Costco Wholesale, Inside the Warehouse Giant - Essay Example

Costco Crazy: Inside the warehouse giant Costco Costco is an association warehouse club that strives to give its members the best prices on some merchandise. The company provides selected merchandise, and the expediency of departments and member services that are designed to make the experience of shopping a satisfying one. Costco first business started in 1976 by the name Price Club in San Diego. The company initially served small businesses (Costco Wholesale, 2014). It later discovered that it could obtain greater buying power by serving an audience of non-business members. In 1983, Costco’s first warehouse was opened in Seattle. It merged with Price Club in 1993. The company’s headquarters is found in Issaquah, Washington. Costco is the worlds biggest warehouse club chain in terms of sales. Costco boasts of about 142,000 employees. Costco Business strategy The company’s business model is attractive since it has continually sold to a niche market. The niche market has an income that exceeds $75,000 in a year. Since the company offers products at lower prices, it has its members return. At the present, about 50,000,000 cardholders include Business member, Primary cardholders, Executive members, and Add-on cardholders. The company has offered popular products to have a fast turnover. Costco has shown that their business strategy has managed to work by producing highest net sale. Costcos approach is to present a low price, to offer a narrow selection, and a have a good shopping environment. It has provided significant cost savings to members and has the members continue returning (Costco Wholesale, (2014). Some retail stores and supermarket have stocks of between 40,000 and 150,000 products for consumers to choose. However, Costco provides members with only 4,000 products to choose. Costco provides many popular that are popular in the market. Costco supply chain A supply chain can be described as a system of people, organizations, information, activities, and resources that are involved in moving products from suppliers to customers. The Costco supply chain is: Suppliers------Warehouses-------Costco Depot-------Customers. The company conducts suppliers for the goods it wants. The suppliers deliver goods to warehouses. After the products are kept in warehouses, they are delivered into departments. Then customers buy the products. Many companies are increasingly using the internet to reduce the amount of time to be used in the process of supplying goods. Costco buys its merchandise from different domestic and foreign importers and manufacturers. Costco has many vendor relationships. The company’s forte is its unchallenged purity of operation. The company prunes all, but the most crucial volume-driving products and obtains them crammed in the form of palettes. A strict focus has permitted the wholesaler to normalize a fast cross docking in its distribution centers. 75% of the company’s goods are cross-docked thus spending about nine hours in a supply center. For the remaining 25%, distributors deliver them directly to stores. These remaining products include fast-selling bulk goods such as soda and potato chips. SPS Commerce, a Supply Chain Integration Service (SCIS) supplier, gives suite of integrated services of SPS to Costco suppliers. The wholesale company will use the hosted Internet service in conducting electronic commerce with its network of suppliers. By using Commerce Vendor Enablement Services (CVES), Costco will make use of a confirmed formula for executing victorious enablement and management of community that emphasizes best practices, and not just technology. With the help of Commerce`s online services, SPSCommerce.net, it allows for electronic processing and storage of orders in a quick and accurate manner. Costco and suppliers get higher administrative efficiency, reduced shared expenses and improved system accountability. Costco also plans to implement i2 Technologies Inc. solutions, in order to help achieve good performance while bringing down distribution and transportation costs across its transportation network. Costco targets to deliver its items more efficiently across the distribution network. The company aims to leverage FreightMatrix solutions of i2 in order to institute a framework for optimizing its American network of transport leveraging leading decision support abilities from i2. Using these solutions, the company will join forces with carriers to allow for an inventive transportation procurement process. In addition, Costco can allow strategic modeling and other analysis capabilities to apportion the carrier base to definite lane volumes, and balancing service level requirements and costs. Costco has a focus on selling their products at low prices, and at high volume. The goods are packaged in bulk and promoted to large businesses and families. Additionally, the company does not deal with many brands where the product is in essence the same, except in situations where it has a brand to sell under the label of Kirkland Signature. The strategy results in increased sales from a vendor, allowing reductions in price and marketing costs. If the companys management sense that the price of an item is too high, the management will decline to stock that product. For example, in 2009, Costco confirmed that it would cease selling Coca-Cola products since the soft-drink company refused to reduce its wholesale prices. However, the company later resumed selling the products of Coca-Cola. Costco saves money by not having packing materials. To carry their goods, customers carry their own bags from the companys vendors. In the center of the company’s strategy, it sells a limited amount of products in less variety to maintain low cost and depend on high volume of sales. Unlike its competitors, the company pays its employees well. One of the main uniqueness and power is that it sells membership to customers that generate fixed revenue each year and also increase the loyalty of brand and customers’ loyalty towards the company. Costco advertises its products less often, therefore, it reduces the cost by 2% every year (Valladolid, 2008 One of the Costco’s important factors is the pricing strategy. The company has a unique mechanism that helps it keep the price of its products lower than competitors, and still manage to pay 48% higher wages to its employees than their main competitors that include Wal-Mart. The companys membership is growing, and it can maintain its customers. The company makes every effort to retain its customers. Costco has very unbelievable return policies available to attract new customers and retain the existing customers. Additionally, the company tries to get the best value for every product it sells in its stores. For example, Costco has many packet boxes of Splenda-sugar free sweetener. It engages in larger packages since it believes that larger package gives better value and saving costs to their customers. The company applies other strategies to attain corporate-wide cost leadership strategies. For instance, in order to achieve price leadership, the company reduces handling costs and storage cost. The company upholds in-stock positions without necessarily being overstocked; the company uses just-in-time principles as it orders merchandise in order to reduce the inventory cost, keep good value pack products to enable lower prices through buying in volumes, reduction of expenses and low gross margins (Valladolid, 2008). Additionally, Costco does not spend much money in advertising. The company uses the word of mouth advertisements for marketing, which is one of the cheapest ways to market and also the most effective way of advertisement. The company’s mission statement is to get focused on bringing quality products and services to its customers at the lowest prices each day, and perform it with integrity at each level while valuing the stakeholders’ interests. Costco’s mission statement is well known throughout the company by employees and the management. The company offers its customers at lower prices on a limited selection of branded products in many merchandise categories. Families and businesses can depend on Costco to provide high quality goods every day at low prices. Fast inventory turnover, higher sales volume, leveraging a proficient operating structure, low handling of products, and making it a low cost player in the retail are key pillars that make Costco so much more successful. Conclusion With the use of the internet and modern technology, the supply chain is now very easy and fast. Costco has managed to enjoy a good relationship with its suppliers and this has played a big role to ensure a continuous supply. The company also sells its products at a lower price compared to its competitors. Lower prices are made possible by obtaining products at lower prices and by minimizing expenses. References Costco Wholesale. (2014). Company profile. Retrieved from April 17, 2014 from http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-homeprofile Costco Crazy: Inside the warehouse giant. Retrieved from April 17, 2014 frohttp://www.youtube.com/watch?v=wOwJ4PXt3GM Valladolid, D. (2008). Supply chain management. Retrieved on 23rd April 23, 2014 from http://team4costco.blogspot.com/2008/04/supply-chain-management.html. Read More