From Periphery To Core 7 11

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Strategic sourcing in 7 eleven

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From Periphery To Core 7 11

  1. 1. Sunayan<br />Saurav<br />
  2. 2. OVERVIEW<br />Outsourcing (sophisticated ) in core functions<br />Engineering, R&D, manufacturing & marketing<br />Migrating from a vertically integrated company to a specialized provider of a single function is not a winning strategy for everyone<br />Rigorously assess each of their functions, determine in which they have sufficient scale &<br />differentiated skills or not.<br />It’s no longer ownership of capabilities that matters but rather a company’s ability to control and make the most of critical capabilities.<br />capability sourcing : how to source every single activity in the value chain<br />
  3. 3. Greater focus on capability sourcing can <br />improve a company’s strategic position<br />Reducing costs<br />Streamlining the organization<br />Improving quality<br />Finding more-qualified partners to provide critical functions<br />Allows companies to enhance the core capabilities<br />Drive competitive advantage in their industries.<br />The reason these efforts often fail to met up to expectations<br />Companies continue to make sourcing decisions on a piecemeal basis. <br />No hard numbers against potential value of capability sourcing<br />Slow to develop a comprehensive sourcing strategy that will keep them competitive in a global economy<br />To realize the full potential of sourcing: <br />companies must forget the old peripheral and tactical<br />view make capability sourcing a core strategic function<br />
  4. 4. The Changing Basis of Competitive Advantage<br />
  5. 5. 7-Eleven : Scenario Introduction<br />Present Condition<br />Market was getting very competitive, pressure on both revenue & margin<br />7-Eleven needed to cut its operating costs substantially, expand the range of its products and services, increase the freshness of food items.<br />7-Eleven had always been vertically integrated, controlling most of the activities in its value chain<br />
  6. 6. Capability Sourcing at 7-Eleven<br />7-Eleven learn from the highly successful Japanese unit, whose keiretsu model of tight partnerships with suppliers was unique within.<br />By relying on an extensive and carefully managed web of suppliers to carry out many day-to-day functions, the Japanese stores were able to <br />reduce their costs and <br />enhance the quality of their operations<br />spurring rapid growth<br />Strong profits.<br />Evaluated strategic functions such as product distribution, advertising, & procurement, identify outside partners with greater expertise &scale<br />If a partner could provide a capability more effectively than 7-Eleven could itself, then that capability became a candidate for outsourcing.<br />The way 7-Eleven has structured each partnership depends on how important each function is to the company’s competitivedistinctiveness.<br />For routine capabilities (benefits administration & accounts payable) picks providers that can consistently fulfill cost &quality requirements. <br />More strategic capabilities require more complex arrangements.<br />
  7. 7. Capability Sourcing at 7-Eleven<br />Gasoline retailing: important source of revenue for 7-Elevens. It outsources gasoline distribution to Citgo, it maintains proprietary control over gas pricing and promotion—activities that could differentiate 7-Elevens stores.<br />Frito-Lay: distribute its products directly to the stores. 7-Eleven has been able to take advantage of the chip maker’s vast warehousing and transport system. 7-Eleven doesn’t allow Frito-Lay to make critical decisions about order quantities or shelf placement.<br />7-Elevens minesits extensive data on local customer purchasing patterns to make those decisions on a store-by-store basis.<br />IRI maintain and format detailed customer purchasing behavior data while keeping the data themselves proprietary. This gives 7-Eleven a picture of the mix of products its customers want in different locations without relying on outside decision makers like Frito-Lay for such information<br />Do-it-yourself approach to creating branded products was not of the superior scale, 7-Eleven worked with Hershey to develop an edible straw based on the candy maker’s popular Twizzler treat. In return, Hershey gave 7-Eleven the exclusive right to sell the straw for first 90 days on the market.<br />When the data on beer sales showed that certain packaging options were more successful than others, 7-Eleven partnership with Anheuser-Busch to build sales in those categories. Anheuser-Busch helped 7-Eleven develop a product assortment & establish merchandising standards for a new display.<br />
  8. 8. Capability Sourcing at 7-Eleven<br />The beer giant (Anheuser-Busch) (gave 7-Eleven first-look opportunities at new products. In return, 7-Eleven shares its customer information , together the two companies can develop innovative marketing programs, such as a cobranded NASCAR promotion targeting 7-Eleven’s core customers and a Major League Baseball promotion campaign.<br />American Express supplies ATM functions, Western Union handles money wires, and Cash Works furnishes check cashing capabilities.<br />EDS integrates the technical functions of the kiosks.<br />7-Eleven share productivity gains from a services agreement with Hewlett-Packard.<br />7-Elevens created a joint venture with prepared-foods distributor E.A. Sween:Combined Distribution Centers (CDC) is a direct-store delivery operation that supplies 7-Elevens with sandwiches and other fresh goods.<br />Outcome<br />7-Eleven cut its distribution costs from 15% of revenues to 10%<br />When it owned its own distribution network, 7-Eleven delivered fresh goods to its stores only a couple of times a week. CDC now makes deliveries to stores once, and soon twice, a day. More frequent deliveries mean fresher products, which draw more customers into the stores.<br />
  9. 9. Measure of success<br />Strategically vital set of capabilities—in-store merchandising, pricing, ordering, and Customer data analysis<br />Reduced its capital assets & overhead while streamlining its organization. <br />Reduced head count 28% from 43,000 in 1991 to 31,000 in 2003 and flattened its organizational structure, cutting managerial levels in half from 12 to six.<br />
  10. 10. A Framework for Capability Sourcing<br />Stop focusing on incremental cost improvement targets. <br />Step back and reevaluate your strategy and your capabilities.<br />
  11. 11. What should you outsourced ?<br />
  12. 12. How Strong are your capability ?<br />
  13. 13. The Endgame: Dynamic Sourcing<br />Asourcing strategy needs to consider not only present circumstances but also future alternative scenarios<br />What trends will influence the sourcing options available for each key capability? <br />Is the supplier base growing rapidly, and are innovative new outsourcers emerging? <br />Are different regions of the world investing heavily in particular capabilities— like contract manufacturing or customer service—and will they offer greater cost or quality advantages in the future?<br />A company’s skill in quickly remolding its sourcing arrangements in response to market conditions and rivals’ moves may be its strongest competitive advantage.<br />

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