Swot Analysis For Costco
Team SC^2 Sunny Jain Vikram Kaledhonkar Eva Lo Eileen Long Olena Marchenko
Costco Wholesale Operations and Supply Management OMIS 357 (Fall’09)
Agenda
• • • • • • • Background and Business Model Processes and Queues Management Supply Chain Strategy Quality Control Inventory Management Recommendations Q&A
Background
• • • • Headquartered in Issaquah, WA 550 warehouses in 40 states Present in 6 countries outside US $71B revenue in 2008
1993: merged with PriceClub: PriceCostco (206 locations) 1998: Costco.com 1999: Costco wholesale 2009: 417 worldwide. 7th largest retailer in world, fortune 500
1975
1980
1985
1990
1995
2000
2005
2010
1976: 1st PriceClub warehouse
1983: 1st Costco warehouse
1996: PriceCostco to Costco companies Inc.
2003: 24 new warehouses
Corporate strategy
Business Model
• Three fold model
– Sales of Goods
• 5 major categories
– Memberships
• Goldstar, Business and executive • 87% renewal rate in Goldstar • 98% renewal rate in executive
– Ancillary services
• Gas, pharmacy, photo, hearing aid, food, optical
Processes
• Overall product flow diagram • Make-to-Stock • Cost advantage: warehouse = buffer + retail
Costco Warehouse Buffer Customer places order
Supplier Vendor Goods
Costco Depot
Deliver
Distribute
Costco Warehouse Customer places order
Buffer
Deliver
Processes
• Product flow within warehouse
Costco Depot Goods
Warehouse
Customer
Arrival by Truck
Stock/Shelve
Sell
Inventory Measurement
Feedback
Queues
• Customer order flow and queue control • Multichannel, single phase & single channel, single phase; Members/hour statistics
Queue
Enter Store
Shop around
Queue
Queue
Queue
Customer Service
Checkout
Photo / pickup
Queue
Exit
Supply Chain System
Services Capacity Management
• • • • 75000 full time employees 62000 contract based employees Seasonal demand Resource budget as a fixed percentage of revenue • Complete authority to store manager
Quality Control
• “Not cheap goods, but quality goods at a cheap price” • Design quality • Quality of conformance • Quality at source • Customer service quality – Lifetime return guarantee
Inventory Management
• Computer system is used to share inventory information between corporate/regional offices and warehouses. • Inventory is replenished based on inventory information in the computer system
Inventory Management
Push inventory system: Corporate office = > Warehouses However: warehouse managers are encouraged to bring 5 local vendors a year warehouse managers can request additional quantities of the products (Ex. during the holidays)
Inventory Management
• • • • Just in Time Inventory Try to turn products as fast as possible “Goal is never to be over or under stock” Very high turns :
– For perishable items, 35 times a year. – Inventory turnover ratio is 11.9 (compared to industry average 7.6)
Inventory Management
• Safety stock determined by corporate/ regional office • No statistical methods used to determine safety stock, just transaction history information • S.S. based on calculation of a minimum display and on minimum of volume
Recommendations
• Services and Products
– Increase product and service offerings
• Organic and sustainable foods • Green services like electronics recycling • Locally grown and made products
Recommendations
• Supply Chain
– Apply computer automation – RFID – Inventory levels
• Apply stocking out statistical models • Adjust target average inventory for marketing
– Vendor systems
• Negotiate best payment terms • Vendor managed inventory
– Apply queuing theory and models
Questions?
Costco Wholesale Operations and Supply Management OMIS 357 (Fall’09)
Agenda
• • • • • • • Background and Business Model Processes and Queues Management Supply Chain Strategy Quality Control Inventory Management Recommendations Q&A
Background
• • • • Headquartered in Issaquah, WA 550 warehouses in 40 states Present in 6 countries outside US $71B revenue in 2008
1993: merged with PriceClub: PriceCostco (206 locations) 1998: Costco.com 1999: Costco wholesale 2009: 417 worldwide. 7th largest retailer in world, fortune 500
1975
1980
1985
1990
1995
2000
2005
2010
1976: 1st PriceClub warehouse
1983: 1st Costco warehouse
1996: PriceCostco to Costco companies Inc.
2003: 24 new warehouses
Corporate strategy
Business Model
• Three fold model
– Sales of Goods
• 5 major categories
– Memberships
• Goldstar, Business and executive • 87% renewal rate in Goldstar • 98% renewal rate in executive
– Ancillary services
• Gas, pharmacy, photo, hearing aid, food, optical
Processes
• Overall product flow diagram • Make-to-Stock • Cost advantage: warehouse = buffer + retail
Costco Warehouse Buffer Customer places order
Supplier Vendor Goods
Costco Depot
Deliver
Distribute
Costco Warehouse Customer places order
Buffer
Deliver
Processes
• Product flow within warehouse
Costco Depot Goods
Warehouse
Customer
Arrival by Truck
Stock/Shelve
Sell
Inventory Measurement
Feedback
Queues
• Customer order flow and queue control • Multichannel, single phase & single channel, single phase; Members/hour statistics
Queue
Enter Store
Shop around
Queue
Queue
Queue
Customer Service
Checkout
Photo / pickup
Queue
Exit
Supply Chain System
Services Capacity Management
• • • • 75000 full time employees 62000 contract based employees Seasonal demand Resource budget as a fixed percentage of revenue • Complete authority to store manager
Quality Control
• “Not cheap goods, but quality goods at a cheap price” • Design quality • Quality of conformance • Quality at source • Customer service quality – Lifetime return guarantee
Inventory Management
• Computer system is used to share inventory information between corporate/regional offices and warehouses. • Inventory is replenished based on inventory information in the computer system
Inventory Management
Push inventory system: Corporate office = > Warehouses However: warehouse managers are encouraged to bring 5 local vendors a year warehouse managers can request additional quantities of the products (Ex. during the holidays)
Inventory Management
• • • • Just in Time Inventory Try to turn products as fast as possible “Goal is never to be over or under stock” Very high turns :
– For perishable items, 35 times a year. – Inventory turnover ratio is 11.9 (compared to industry average 7.6)
Inventory Management
• Safety stock determined by corporate/ regional office • No statistical methods used to determine safety stock, just transaction history information • S.S. based on calculation of a minimum display and on minimum of volume
Recommendations
• Services and Products
– Increase product and service offerings
• Organic and sustainable foods • Green services like electronics recycling • Locally grown and made products
Recommendations
• Supply Chain
– Apply computer automation – RFID – Inventory levels
• Apply stocking out statistical models • Adjust target average inventory for marketing
– Vendor systems
• Negotiate best payment terms • Vendor managed inventory
– Apply queuing theory and models
Questions?