Demanding More
Japan's Seven-Eleven stores up sales with tanpin kanri.
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While good news out of Japan these days is rarer than sashimi, a flavor of demand chain management (DCM), pioneered by Seven-Eleven Japan, is proving to be a world-class model of customer-centric retailing. The practice, called tanpin kanri or "management by single product," is an approach to merchandising that considers demand on a store-by-store and product-by-product basis. Essentially, it empowers store-level retail clerks to tweak suggested assortments and order quantities based on their own educated hypotheses of how things such as the neighborhood, weather, a local school soccer game, time of day, advertising or other immediate and local factors will impact real demand.

The idea is that even stores with similar customer demographics have unique factors that influence an item's sales and therefore require a more local approach to assortment planning and forecasting. The more granular the forecasts, the more accurately each store can stock the right products at the right times and in the right quantities to suit those unique customer demands. The result of such attention is higher profit as stores are not only left with fewer write-offs from unwanted merchandise but also higher sales and better loyalty from pulling merchandise into the store that customers do want. As proof, Seven-Eleven Japan is now the largest retailer in Japan and enjoys the highest profits per square foot in the country.

An important component of the process is a new generation of support technology that enables the store to access information on products, merchandising, advertising, local events and so on, as well as to place orders from the sales floor, or "purchase floor" as Seven-Eleven calls it. State-of-the-art handheld terminals with color touch screens provide all of the relevant information and communication capabilities.

Now tanpin kanri is crossing the Pacific as a tool for U.S. retailers looking to focus more on the store and pay more than just lip service to DCM. The first stop was at Seven-Eleven Hawaii (a subsidiary of the Japanese chain). While there was initially some debate whether American part-time employees could perform as well as their typically college-educated counterparts in Japan, tanpin kanri worked in translation.

Beginning with a test in the potato chip category, the Hawaiian convenience store franchise took control of the ordering, assortment, number of facings and new product introductions from Frito Lay. Previously, the vendor rarely dropped items no one was buying, and store employees paid little or no attention to stock conditions simply because it was not their responsibility. Yet by applying tanpin kanri to reduce out-of-stocks and make the category more friendly to local stores and local consumers, stores were able to boost profits by as much as 10 percent and inventory turns by a remarkable 40 percent.

Currently the sophisticated technology is available to American retailers through DCM Solutions, an Irving, Texas-based subsidiary of NEC, which helped develop the system for Seven-Eleven Japan.

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