Costco business model at a glance. Costco’s business model and business strategy can be summarized as a selection of high-quality items that get sold in bulk-sized in warehouses around the US and Canada primarily. With a substantial part of its business focused on selling merchandise at the low profit-margin, Costco also has about fifty million members that each year guarantee to the. Aug 03, 2017 I’ve spoken with Jim Sinegal, Costco’s co-founder and CEO from 1983 to 2011, and interacted with Ryan Watkins, a young Costco warehouse manager across the country in Oregon.
Costco Wholesale Corporation maintains its position as the second biggest retailer in the world through successful operations management (OM). The 10 strategic decisions of operations management tackle the operational concerns in various areas of the business. Costco has different operations management practices based on varying market conditions around the world. However, Costco has developed standards and policies for operations management throughout the organization in general. As such, Costco’s standardization helps ensure consistency and a unified direction for operations management toward the long-term fulfillment of its mission and vision.
Costco Wholesale Corporation successfully applies the 10 strategic decisions of operations management in all of its business areas through standards and policies for efficiency and productivity, despite variations in market conditions.
Costco Wholesale’s Operations Management, 10 Decision Areas
1. Design of Goods and Services. Costco Wholesale’s products are retail service, optical services, photo center services, and insurance services, among others. In this strategic decision area of operations management, Costco’s aim is to achieve the highest possible quality even with low costs. This is especially true with the company’s Kirkland Signature brand.
2. Quality Management. In this decision area of operations management, Costco Wholesale’s strategy involves service quality control through HR training and development, as well as co-branding using the Kirkland Signature brand to indicate high quality. The Kirkland Signature is especially effective in establishing consistency in quality in all Costco warehouses/stores.
3. Process and Capacity Design. Costco’s processes emphasize speed and efficiency for maximum capacity. In this strategic decision area of operations management, the company’s main objective is to optimize cost-effectiveness. Costco Wholesale’s warehouse-style stores contribute to this objective. For example, pallets used in the stores maximize the efficiency of moving goods while ensuring capacity utilization of these Costco facilities.
4. Location Strategy. Costco Wholesale’s strategy for this decision area of operations management is to maximize market reach. This is achieved through warehouses that are located in or near urban centers. Most of Costco’s locations are in cities. This strategy enables the company to maintain high revenues per facility, thereby contributing to the organization’s continued profitability.
5. Layout Design and Strategy. Costco Wholesale uses the warehouse-style layout for its stores. The company’s goal in this strategic decision area of operations management is to minimize the use of extra spaces. Costco uses its warehouse-style stores as retail spaces doubling as storage spaces. In this way, the firm does not spend for extra storage space.
6. Job Design and Human Resources. Costco’s strategy in this decision area of operations management highlights fast-paced jobs as well as internal leadership development to promote employees. Costco’s objective is to motivate employees and reduce turnover. Through internal leadership development, the company develops most of its leaders from its current employees.
7. Supply Chain Management. Costco has a supplier diversification strategy for this decision area of operations management. However, the company’s supply chain management is focused on quality and low prices. As a result, Costco offers a limited array of products at its warehouses/stores. The company does not sell products with high bulk/wholesale prices.
8. Inventory Management. For this strategic decision area of operations management, Costco Wholesale Corporation ensures inventory efficiency by using warehouse-style stores as retail and storage spaces in one. Also, the company displays goods in their shipping pallets, instead of arranging individual items on shelves. In this way, Costco reduces inventory costs.
9. Scheduling. Costco’s scheduling approaches are comparable to those of other firms in the retail industry. 1973 johnson 6hp outboard motor repair manual. The company uses automated systems for scheduling most of its sales personnel, so that HR capacity utilization is maximized. In this strategic decision area of operations management, Costco Wholesale applies conventional strategies and tactics.
10. Maintenance. Costco has minimal maintenance costs for its facilities, considering that it uses warehouse-style stores. In this strategic decision area of operations management, Costco’s business model contributes to the ease of maintenance. Also, human resources are maintained through continuous hiring and a number of training and development programs to support Costco’s business needs.
Productivity at Costco Wholesale
Costco Wholesale Corporation’s measures for productivity are based on effectiveness and efficiency of retail service operations management. The following are some of the notable productivity criteria used at Costco:
Costco Employee Training And Development
- Revenue per square foot (Costco warehouse/store productivity)
- Stockout rate (inventory management productivity)
- Prints per day (Costco Photo Center productivity)
References
- Becker-Peth, M. (2012). Behavioral Supply Chain Contracting: Decision Biases in Behavioral Operations Management. Kolner Wissenschaftsverlag.
- Costco Wholesale Corporation Form 10-K, 2015.
- Kaki, A., Salo, A., & Talluri, S. (2013). Impact of the shape of demand distribution in decision models for operations management. Computers in Industry, 64(7), 765-775.
