful services by using the store information systems.
It also contributes to a diversification of service. Therefore it can be
confidently stated that 7-Eleven Japan has honed the ability of converting new
information technology into a immediate business opportunities. It seems quite natural
to observe the ever widening differences in the level of business performance
of 7-Eleven Japan, who relentlessly continues her self-reformations, and the
department stores and supermarkets, who are still having difficulties in
breaking away from the conventional business structure. An
affiliated company whose business performance has exceeded her two parent
companies. 7-Eleven Japan
actually has two parent companies. One is Ito-Yokado Co., Ltd. and the other is
Southland Inc. USA, who offered their know-how and expertise at the time 7-Eleven
Japan was established. When comparing the pretax profits and sales of 7-Eleven
Japan with Ito-Yokado Co., Ltd. (As per table 1-2), the pretax profit of 7-Eleven
Japan added up to \88.1 Billion in Feb 1994 and in doing so, the profits
actually exceeded those of her parents for the first time. Since then the
business performance of 7-Eleven Japan has exceeded her parent for 4
consecutive terms. In February 1997,
the pretax profit of 7-Eleven Japan broke the \100 billion barrier. Also total
sales of 7-Eleven Japan chain stores reached \1,609,007,000,000 which exceeded
the sales of Ito-Yokado Co., Ltd. In fact the sales figures of Ito-Yokado Co.,
Ltd. have been stagnant while 7-Eleven Japan has consistently shown more than
satisfactory returns. It is therefore almost certain that the affiliated company
will remain ahead of parent company for the foreseeable future. In 1973, Ito-Yokado
Co., Ltd. had a tie-up with Southland Inc. that was to introduce the American
concept of 7-Eleven stores to Japan. In contrast to her US parent, 7-Eleven
Japan has enjoyed continuous growth since her establishment, while Southland
Inc. USA faced a major financial crisis in the late 1980’s. The causes of
Southland’s business insolvency were due to her failures in the sectors of
gasoline sales, oil business, urban development business as well as being a
result of intensified competition in the convenience industry. Upon requests
from Southland Inc., 7-Eleven Japan established operations in Hawaii and
conducted a complete reconstruction of the Hawaii division. In fact 7-Eleven
Japan gained full control over Southland Inc. in 1991 and also started the
reconstruction of Southland branches in Canada and mainland USA. Thanks to 7-Eleven
Japan’s management efforts of liquidating unprofitable stores and in
introducing systems like the practice of item by item management, it has
succeeded in returning the Southland pretax profit to the black in 1994.
Thereafter 7-Eleven Japan reconstruction schemes are satisfactorily proceeding.
This case represents not only “children” who have outgrown “parents” but also “children”
who have saved the life of “parents”. Therefore this attracts considerable
attention as an excellent example of how the management know-how of 7-Eleven
Japan could be used in the wider business world. Definition
of a convenience chain store. There is no one fixed
definition of a convenience store. Nikkei
Ryuutsuu Shinbun categorizes chains satisfying the next three conditions as
a convenience store. 1. The
sales composition ratio of perishable foods should be less than 30% of total
sales. 2. Business
hours per day should be more than 16 hours. 3. The
majority of the department area should be less than 200 square meters. Another definition
comes from the MCR (Manufacturer Convenience Researcher) who specializes in
researching convenience chains defines stores satisfying the following
standards as proper convenience stores. 1.
Retail
stores with department area of more than 50 square meters but smaller than 230
square meters. 2.
Shares of
counter sales for general foods (including liquor and confectioneries) should
be more than 50% of total sales. 3.
Shares of
counter sales of liquor, perishable foods, confectioneries, FF (Fast food),
lunch box, daily dishes and products other than foods should be less than 60%
of total sales. 4.
Business
operations should be more than 14 hours a day and 340 days a year. 5.
Store
should handle more than 1,500 items of convenience products and services. 6.
The lay-out
of the store should be the convenience style provided with unique energy
savings, friendly atmosphere and measures for crime prevention. 7.
