Business Transformation Moves Forward
Almost four years ago 7-Eleven started talking about a managed distribution model that would transform the way products are delivered to our stores. 7-Eleven was looking to address a number of supply chain issues to improve delivery methods and cost of goods. High gas prices, less frequent deliveries from some of our largest vendors, a high percentage of out-of-stocks, parking lots full of delivery trucks taking up customer parking, and vendors delivering during peak business hours all were topics of discussion from the beginning.
To solve these issues 7-Eleven made a commitment to simpler store ordering, to streamlined check-in and self-billing, to delivering top sellers more frequently, and to reducing the total number of deliveries (gas costs also have a high impact on item pricing). This involved improved forecasting, reducing the number of out-of stocks, but more importantly, to implementing a perpetual inventory system that delivers by-item inventory controls. The promise to franchisees was faster, just-in-time inventory, easier tracking of all items, and an increase in sales and profits.
What we now call Business Transformation has been rolled out to almost 27 percent of 7-Eleven’s stores—769 stores in Greater Los Angeles under a model known as the LA Pilot, which has been operating for more than three years, and to 1,245 stores in Texas and Florida, known as the Hybrid model, in operation for the last two years.
In the LA Pilot model, products from McLane and most of our traditional DSD vendors, including soda and all heavy liquids, are delivered together, on one truck, twice per week. Stores receive an increase in gross margin to offset the cost of additional labor required to put away merchandise normally handled by DSD vendors. The result is fewer but consolidated deliveries, a consistent delivery process across all stores, fast electronic check-in, and higher GP percent (for labor). There is also limited access to Store Supported Items (SSIs), and vendors do not always meet agreed-to merchandising service levels.
In the Hybrid BT model, all products through McLane are delivered the same as the LA Pilot, but the current DSD vendors continue to deliver to the stores. Franchisees still receive the enhanced inventory management functions, like faster check-in and other inventory controls, but receive one or more additional deliveries each week and full access to all SSIs from DSD vendors, plus stock rotation and display assistance. This method requires that all DSD drivers be trained in BT check-in processes, and deliveries must be coordinated with McLane delivery calendars.
In both models merchandise is self-billing, which means that creating an order creates an automatic invoice. Inventory management functions are greatly improved and stores are better able to account for inventory by-item. All BT areas have seen back room inventory reductions, reduced inventory variation, and a reduction in out-of-stocks.
At the most recent NCASEF Board meeting in May, franchisees from Texas commented that the BT Hybrid “has far exceeded the pros and cons in our area.” Franchisees in Greater LA have said that the BT model is “incredibly valuable,” and “the extra gross profit is a welcome addition to their income.” Some LA Pilot franchisees have also mentioned the additional labor and payroll expense, and some have had to add an employee on the night shift.
Throughout the development of the BT Hybrid, NCASEF officers and Greater LA franchisees met separately and together with corporate BT managers some 15 times to review the progress of the LA model, and to consolidate feedback from franchisees in the field. We are happy that the Hybrid model has been developed, and that 7-Eleven has responded to our feedback.
While 7-Eleven has yet to decide which model will roll out throughout the country, or how many stores will receive BT in 2013, at our May Board meeting the SEI BT team presentation included a training timeline of 16 weeks to ready stores, from a BT kickoff meeting to going live and receiving deliveries using ECI, inventory management training, and then more refined training to maximize profits.
Armed with the results of the LA Pilot and the Hybrid Model, input from local FOAs, franchisees, and the National Coalition, 7-Eleven is now in the process of developing a BT rollout schedule for the rest of the country. With BT already implemented in more than 2,000 stores across four zones and three states—we can only expect that by the end of 2015 all stores will see some form of business transformation.