Project Scheduling

One example of a project for Costco is building a new store (warehouse).
The tasks involved in this project from start to finish are :
site selection,market research for the area,warehouse design, obtaining building permits,excavating,building the foundation, electrical heating and plumbing,interior painting/design and fixtures,exterior painting,stocking of warehouse,hiring of employees,grand opening of warehouse. Not to mention incorporating the four dimensions of quality which are Quality of design,Quality of Conformance,the "bilities" Availability, Reliability and Maintainability and Field service. These are all detailed in the earlier section of the blog.

A Gantt chart is a type of bar chart that illustrates a project schedule given various data items from company reports. Gantt charts illustrate the start and finish dates of a project.
Examples of projects at Costco, as previously mentioned, include building warehouses and distribution centers. These projects have many different aspects, each of which must be controlled it their own manner.
The wide arrangement of projects taken upon by Costco as a whole demonstrate the true nature of project management: the wide arrangement of areas and things to do concerning projects.

One of the major issues of project scheduling, as with many other companies, was that all of those involved in the scheduling were unable to come together in a unified method- every aspect of it seemed to be independent of one another. Through sitefolio, a project software (now a full company), Costco has mainstreamed its project scheduling and communication possibilities. This has enabled Costco to meet time commitments it previously was unable to meet without the software.
The entire case study of Costco under sitefolio can be found at: http://www.sitefolio.com/cutsheets/costco_case_study.pdf

Recommendations

Costco can use previous mistakes and unexpected errors during projects in order to forecast planning future projects. Costco could continue to use sitefolio in order to save money as they have been doing thus date since the software has been implemented.

Supply Chain Management

Supply Chain Diagram

Suppliers--->Costco Depot--->Warehouses--->Customers


Suppliers--------------------->Warehouses--->Customers

Delivery-
It is beneficial for Costco that high demand items such as toilet paper or diapers be in stock and on the shelves. For the supplier of Huggies brand diapers, Kimberly-Clark, Costco keeps a two week inventory and is able to replenish its stock efficiently. The lead time (time taken from when an order is placed to when the Costco truck pulls up at a warehouse) is about one week. Suppliers affect on-time delivery and fill rates. If they do not provide the components then needed on time, then the inventory cannot be maintained or the order delivered on time.

Quality- can be measured in a number of ways. Whether it is by the performance of the product or service,conformance to specifications or customer satisfaction. Costco offers high quality products at affordable prices. It backs up its products with an unbeatable return policy. Costco has in place a quality assurance program and works with its suppliers to produce products that meet the needs of the customers as well as achieve customer satisfaction.

Time- can be measured not only for an individual company but also for the entire supply chain.
It is important to consider the time it takes to get paid for a product once it is sold. We can do this by using the cash to cash cycle time.
Cash to cash cycle time = Days in inventory+ Days in accounts receivable - Days in accounts payable.
IE- For Toilet paper:
Cash to cash cycle time= 2 weeks+days in accounts receivable - days in accounts receivable
Research shows that by decreasing the cash- to - cash time improves a firms (Costco) profitability.

Cost-
There are costs all along the supply chain. From an operations point of view , it generally refers to the unit cost of the product or service. Unit cost is defined as the total manufacturing cost, including materials, labor and overhead divided by the number of units produced. There is cost involved in:sourcing products from suppliers ,shipping products from suppliers to Costco depots, distributing products to warehouses and storing products in inventory.
These are just some of the costs in the supply chain.
Reducing costs in the supply chain improves the profitability of Costco and influences the kinds of products and prices which they can offer their customers.

Ways to reduces cost along a company's supply chain:
1. Allowing suppliers to manage inventory of their own products at Costco. This is what is known as a vendor managed inventory. The supplier is responsible for maintaining inventory levels and hiring staff to do this. This reduces Costco's labor cost.

2. Costco also practices a new technique called "cross docking" which means most of Costco's inventory is kept in distribution centers, while the remaining goods (such as items to be consumed) are delivered directly to Costco stores.