There is no
necessity for an individual to be a member of a chain store group or to be tied
up with another business to fit in with this definition of a convenience store. 8.
Combined
type convenience connected with a different category of business would be
collectively regarded as a convenience store, provided it corresponds to the
following conditions. However, no stores that have more than 50 square meters
for convenience section will be included in the definition. A.
Department area of different categories of business (including eat-in corner)
should be less than 50% of the entire department area. B. Comings and
goings between the department areas must be freely allowed in the store. C. Regardless of decentralization of
the cash register, the final accounting business should be unified. Chapter 5
Analyzing the
robustness of 7-Eleven Japan according to personality and organization The management philosophy of Hirofumi
Suzuki, the virtual founder of 7-Eleven Japan
When we talk about the
“personality” of 7-Eleven Japan, we should not forget about Hirofumi Suzuki,
who is virtually a founder of 7 Eleven Japan, and still an acting commander of
the company as the chairman. Suzuki graduated from Chuo University and worked
at the Tohan Corp. for a while before taking up employment at Ito-Yokado Co.,
Ltd in 1963. He was assigned to the management department despite not having
any sales experience. This is perhaps the reason why his career is seen as
quite unique. Suzuki negotiated with Southland Ltd. USA to realize the tie-up
with Ito-Yokado and then took the lead in the management of 7-Eleven Japan from
her establishment to the present day. We will find the
essence of the management philosophy of 7-Eleven Japan in a collection of his sayings.
He repeatedly says that the basis of the management is a “response to the
change” and“self-reformation”. It
is very interesting that he insists upon a top-down decision–making system,
while the efficiency of a flat organization is strongly advocated. 1.My ideal
management is quick response to change under any circumstances. 2.It is
important to have the ability to change your way of thinking to respond to
change. 3.Only through
self-reformation can stores and companies conduct their business successfully
and in the surest way. 4.To create new
business it is important to succeed where others have given up because of lack
of business opportunity and thus to break with practical wisdom. 5.Successful
experience in the past will not be of any help in the present days when the abolishment
of the status–quo is required. 6.In business it
is necessary to think what the customer is looking for and what we must do now,
without even mentioning the response to the change. 7.At the time
when so much responding to change is required, things could not change without
top-down quick decisions. 8.A leader
should be self-aware and is be able to objectively view his own conduct. 9.Forcasting
years ahead and making plans based on it, only makes one inflexible to change. Suzuki considers the
concept of a correct order placement based on item-by-item management should be
the foundation of the retail business, and understands that POS is the tool to
fulfill this function 1.For the retail
business, the most significant thing is to place orders with self-direction. 2.It is always
required to formulate a hypothesis, carry out, and inspect the outcome. 3.POS is simply
a tool for inspecting the hypothesis formulated. 4.Grasping
trends in the sales of single items and inspection with deep analysis of the
relation of cause and effect and the background must be carried out. 5.Measures on
how to avoid the loss of business opportunities will be directly linked to the
business performance. Suzuki considers the
development of differentiation from others, even on the buyer’s market,
eliminates unnecessary competition. In addition, he poses a question to the
idea of “increasing the assortment of products in compliance with the
diversification of consumption” and insists that the narrowing down of products
with value is very important. 1.In a buyer’s
market it is necessary to operate the business from a customer’s standpoint. 2.It is very
important to be near the customer and feel what they need to be able to fulfill
self-differentiation. 3.Much
diversification was the product of prejudice by the selfish imagination of
manufacturers and sellers. 4.In the times
of diversification, it is important to narrow down the range to the most
sellable products. 5.Inclinations
in consumption are moving to times of value-oriented from the price-oriented. 6.Without
pursuing quality, the attainment of quantitative results cannot be expected. Suzuki attaches great
importance on the utilization of external resources rather than management
resources such as employee, facilities, and money. In addition he considers
management know-how of retail business could not be used unless it is developed
in accordance with the climate of the country. It is quite
interesting to see the sharp contrast in the stance between Lawson, who are developing
chains all over Japan and that of Suzuki, who believes in the dominant
strategy. 1. It is sometimes better and more effective
not to hold ownership. 2. The Japanese
keiretsu does not necessarily mean the predominance of ownership and holdings
but it is very often the case that only the network types with a partial the
capital participation or no capital relationship at all. 3. Powers should
not be distributed but should be concentrated. 4. It should be
remembered that retailing business is basically a domestic business. 5.The way of
thinking that everything should follow after the USA has been prevailing in the
distribution industry and does not make any sense. 6.Invest
positively in information 7.Management
should be carried out in harmony with balance and adjustment without prejudice. 8.What is most
required in the present time is to build up strategy based on new ways of
thinking. Management should not be driven by conventional operation. [This collection of his sayings were picked up
from the books and magazines listed in the reference literature] Another
information route – direct communications We have repeatedly
discussed the superiority of the information system of 7-Eleven Japan in this
book. However, the information system is not the only tool of communications to
connect stores and the headquarters. 7-Eleven Japan posts operation field
counselors at the rate of one person to seven to eight of her member stores.
