Operation Plan

Operation Plan

COSTCO is a wholesale company whose business continues to grow and expand. The company has several operations overseas in countries such as Taiwan. It is considered to be among the largest retail companies in the world as a retail firm. The company relies on the purchasing power of the customers. Consumer perception also plays a significant role in the success of the company as there is a lot of competition in the retail business. Companies such as Walmart provide a lot of competition. For this reason, the company must maintain a competitive advantage to ensure they have long-term viability. To ensure the growth and expansion of the company get achieved, COSTCO must make sure its products are affordable and provide high quality products and services. COSTCO firm follows its business model to execute its mission statement. The model is highly reliant on the internal analysis elements such as strengths and weaknesses and external analysis elements such as opportunities and threats. It is, therefore, essential that COSTCO establish new business strategies to sustain the growth and development of the company. The mission for COSTCO company is to continually provide members with quality goods and services at the lowest possible prices. The model has a direct link to the business model and strategy. The mission aims at delivery of quality and cost leadership, which are important factors for consumers in the retail industry. The mission statement acts as a guide for the company’s competitive advantage. The business model used by Costco is that of a membership-only warehouse club. In the model, customers pay a membership fee for them to access products at a low cost. Nonmembers are allowed to follow members, but only members can buy the product form Costco’s stores. Nonmembers are, however, allowed to buy using Costco cash cards. The strategy applied by the company is that of cost leadership. It focuses on maintaining the lowest prices probable. The business model, in combination with the approach, differentiates Costco from other retail organizations..

Product Service Description

Costco provides several services for its customers. The company has ensured that it is committed to value and quality for its members. The company has partnered with Elavon, a company that offers payment processing solutions to ensure that Costco members obtain the best payment services at a member-only price. Another function is the supply of quality bottled water to its customers. Costco has selected several suppliers to provide these services to all its loyal members at exclusive prices. There are also several options to ensure that home and office delivery of water is affordable and accessible. The other service is auto and home insurance. The company offers massive discounts for its members, only customers on home and auto insurance. There are several benefits attached to this service, whereby the customer gets to choose their licensed facility for auto repairs. Home insurance involves identity theft protection. Executive members also get to enjoy lifetime renewability of the insurance cover, roadside assistance, home lockout assistance, and home glass repair reimbursement. The other product is custom logo products whereby the customers have access to hundreds of customizable products of high quality. For example, there is the customization of drinkware, bags, writing instruments, and more at affordable prices. The other service is business and personal checks, where industry and personal checks get provided to meet the daily needs of its customers. Costco also offers business health insurance solutions for its business. It also provides mobile phone services with service packages and multi-featured phone systems for its exclusive members. Costco has an auto program where members receive an auto buying experience that is simple and stress free for new and pre-owned cars. Another service offered by Costco is a dental plan for members. The firm provides dental benefits with exclusive rates and extensive coverage. Other services provided by the company include identity protection, life insurance, parts, and service discounts, prescription program, Costco travel, RVs, vision insurance for businesses, and business printing. All the services get offered at affordable prices for its members.

Location

Costco company is located in several places, with a total of 782 locations globally by the end of the year 2019. However, the United States is still the place with most5 of the company’s stores. However, the firm has expanded to 11 more countries such as Canada, Mexico, Japan, South Korea, Australia, Taiwan, Spain, Iceland, and France, among others. The expansion of Costco has led to an increase in the number of members, with the company recording over 98 million cardholders by the end of 2018. Costco headquarters are found in Washington state and the United States. The first warehouse got opened in the year 1983 in Seattle. The company is the second-largest retailer in the world behind Walmart and has a brand value of over 17 billion and net sales of about $149.35 billion. A recent survey indicates that more than 10% of Americans have their grocery shopping at Costco. 22% of the household do their shopping with the retailer. The retailer was ranked first in a customer satisfaction survey in 2018.

There are, however, some factors that affect the locations of the Costco stores. Some of the factors include political factors such as level of corruption and legal framework of the country. The economic factor also affects location with things such as inflation, interest rates, and foreign exchange rate influencing Costco location. Social factors affecting Costco’s site include the attitude of the people and shared beliefs. The other factor is the technological factor, especially in the transport industry where taxi dominates the market. Environmental factor also affects the company’s location with different markets that affect the profitability of the organization. Laws affecting ecological pollution and climate change are some of the environmental factors affecting the position of the company. Legal factors also affect the location of the company. They include issues such as discrimination laws, employment laws, and consumer protection laws impact the location of the company stores.

