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Services Operations Management

SIBM Bangalore

Q1. What features of 7-Eleven Japan distribution system illustrate the Value Net Integrator e-business model? The Value Net Integrator model is perhaps one of the most sophisticated business models. At its core it is a fairly simple, yet profound concept that information about the sale of goods and services can be managed separately from the physical sale of those goods and services. The model identifies two separate value chains. The physical value chain along which goods and services travel from manufacturer to distributor to merchant to customer and the virtual value chain through which information about the members of the physical chain is gathered analyzed and distributed. The Value net Integrator model is quite powerful because it permits a highly profitable business to be developed with minimal capital investment in physical assets. Value net integrators co-ordinate activities across the value net by gathering, synthesizing and distributing information. Major entities involve the firm itself, customers, suppliers and allies. Major flows are products, information and money. 7-Elevens value net gathers sales information from all its franchisees and it makes this information available to suppliers of goods in exchange for favorable pricing, the benefit of which 7-Eleven passes to its franchisees. The value net gives all franchisees collective bargaining power over suppliers and the suppliers get valuable, real-time marketing data about how its products are selling. By carefully monitoring the supply chain, the 7-Eleven value net ensures that hot selling products can be delivered overnight, allowing the franchisees to operate lean. 7-Eleven does not need to own physical distribution centers. It outsources that function, using the information about what is selling to know which products to stock and at what frequency. By continually improving its operation, 7-Eleven stays ahead of competition.

Services Operations Management

SIBM Bangalore

Value Net Integrator Model The 7-eleven Japan have a number of ways for gathering information what customer wants at the right time. Customer orders are taken at : 1) Kiosks in Konbini outlets 2) Konbini websites 3) Mobile portals. Data collected from these channels are synthesized in a central office and various orders are grouped and placed as required to different suppliers and allies. So the 7-eleven model collects, synthesizes and distributes information effectively so that it overcame space crunch issues, avoided extra stocking and additional inventory costs. Also, central data processing helped the organization to effectively plan their distribution pattern in the existing distribution network, increasing its efficiency. Adaptation of technology and movement to value net integrator model helped the firm to expand the product range and helped diversion into goods which wasnt expected to be sold on convenience stores. High wireless penetration was also effectively used by the form to collect information from customer at times of their convenience.

Services Operations Management

SIBM Bangalore

Q2. Does the 7-eleven Japan distribution system exhibit scalability economies? Scalability is a characteristic of a model or function that describes its capability to cope and perform under an increased or expanding workload. A system that scales well will be able to maintain or even increase its level of performance or efficiency when tested by larger operational demands. It is the ability of a firm to increase contribution margins as it grows. To achieve this, revenue should increase and variable costs should decrease. Due to the nature of the online model of 7-eleven, its near to impossible to achieve infinite scalability. Since its a retail outlet, the supporting infrastructure has to be upgraded with growth of users, hosted content, of network bandwidth etc. Load scalability is a more specific term which refers to a systems ability to either grow or shrink depending on the demand. On the other hand, a geographically scalable system is able to function despite changes in location. So, there will be an increase in call center order processing costs, shipping and warehousing charges etc. added with each customer for 7-eleven. But it can be scalable over a long term as opposed to traditional model because: 1) Low inventory and stock required 2) Cultural traits in Japan are in advantage of this business model and hence would definitely contribute to revenue growth. 3) Outsourcing of IT operations and backend processing can further reduce variable costs per customer 4) Effective use of existing distribution channels and networks. 5) Growth of wireless connectivity means some investment on future physical shops can be re-directed to other areas. ---------------------------------------------------------------------------------------------------------------------

Services Operations Management

SIBM Bangalore

Q3. How does the 7-eleven example of B2C commerce in Japan illustrate impact of culture in service system design? Following are the important culture attributes which contributed to the success of the 7-eleven models in Japan: 1) Low space Huge sprawling shops are definitely a luxury in a country where available land itself is severely limited. Japanese are used to smaller convenient stores that sprawling supermarkets. 2) Shop daily - Most Japanese people shop daily for provisions needed for the nights supper. 3) Japanese are not car-mobile as in US and spend a lot of time in public transportation, like in metros. This again is a plus point for the value net integrator model since this time can be spent by customer on deciding what to buy, via internet or mobile apps from his favorite or convenient stores in the area. 4) No direct delivery required as in the case of US or Europe since the Japanese dont tend to use cars and walk home from bus or train stations. So they can pick up the goods on their way home from the Konbini rather than the firm investing on the highly expensive and volatile last mile distribution networks. 5) Low credit card usage rate in Japan has been addresses by alternate payment methods. The success of 7-eleven model primarily goes by taking the advantage of the cultural traits of Japan and the service delivery system suitably designed to the population. ---------------------------------------------------------------------------------------------------------------------

Services Operations Management

SIBM Bangalore

Q4. Will the 7-eleven Konbini and Mobile system be adopted in the United States? Japan and United States are two culturally & geographically different countries. One factor in 7-Eleven Japans success in Japans crowded living conditions. Real estate is costly, homes are small and storage space is at a premium. Thus most Japanese people shop daily for provisions needed for the nights supper. Often such shopping is done on the way home from work. Since the vast majority use public commuter transportation, the daily shopping trip is likely made by walking to a local convenience store, such as 7-Eleven. That explains, perhaps why convenience stores are so popular in Japan. For that matter, United States is culturally different and is spread over a vast land and the storage space is comparatively not so premium. United States consumer attitudes are different and may not favorably react to picking up ordered items themselves from a shop, and they would certainly look for options like home delivery. Also, good majority of US is still car-mobile and building up such a model of pickup will need huge investments like car parks, killing the competitive advantage of the model in Japan. Hence the 7-eleven Konbini and Mobile system cannot be adopted in the United States. ---------------------------------------------------------------------------------------------------------------------

Services Operations Management

SIBM Bangalore

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