The OFC notifies stores of the headquarters policy and is responsible for
playing a very important role in reporting market and member stores trends back
to the headquarters. The OFC belongs to the
district management office with the head Directory Manager (DM). The Zone
Manager (ZM) commanding seven to eight DMs is posted at headquarters. Every
Monday the manager meeting is attended by HQ management, the directory manager,
the zone manager and every Tuesday the OFC meeting is held with attendance of
the HQ management and the OFC from all over Japan. At the OFC meeting, the
headquarters policy, new product information, and guidance plans for stores are
discussed. Successful cases are reported as all participants share information
from the headquarters and stores. Headquarters use the
information collected directly from the OFC to help build up a coherent
strategy. The OFC in turn quickly pass on HQ policy to member stores. The OFC
conduct ceaseless efforts in providing guidance to member stores on how to make
each store more attractive to customers. 7-Eleven
Japan hold two management meetings every week as she attaches great importance
and value to the direct person to person communication method. In fact
estimates are that she spends over 20 billion yen per year on these meetings.
Without careful personal guidance, the information system alone is not enough
to generate a sense of unity within the organization. 7-Eleven Japan recognizes
that she would not be able conduct a smooth administration of the organization
with just this type of information, no matter how excellent the information
system. Therefore, during times of rapid change, it is possible to respond in
an appropriate and timely way when combining knowledge provided by the
“information system” and from “communication with people”. Basic
concept of independent order placement.
When we look at 7-Eleven Japan, such a strong technological
information–oriented organization, many people would assume that she intends to
install an automatic ordering system in each store to make the system even more
efficient. However 7-Eleven Japan strongly denies this idea. So what is the 7-Eleven
Japan future concept of the order placement process? Needless to say, a key
factor leading to growth in sales and profits concerns the right assortment of
hot-selling products in the store. Therefore, 7-Eleven Japan considers order
placement the most important area in retailing. The
first thing member stores must do is formulate a “hypothesis” of which product,
how many and at what time, they should sell the following day? Based on this
hypothesis, they fulfill their order placement. Thereafter, they compare actual
sales performance with their hypothesis in order to “inspect” whether their
order has been accurate or not. So, 7-Eleven Japan’s basic concept of order
placement is to help enhance the accuracy of order placement by repeating a
process of “hypothesis, fulfillment, and inspection”.
Graphic order terminals used in the fourth integrated information system
are key tools for fulfilling this enhanced accurate ordering goal. As GOT is a
handy (A4 sized) type terminal, the operator can carry order input work at the
place where products are shelved. It is very convenient for operators as they
can also see the various POS data such as inventory information, new
merchandise information and weather information on the screen of the GOT.
