This document discusses 7-Eleven's adoption of capability sourcing to improve its strategic position. It outlines how 7-Eleven evaluated its functions and outsourced capabilities like distribution, procurement, and data analysis to specialized partners. This reduced costs while maintaining control over important strategic capabilities. Partnerships with companies like Frito-Lay, Hershey, and Anheuser-Busch helped 7-Eleven develop new products and better target customers. Through dynamic capability sourcing, 7-Eleven cut costs, improved quality, and gained a competitive advantage.

1. Sunayan Saurav

2. OVERVIEW Outsourcing (sophisticated ) in core functions Engineering, R&D, manufacturing & marketing Migrating from a vertically integrated company to a specialized provider of a single function is not a winning strategy for everyone Rigorously assess each of their functions, determine in which they have sufficient scale & differentiated skills or not. It’s no longer ownership of capabilities that matters but rather a company’s ability to control and make the most of critical capabilities. capability sourcing : how to source every single activity in the value chain

3. Greater focus on capability sourcing can improve a company’s strategic position Reducing costs Streamlining the organization Improving quality Finding more-qualified partners to provide critical functions Allows companies to enhance the core capabilities Drive competitive advantage in their industries. The reason these efforts often fail to met up to expectations Companies continue to make sourcing decisions on a piecemeal basis. No hard numbers against potential value of capability sourcing Slow to develop a comprehensive sourcing strategy that will keep them competitive in a global economy To realize the full potential of sourcing: companies must forget the old peripheral and tactical view make capability sourcing a core strategic function

4. The Changing Basis of Competitive Advantage

5. 7-Eleven : Scenario Introduction Present Condition Market was getting very competitive, pressure on both revenue & margin 7-Eleven needed to cut its operating costs substantially, expand the range of its products and services, increase the freshness of food items. 7-Eleven had always been vertically integrated, controlling most of the activities in its value chain

6. Capability Sourcing at 7-Eleven 7-Eleven learn from the highly successful Japanese unit, whose keiretsu model of tight partnerships with suppliers was unique within. 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 reduce their costs and enhance the quality of their operations spurring rapid growth Strong profits. Evaluated strategic functions such as product distribution, advertising, & procurement, identify outside partners with greater expertise &scale If a partner could provide a capability more effectively than 7-Eleven could itself, then that capability became a candidate for outsourcing. The way 7-Eleven has structured each partnership depends on how important each function is to the company’s competitivedistinctiveness. For routine capabilities (benefits administration & accounts payable) picks providers that can consistently fulfill cost &quality requirements. More strategic capabilities require more complex arrangements.

7. Capability Sourcing at 7-Eleven 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. 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. 7-Elevens minesits extensive data on local customer purchasing patterns to make those decisions on a store-by-store basis. 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 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. 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.

8. Capability Sourcing at 7-Eleven 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. American Express supplies ATM functions, Western Union handles money wires, and Cash Works furnishes check cashing capabilities. EDS integrates the technical functions of the kiosks. 7-Eleven share productivity gains from a services agreement with Hewlett-Packard. 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. Outcome 7-Eleven cut its distribution costs from 15% of revenues to 10% 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.

9. Measure of success Strategically vital set of capabilities—in-store merchandising, pricing, ordering, and Customer data analysis Reduced its capital assets & overhead while streamlining its organization. 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.

10. A Framework for Capability Sourcing Stop focusing on incremental cost improvement targets. Step back and reevaluate your strategy and your capabilities.

11. What should you outsourced ?

12. How Strong are your capability ?

13. The Endgame: Dynamic Sourcing Asourcing strategy needs to consider not only present circumstances but also future alternative scenarios What trends will influence the sourcing options available for each key capability? Is the supplier base growing rapidly, and are innovative new outsourcers emerging? 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? A company’s skill in quickly remolding its sourcing arrangements in response to market conditions and rivals’ moves may be its strongest competitive advantage.