Cost Effective Production Methods

Costco has had consistency in its top-line growth due to its inspiring increase in sales. The sales of the company have grown faster compared to the overall growth of the industry. Costco derived revenue of about $152.7 billion on retail sales per square footage of 113.9 million fiscal 2019. This growth gets attributed to the effective production methods applied by the company.  The cost-effective production has also led to a compound annual growth rate of 6.3% over the past five years. Some of the methods employed by Costco include cutting unnecessary costs. Most of the spending occurs on inventory. To cub the operating costs, it is essential that Costco figures out its inventory cost and relate them with the profits gained. From this, the firm can determine the profitable items and those that do not profit the company. The other method of cost-effective production method is making better deals with suppliers. Costco makes the excellent relationship it has with its suppliers to make better deals. It includes asking for free shipping costs and discounts. The other method used by Costco is eliminating manual tasks. Automation of most of the services offered by the company has assisted in cost effective production. The firm has various complex issues such as calculation of revenues, tracking of inventory, invoice generation, digital advertising, salary distribution, among others.

Facility Layout

The facility layout of most of the Costco stores is often criticized for their confusing treks for unassuming shoppers. For example, consumers complain that at one point, the light bulbs are at one corner and the next time they are gone. It is hard to find things in the Costco stores. The strategy is used by the firm to make sure the customers walk by something that they wouldn’t walk by. It makes the customers buy more than they could obtain by ensuring the customers are continuously scanning the shelves more. The company continuously move products to different locations and continuously change their inventory to new products. It creates a form of treasure hunt enabling customers to discover new products that may not get seen in the regular shopping visits. The lack of signage in the stores is also a layout strategy used by the company to encourage consumers to explore more. The warehouse is designed in such a way that they are like a racetrack that allows customers to view more products. The layout enables the consumers to go past the home seasonal and lifestyle selections and low slacks that enables customers to see across all points of the warehouse. The store tends to keep the essential things and food at the back of the store to draw customers in.

Material requirement planning

Logistics and Supply Chain

The financial data reported by Costco indicate that the company has been growing over the years. The significant growth can get attributed to the supply chain and logistics applied by the organization. The company has managed to keep its operating costs so low compared to other companies such as Amazon and Walmart. The secret to this is within its supply chain. The supply chain aims at reducing the number of people or fingerprints on its products. The more the number of people involved between the source and the store, the higher the cost of moving the product from the manufacturer to the shelf. Costco has mastered how to reduce the cost of operation in its supply chain. The company’s strategy involves operating a mix of distribution facilities to enable it to work within a reasonable and practical supply chain. The integral part of Costco is the use of cross-dock distribution in its supply chain. The company obtains its products from the manufacturer and directs it through depot facilities, which act as the vendor consolidation points. From these points, the merchandise can then get transported to the stores in full truckload volumes. The supply chain involves depots receiving container shipments or truckloads from the manufacturer. The goods are then allocated before being transported to stores within 24 hours. To minimize the touches on products, the company goods are handled in full pallets within the depots during receiving and shipping to the stores. Although this may not apply to all products, the aim is to reduce the number of touches on the products. Forklifts are also used to move the pallets in the racks; hence the first time the Costco employees come into contact with a product is at the cash register. The first person to be in connection with the product physically is mostly the customer. The supply chain strategy used by Costco is different from that of other companies that involve the use of middlemen. It creates shipping inefficiency due to many touchpoints at the receiving and shipping end of the products. The multiple touchpoints on the product increase the cost of operation in moving the products from the supplier to the consumer. It can be thought out by adding a value of about 25 cents for each time the product is touched. The reduced number of touches on products saves money for Costco. However, there are some limitations to the use of the Costco supply chain method. First, the process requires the use of warehouses to handle the large volumes of merchandise through a few selling points. The technique also is founded on the sale of a limited assortment of things.

Quality Control

Quality control involves the stabilization of a product or service and maintaining the process to provide consistent services and products. Costco has developed a quality assurance and control program to ensure that all its products pass through its strict quality guidelines. All of the products sold by Costco have a specification sheet list given to the manufacturer or supplier listing the acceptability factors for each item. Inspection for fresh produce is done from the planting of the crop and ends as the customers make their purchase. Incase concerns get raised; the production of the commodity gets stopped. The firm is well recognized for its strict quality control, especially in jewelry, produce, and meat. Costco aims at providing high quality products while also maintaining the prices low. To achieve this, the firm adopted new transportation technology to better their shipping time and cost. The measure also served to ensure that the products reach the warehouse while in good condition. Information on shipping time is used to ensure everything is running well. In case there are delays in supply according to Costco standards, continuous assessment processes are used to analyze the problem. A Pareto analysis used to determine the nature of the problem. The company works to ensure there is a reduction in waste while also improving its workflow.

Personnel and Organization Chart

The personnel and organizational structure at Costco company are based on its current operations and locations. The corporate structure assists in interconnecting various organizational components to ensure all the business needs of the business are addressed. The structure enables the firm to operate in diverse markets. Costco uses a weak matrix organizational structure, and the structure has a solid functional structure and a secondary divisional structure. Employees are grouped based on their business function, location, and market. The primary personnel and functional groups at Costco include the human resource and risk management, operations manager, the finance manager to ensure the finances are okay. There is the personnel in charge of foods and sundries merchandising, construction, information systems, legal issues, accounting, e-commerce, and publishing and depot operations.