- Liu, S., & Jiang, M. (2011). Providing Efficient Decision Support for Green Operations Management: An Integrated Perspective. INTECH.
- Najdawi, M. K., Chung, Q. B., & Salaheldin, S. I. (2008). Expert systems for strategic planning in operations management: a framework for executive decisions. International Journal of Management and Decision Making, 9(3), 310-327.
- Verdaasdonk, P., & Wouters, M. (2001). A generic accounting model to support operations management decisions. Production Planning & Control, 12(6), 605-620.
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Costco Training Program For Employees
Organizations are in constant pursuit of increased profitability through cost reduction as this is a vital factor for competitive advantage and strategic positioning in the market. To ensure sustainable development of a business, an effective cost management strategy is required. A good cost management system allows companies to predict expenditures and prevent the risk of going over the budget. The main objective of cost management is to reduce costs while strengthening the strategic positioning of the firm.
Some organizations use cost management plans for specific projects or sometimes for the overall business model. The lack of cost management can affect profits and business processes to a large extent. To prevent such occurrences, advanced training in this field comes as an important part to be able to manage costs as well as invest efficiently for increased return on investment. Employers need to ensure that their staffs have the required skills for an effective cost management plan. This represents a key component of business operations to ensure that the overall budget is kept under control. A variety of subjects need to be taken into consideration when dealing with cost management training. For instance: the cost management training provided by Procurement Academy includes the core elements required to help in the successful deployment of a performing cost management strategy. Some of the topics covered consist of the following: introduction to strategic cost management for buyers, cost calculation, cost estimation, total cost of ownership and value analysis.
Delivered through application-based e-learning solutions, these courses can improve the performance of employees and allow them to have a broader understanding of cost management. Although traditional learning is an effective way for training employees, digital learning can prove to be equally effective due to its accessibility, practicality and flexibility. The training will ensure that employees acquire the necessary knowledge and skills in this field and apply what they are learning directly to their job. In this way, employees will be able to take the best decisions based on best practices, delivered through world-class training, as far as cost management is concerned. Since cost is a key element for the success of all businesses, cost management training can act as a catalyst to help in taking important measures and managing costs in the most professional and competent way, be it for the business as a whole or for a specific project.
Below are some main reasons why cost management training is essential:
Manage cost effectively
Cost management can lead to major benefits for an organization. A cost-effective process would help a business generate a large amount of savings every year. It also allows the effective use of resources for optimal results. Cost management involving the methodology of should-cost analysis can help an organization to determine the cost of different products and services. This type of analysis is used for purchases of all types, from commodities to capital equipment and new products.
The should-cost figure becomes a benchmark for whether a supplier quotation or bid is reasonable as well as for understanding potential improvement opportunities. This approach can be used to facilitate improvement both within the organization and with suppliers. Therefore, it increases the organization’s understanding of costs. It is used as a tool to work more closely with suppliers and to help support evaluation of other cost analysis approaches, external data and bids.
Measurement of performance
Cost management allows organizations to measure their performances through financial result that is through the size of its earnings. Through cost management, companies will be able to determine the two major factors which make up the value of the firm: Risk and Profitability. Financial decisions which increase the risk will reduce the value of the firm and on the other hand, financial decision which increases profitability enhances the value of the firm. At the end of the day, an effective cost management will allow organizations to make good financial decisions which either has an impact on risk or profitability.
Optimal Utilization of resources
With a performing cost management structure, organizations make optimal use of their resources. Effective cost management plays an important role in the maximum exploitation and utilization of the enterprise resources. A good utilization and control over financial resources is of great importance. It gives maximum returns by increasing the productivity of capital funds.
Effective project Cost management
Implementing a cost management structure for projects can help a business keep their over-all budget under control. Cost management for projects is one of the most important aspects to be considered when handling a project. It includes activities and tools allow the project to be completed within the approved budget. The 3 key processes to manage costs in project management are:
- Project cost estimating: When developing a cost estimate, you need to consider all of the resources that will be used by the project. For example: labor, materials, equipment, services and facilities.
- Project cost budgeting: Once you’ve estimated the costs for all of the project activities, you will have the information you need to create your project’s cost baseline. The approved cost baseline forms the budget for your project. The cost baseline for your project is made by combining the cost estimates of the individual activities over the life of the project. Your project’s expenditures will be measured against this baseline.
- Project cost control: After the approved budget and cost baseline, the project is ready to move into the execution phase. During the execution phase of a project, the status of the activities needs to be monitored.
Conclusion
As the global market evolves, companies need to constantly cope with changes while making sure that there is no mismanagement in any important aspects, mainly in the cost sector. This is a critical factor that governs the business dynamics and ensures business continuity and sustainable profitability. A lack of cost management can greatly affect profitability and business processes. This demonstrates the vital importance of cost management training to upskill employees’ capabilities so that they can use best practices and take critical decisions efficiently as far as managing cost is concerned.