#Lessonsfromthebest : Data Rich SCM

 

“I woke up at 5:45 a.m., as I do every workday, and one minute and 40 seconds later, the world around me was changed … it was the scare of a lifetime”, she recalled the terrifying moment of the temblor and hours of stress as the extent of the calamity became clear.

 

It is one person’s account of the Kobe earthquake. 

 

The Kobe earthquake was one of the worst earthquakes that hit Japan. All vehicular mobility came to a standstill and the quake cost more than $100 billion in damage. But Seven-eleven Japan (SEJ) built a supplier network that is so strong and reliable, that while trucks were barely moving at two miles per hour to Kobe (if at all moving), Seven Eleven’s suppliers mobilized 6 helicopters and within 6 hours supplied Kobe with 65,000 units of Ready-to-Eat rice balls for the calamity stricken survivors.

Being a key grocery retail chain in Asia, SEJ has always followed a robust and highly adaptive store stock replenishment policy which involves 2-3 replenishments in a day. SEJ is also one of the most profitable retailers in the world and has remarkable low stock out rates. So, how has SEJ managed to sustain its performance for more than a decade now?

  Photo credits: The Portal to Texas History

7-Eleven Inc. is actually an American international chain of convenience stores, headquartered in Dallas, Texas. The chain was founded in 1927 before 70% of the company was acquired by Japanese affiliate Ito-Yokado in '91.(Source: Wikipedia)

When all other companies were focussing on maximizing speed and minimizing supply costs, SEJ adopted a different framework which is designed to promptly respond to the quick changes in demand.

 

Even before the Internet era picked up, SEJ understood the role of data exchange and invested in real-time systems like satellite connections and Integrated Service Digital Network (ISDN) lines to connect with its suppliers, distribution centers and logistics providers and also to track the customer demands.

How ISDN works,

1.      ISDN links their retail store with the HQ

2.     Data is gathered during every single transaction

3.     Store Manager & HQ Manager analyze the data

4.    HQ Manager aggregates the data & send it to the Store Manager and Suppliers

5.     Store managers review the information hourly.

6.     Gather weekly cycle information 

7.     Quality control data is analyzed by computerized decision support

The data allows the supply chain –

·to detect fluctuations in demand between stores,

·to alert suppliers to potential shifts in requirements, 

·to assist them with reallocating the inventory among the stores,

·to make sure that the company restocks at the right time.

SEJ also fostered this alignment by making supplier incentives and penalties clear.

 

SEJ schedules deliveries to every store within a 10-minute margin. If a truck is late by over half-hour, the carrier must pay a penalty equal to the gross margin of the products carried to the distribution store. When all other companies offered their partners incentives to enhance the growth, SEJ 's message to its partners was a little different. It was a win-win situation if they make SEJ successful; but on the other hand, if they fail to deliver on time, the carrier has to pay the penalty.

 

SEJ also helps its suppliers save money/time by skipping the usual time-consuming requirement that store managers do check every delivery truck's contents. They trust that for a continued long-term relationship, the delivery would be 100% aligned with orders.

 

This is a clear and simple case of how rules and incentives are used to build reliable supply chains.

 

Most firms are more conscious about aligning their own interests with all the firms that come under their supply chain. But instead of looking out for their own interests, these firms must take responsibility for the entire chain if they want to build a supply chain that is agile, adaptive, and rightly aligned.