However, POS information is past data and it can’t tell definitely how many and
what product would be sellable the next day. Therefore, member store staff need
to carry out the management of order placement. It is a “person” not a machine
that can best judge and formulate this self-hypothesis. Obviously customer’s
needs vary across different member stores. Also member stores, besides the
general POS information, can also gather the latest information on events in
their surrounding area and the trends of local rival stores. They utilize this
highly relevant information as a useful reference in order placement. 7-Eleven
Japan is not interested in issues such as the similar assortment of merchandise
for all her chain stores or the introduction an automatic ordering system. No
matter how technically excellent the POS and GOT systems are, they are simply
non-reasoning machines. Under steadily changing external surroundings, the decision-making
ability of “people” is still the most valued. Therefore 7-Eleven Japan will
continue to build her order placing system based on this concept. Idea
of “co-existence and co-prosperity” brings about robustness.
“Co-existence and co-prosperity” with other small and medium-sized local
retailers was one of the central concepts of 7-Eleven Japan during the time of
her business establishment. Convenience chains consist of stores under direct
management (called training stores) of the headquarters and franchised stores. 7-Eleven
Japan focused mainly on the opening of franchised stores in order to avoid
misunderstanding with local retailers. By this method, 7-Eleven Japan could
avoid friction with medium and small-sized retailers and the opening of new
stores was done without causing any major problems. Thus, stores under the
franchise system played a major role as a method for small-sized retail stores
with poor future prospects in their own business, to change their style of
business. Stores under the direct management of 7-Eleven Japan make up only
3.4% (231 stores) out of the total number of stores (6,922 stores). Although we
can not make a conclusive judgment as to whether franchised stores are better
than stores under direct management, the business performance of franchised
stores in general are better than stores under direct management. Since store
managers of franchised store are self-employed people who have invested in the
store at their own risk, no failure in the business is allowable. Also
self-employed store managers often have an entrepreneurial spirit with a strong
motivation towards the business. Thus the higher ratio of franchised stores
contribute to higher daily sales amount per store in average. In
addition, the composition of 7-Eleven Japan’s stores is characterized by her
high ratio of ex-liquor store that converted their business into convenience
stores. As selling liquor is possible in these stores, it is natural this adds
to total sales figures. Utilizing this extra profit as a motivating factor,
7-Eleven Japan had been proactively converting liquor stores with good locations
into convenience stores prior to competitors. It could be said that generally
7-Eleven Japan is a chain-organization composed of stores that produce higher
profits margins. The robustness of 7-Eleven Japan does not only originate from
the information system, the excellent capability of new product development or
the distribution system, but crucially also from the concept of “co-existence
and co-prosperity”. This concept made it possible to expand the number of
franchised stores and create stores that could handle liquor. It clearly shows
that the most important elements in being a robust company comprise the “human
“ and “organization” elements. Outsourcing
prevents organization stiffness
7-Eleven Japan has
made a positive business use of external sources. For example when developing food
products, she helped create the “Japan Delicatessen Foods Cooperative
Association” for the medium and small–sized producers. With major
manufacturers, 7-Eleven Japan has been positively developing “co-development”
and “team merchandise”. With vendors, 7-Eleven Japan has organized the “joint
delivery" system. Almost all stores are franchised entities run by
self-employed persons. Many diverse business connections are united together to
share their fate as one of the members of the 7-Eleven Japan family. Crucially
the 7-Eleven Japan information system is the tool to connect those business
connections. There
are two main columns of power in this system. One being the software and
information system and the other is the hardware which supports the “7 Eleven
Japan’s family”. Stiffness still occurs very often when the organization
expands. However 7-Eleven Japan, by using skills of “outsourcing” has prevented
her internal organization from suffering stiffness and over-growth by
thoroughly utilizing external-sources as if they were internal. Enjoying
combined synergistic power through her business connections. Her organizational
strategy, skillfully taking in external sources in accordance with changes in
circumstances, has produced an excellent ability to cope with changes. Sources
of strength hidden in the organizational chart The organization of
the HQ of 7-Eleven Japan consists of major areas such as: Finance, General
Affairs, the Sales Administration Department, Recruitment, Operations,
Products, Logistic management, Facilities Construction, Accounting, Information
System Department, Secretarial Section, Audit Section, Owner Consulting
Section, and the Planning and Development Section. In the headquarters
department of Product Development, the section of “information management” is
set up with the purpose of collecting information on product development in the
areas of “team merchandise” etc. The Development Promotion Department in the
Headquarters of Logistic Development takes care of the development of original
products.