Supply Chain Management at Costco
Recommendations

Costco uses vender managed inventory as previously mentioned. They use ConnectionHub's Drop-Ship Master application suite, which allows them to rapidly integrate new suppliers into their existing system. This enables rapid orders based on Costco requirements. This allows Costco to maintain efficient supply chain management without taking on any new inventory or risk through orders. ConnectionHub provides Costco with a single point of integration in which it can contact and interact with its suppliers directly and with ease.


As discussed in class earlier in the summer course, Costco can create an wireless tags on each pallet of supplies that will be able to be read by its distribution centers and automatically add those goods to inventory. This would not only decrease time spent delivering goods, but it would streamline inventoring all of the items delivered.

4 Dimensions of Quality

4 Dimensions of Quality

1. Quality of design
This is determined before the product/service is produced through market research, design concept and specifications. Market research assesses the customer’s needs. a design concept is developed to meet those needs. The design specifications is developed to identify what the customer is going to get out of the product/service.

Costco's quality of design:

1.high quality items
3. brand name products in bulk
4. great value for money
5. fresh foods/produce
6. reputation of high customer satisfaction



2. Quality of Conformance
This is the means of producing a product to meet the specifications.when a product conforms to specifications,operations considers it a quality product regardless of the quality of the design specifications.

Costco has high quality of conformance as they meet to a high degree, the design specifications. Their ‘smart packaging’ and purchasing items in large volumes translates into competitive prices creating value for customers. There are many product/service categories including fresh foods, pharmacy, and jewelry.All Costco locations have a high quality of conformance and it keeps the name brand strong.



3.The "bilities" Availability, Reliability and Maintainability

Availability- whether the product/service is available for operation and not down for repairs or maintenance. This defines the continuity of service to the customer.

Costco stores are open M-F 11:00am - 8:30pm, Sat. 9:30am - 6:00pm Sun. 10:00am - 6:00pm Closed: Easter Sunday, Christmas Day, New Years Day
During the time they are closed restocking of inventory and general maintenance is done.
However, Costco is always open for business online at http://www.costco.com/ which is down only for routine website maintenance.

Reliability- length of time a product/service can be used before it fails.
Maintainability – how long it takes for the product to be repaired.



For Costco , this would be the time it takes before a customer returns products (e.g. electronics) for refunds because the product fails in performance. Costco had a $30.3 million charge to its sales-return reserve, the result of an internal study prompted by rampant returns on high-ticket consumer electronics.The company changed their return policy for all electronics purchases. Under the new policy, all electronics purchases as of 2007 can be returned “no questions asked” for up to 3 months after purchase, and up to 6 months for defective merchandise. Here is an example of a repair process. A customer calls the customer call center for a problem regarding a television. The Costco call center documents the problem and attempts to solve the problem over the phone. If it is determined that a repair is needed, then the Costco call center looks up the service call availability by the customer’s zip code on the NSA (National Service Alliance) website and then schedules the service call through the NSA website. The Costco call center tracks the status of the repair every step of the way and stays in contact with the customer. This can take a few days to a few weeks before a repair is done, depending on how big the job is.



4. Field Service
This refers to the after sale service, warranties, repair and replacement service that the company offers.

Costco encourages worry free shopping by backing everything it sells with its ‘no questions asked’ return policy, where a full refund is guaranteed to the customer if he/she is dissatisfied with the product at any time. For the sale of electronics, Costco has in place for US Costco members its Costco Concierge Services where members who purchased televisions, computers, camcorders and iPod/MP3 players can receive free technical support. Costco also extends the manufacturer’s warranty on televisions and computers to 2 years from the date of purchase. Costco even offers in-home television set up but members would have to make an additional payment for this service ($89.99).
Guaranteeing purchases made at Costco in this way shows that customer satisfaction is a priority.

