Choosing manufacturing over distribution: the make-and-sell model (2000)

Dropping “distribution,” choosing “manufacturing”

The heart of this decision is that a single regional grocer stepped off “distribution” — the same ground as the giants — and built for itself a different ground, food manufacturing. In a distribution business where buying scale is decisive, the later and smaller the store, the greater its disadvantage. Rather than pile clever tactics onto a field he could not win, Shoji Numata remade the company into a system that held everything — raw materials, manufacturing, wholesaling and sales — in one company’s hands, so it could set prices itself. The early move of building an own factory in Dalian, China, back in 1992 when he was still a shopkeeper, is what underpinned the Gyomu Super that followed.

That said, holding manufacturing in-house also means bearing, entirely by oneself, the responsibility for plant utilisation, inventory and quality. Kobe Bussan has overcome the structure in which, if the goods don’t sell, the production equipment becomes dead weight — by way of low prices and fast turnover. Shoji Numata’s calculation, that growing sales with the same workforce thins out cost per head, meshed with the spread of the store network under the franchise model. How far the choice to put manufacturing, not distribution, at the centre of competition can climb over the wall of scale — that question is handed on to the second generation’s management.