Currently customer preferences are changing more rapidly than ever, the
life span of products is getting shorter. The two departments mentioned above
are very important in the search for new products to “respond to changes”. Of
course many competitors have similar sections and people in charge, so it is
not necessarily correct that only 7-Eleven Japan has this particular structure.
However within this structure of 7-Eleven Japan is perhaps where some secrets
are hidden? If
the strength of 7-Eleven Japan does not exist in the organizational structure
itself. It could be assumed that the source of this robustness resides in her
endless efforts to develop “innovative business processes” such as “consistent
production, distribution and sales systems”, ”team merchandising” and “joint
delivery”. The innovation of processes creates differentiation from others and
builds up her advantageous position as regards the competition. 7-Eleven Japan
lavishly invests in the construction of the infrastructure supporting
“innovative business processes”. Infrastructure both of the hardware and
software type that is invisible on her organizational chart includes
“information systems” and “manager meetings” help to connect departments
organically and enhance the management efficiency of the whole organization. Chapter 7
The fifth integrated information
system connecting chain stores utilizing satellite communications.
The general concept of the fifth integrated Information
system
7-Eleven Japan introduced the fifth integrated information system in
November 1997. This system was jointly developed by 12 companies such as Nomura
Souken, NEC, Microsoft, and others in order to network 50,300 terminals of the
headquarters, member stores, regional office, and customers, which comprise the
following components. 1. Store
system 2. System
for order placement, distribution, and customer request 3. Network
system 4. Group
wear system 5. Transmission system of multimedia information
6. POS information system 7. POS store register system All of these systems
were operative by the summer of 1999. Total investment costs will amount to 60
billion yen and it will be the largest network of the distribution industry in
the world. The biggest feature of this system is the introduction of satellite
communications. Information from headquarters to stores and regional offices is
transmitted by satellite links and information from stores to regional offices
is transmitted by ISDN links. Those transmission speeds are 45 times quicker in
comparison with the previous speed and consequently communication costs will be
reduced by approx. 20%. An antenna for the game software demonstration machine
produced by Dig Cube Corp is set up in the store and is also used as a
reception antenna as well. Information received from the headquarters is
indicated on the display of store controller or GTO.
Order information from the store and the POS information are sent to the
Nomura Souken, Yokohama Center via ISDN links. The server for orders and the
server for collecting and distribution information will be also set up at the
Osaka center for the preparation for troubles and disasters. Portable personal
computers are available for operation field counselor (OFC), this enables the
regional offices and stores to be able to access information directly from the
headquarters. Due
to the increase in the numbers of new stores, the business performance of the
headquarters of 7-Eleven Japan has been increasing. However the sales
performances of existing stores have been growing slowly. The biggest reason
for introducing this new system is to provide an effective guidance system to
stores. To fulfill this purpose, the transmission of multimedia information
such as characters, still pictures, animations, and sound in order to create
"the store with highly sellable merchandise and services" plays a
very important role. In addition it is a system able to respond to the
"the times of the change" such as deregulation and electronic money. Utilizing
of “Animation” “Still Pictures” and “Sound” for the construction of an
attractive store with heavy selling items and services. TV
commercials can have a big impact on the sale of merchandise. Until the new
technological development brought by the 5th Information system,
customers could not see commercials broadcast in the store. The new system was
provided with a function to enable the display TV commercials with sound. At
the same time 7-Eleven Japan urged chain stores to sell on a priority basis the
specific products that receive strong support from the TV commercials. 7-Eleven
Japan has received much favorable attention as a pioneer this new skill of
"sales closely united with TV commercials". The
new information system can also furnish chain stores with on-screen images of a
successful product display. Therefore it is possible to see by pictures of how
products should be best displayed in the store. Previously, it was very
difficult to communicate accurately the most attractive manner of display
explaining in characters only. Thus, it has become easier to make more possible
the ideal concept of "the attractive store with heavy selling items and
services". Sales
of merchandise are strongly influenced by the weather. Therefore, the new
information system is also provided with a function for making visual weather
information displays. In addition, not only the weather information of the
surrounding area is included but also weather information covering wider areas.
