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Special Issue
WWD Sourcing Horizons issue 03/18/2008

What can Seven-Eleven Japan teach the fashion industry?

This story first appeared in the March 18, 2008 issue of WWD. Subscribe Today.

A lot, when it comes to how supply chains and sales information, used intelligently, can rev up a business, said Stanford University professor Hau Lee, who offered insight in fast-food mode.

The convenience store was just one example of how apparel brands and retailers can learn from firms that sell everything from fresh food to computer games, but have similar supply chains.

“We are dominated by three major drivers,” said Lee, the Thoma professor of operations, information and technology at the university’s Graduate School of Business. “The three drivers that make life difficult, and some of you are losing hair because of that.”

These drivers are: increasing uncertainties in demand and supply, changes in technology and markets and the need to partner with companies along the supply chain.

On that last point, Lee said: “Very few companies are totally integrated vertically. You need your partners — you need your supply partners, your manufacturing partners, your logistics partners, your retail channel partners — and we are depending on all these partners, but these partners have different interests.”

To meet these challenges, Lee said companies must be agile and adaptive enough to deal with changes.

Seven-Eleven Japan manages to pull in sales of about $23 billion annually by reacting to who is in their stores and when, he said.

“They are just a responsive company,” said Lee. “They master information knowledge, knowing what people want and they build their logistics system. They deliver three times a day, they change their shelves because their stores are so small.”

By knowing what school kids want in the morning, what housewives want in the afternoon and what their husbands pick up on their way home from work, the company became the country’s number-one seller of fast food, batteries and pantyhose.

In the case of pantyhose, careful research kept the retailer from making a misstep, said Lee.

As sales of pantyhose rose, executives considered expanding the high-margin cosmetics area, but by recording who was buying what, they realized that it was middle-aged men on their way home from work who were buying up stock, no doubt for their wives at home.

Accordingly, Seven-Eleven moved the pantyhose closer to the beer section.

“Agility is about smart information,” said Lee.

He also preached diversity, noting supply chains can be broadly understood by answering two questions: Is the production done by the company or outsourced and are the goods made near the market or far away?

“First question is, ‘Are you on or are you off?’ [and the] second question is, ‘Are you in or are you out?'” he said.

In the case of Crocs, the successful shoe company, the answer is ‘Yes,’ since they do a bit of each in both cases.

“This combination strategy is a powerful one,” said Lee. “You do not want to have a one-size-fits-all supply chain.”

Supply chains, he said are like people and have two personality types.

Type A is responsive and flexible, but costs more.

Type B is cheaper, but may be slower.

“So what you do is combine the two,” he said, noting successful companies have a bit of each.

“Why? Because they want to have their cake and eat it, too,” said Lee. “They want to have the cost efficiency and they want to have flexibility, responsiveness and speed.”