Due to this, 7-Eleven Japan has often succeeded in attracting people who are
planning to go to holiday resorts as they come to check the weather. Using this new system for smooth communications
with employees
The new system is also helpful as a
communication tool between the store manager and employees. As the convenience
store opens 24 hours, it very often happens that workers and managers do not
meet each other due to differing shift times. In order to avoid this
communication gap, a voice-input system is incorporated in the new system, so
that all employees who come to the store can hear the store manager’s
instruction by voice input. As part-timers with less experience also hear the
store manager’s instruction by voice, it will be helpful for making order
placements more accurate. Input of hand-written letters, illustrations are also
possible, so that communication using both eyes and ears becomes possible using
this system. This
new system can be used as a tool for communications from employees to the store
manager, from the OFC to the store manager and from employee to employee. In
general information sharing is thus made more effective and efficient in terms
of store management. The fifth integrated information systems represents
7-Eleven Japan’s strong will to construct “an attractive store with heavy
selling goods and services”. Utilization
of multimedia information for sales promotion. At every chain store of 7-Eleven Japan,
approx. 70% of merchandise will be replaced with new ones within a year. Since
the preference of customers changes rapidly, the life cycle of merchandise is
getting shorter year by year. Therefore new products come on the shelf one
after another and poor selling items are quickly removed. Until the new
information system was introduced, 7-Eleven Japan had distributed material on
new merchandise in the form of printed matter to each member store. However, it
takes a long time and means substantial costs to prepare and distribute the
materials of new products that total over 2,000 items a year. There are also
many unsuccessful products that are removed from the shelf after only two
weeks. Therefore 7-Eleven Japan cannot expect this to be an effective way of
sales promotion when it requires a week to prepare and distribute the material.
The fifth integrated information system enables the online transmission of
material as image information to the store all at once. It shortens the
lead-time drastically and cut downs the cost of paper and distribution. The
system with this function of sending multimedia information such as images will
be indispensable for sales promotion during "the times of change". An
elaborate marketing plan using a “data warehouse” The "POS information system"
component of the fifth integrated information system is attracting much
attention and was operative from spring 1998. A new POS information system
called "data warehouse" has the capability to accumulate information
of item-by-item management for about 400 days in the 6 terabyte of its
parallel-processing super computer. Before this system was
developed, the conventional system was designed to grasp "what, how, when,
and to whom merchandise was sold". Now this new system can analyze
"what sorts of products are sold together". This method to further
grasp the customer's shopping trends is called a "basket analysis" in
the sense that the store can grasp the content of a customer's shopping basket.
By utilizing this basket analysis, it is possible to develop an elaborate
marketing design. Further developments include, "data mining skills" to search for specific and necessary information from the huge mountain of information, and "push skills" which are used to update automatically information from the headquarters. 7-Eleven Japan aims at making order placement more accurate way by the further substantiation of POS information. Professor Ishikawa received his Ph.D. from the Graduate School of
Business Administration of the University of Texas at Austin in 1972, and
undertook his postdoctoral studies at the Massachusetts Institute of Technology
in 1973. He was awarded a Cultural Doctorate from the University of the World
in 1985, and a Doctor Honoris Causa in recognition of his outstanding
accomplishments and distinguished service to mankind from the International
Institute for Advanced Studies in Systems Research and Cybernetics in 1999. Dr.
Ishikawa is a member of the Editorial Advisory Board of BWW Publishers and the
BWW Society, and is a frequent contributor to this Journal
(see "The Intellectual Olympics", November-December
2001 issue).
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