Quality Systems in Place at Costco

1) To guarantee the quality of Kirkland brand supplements that Costco sells, they use USP (United States Pharmacopeia) verification. USP verification means that the ingredients are consistent in quality from batch to batch and that they meet their claims for strength, purity and quality- what’s on the label is what is in the bottle.USP is an official public standards–setting authority for all prescription and over–the–counter medicines and other health care products manufactured or sold in the United States. USP also sets widely recognized standards for food ingredients and dietary supplements.


2) For Kirkland Bath Tissue Costco controls quality through extensive testing of the tissue on strength, softness and appearance. This testing is continuous.


3)Implementing fresh food maintenance procedures which include the way that food is packaged.

Recommendations

1) Costco can enhance its quality management by conducting customer surveys and publicly encourage suggestions about ways that they can improve.
(b) Research and invest in food packaging techniques that can extend the shelf life of their fresh food.

Service-Product Bundles

The first of the three elements of the service-product bundles are tangible service, those which provide household products at low costs. The second element is implicit benefits, which includes savings and great bargains for customers. The third and final element includes physical goods, those which are actual household commodities.

Service Matrix Bubble

Costco customers can expect the same types of service each time they enter into a Costco store. The experience is unlike a shopping mall, where it has the possibility of changing. The delivery of the service is highly standardized. Costco is therefore a provider routed company in the Service Matrix. They have a highly standardized process sequence with limited number of pathways.

Costco Customer Contact

Costco is both a high and low contact business. If a customer is shopping online, contact is low, but if a customer decides to shop at one of Costco's warehouses, contact is high. There is face-to-face contact between the customer and employees, however there is also a self-service aspect as well since the customer walks through the warehouse and picks out their desired merchandise.

Costco also uses technology to enhance both the consumer and employee's experience. Shopping online is convenient for customers and can be enjoyable, not having to deal with crowds or lines. If the customer chooses to shop in a warehouse, technology is also present but not to replace employees, to enhance their efficiency. Everything from forklifts for stocking shelves to conveyor belts and registers helps employees better serve the customer. If a cashier had to manually lift every item, write down bar codes, and add up totals all day efficiency would not be nearly as high as it is with the help of scanners and registers. It would also take much longer to complete the customer's shopping trip and most likely lower customer satisfaction.

Costco is well rounded in the way it has options for low contact, high tech online shopping, and high contact in warehouses with enough technology to create an efficent process and allow employees to provide service with a smile.

Focused Operations

Employee Benefits: http://www.lgrmag.com/Putting-Employees-First-article77762

Costco main focus of its business is to provide great products at low affordable cost to its customers; which it does through improving management operations by using economies of scale.


Costco takes a lot of pride it its employees, treating employees in the complete opposite of their competitor Wal-Mart, and this shows because Costco largest operation cost is employees cost. The number of ways which Costco does this is as follows.

1) Promoting within the company and supporting positions with training.

2) Offering a wide range of health benefits to full-time and part-time employees.

3) 401K investment options, which Costco match 50% of the first $1,000. Costco also put additional money into 401K for years of service the employee has provided.

4) Competitive wages averaging to $17 an hour and a bonus twice a year, which is determine by years of service.

Since Costco makes employee satisfaction a priority, majority of their employees, hardly leave. This leaves Costco with highly trained, happy and productive workers.

Service Recovery and Guarantees

Costco offers a no hassle return policy, which allows customers to return merchandise at any time if they are not happy with their purchase; Costco asks no questions and guaranteed a full refund. Costco Membership fee are also refunded in full, if for any reason the customer is not satisfied.

Costco also offer its customers Concierge Services. This is a technical support service that Costco offer all customers who purchase electronics products, anywhere from flat screen televisions to iPods. On all electronic products, Costco extends their warranty and offer customers the option of having Costco come into their home and set up their entertainment purchase.

All of these service recovery and guarantees Costco offers ensures customers, that merchandise sold at Costco are high end and of good quality. This leaves customers with a great feeling of satisfaction because they have saved a lot of money, along with the Costco membership card, customers now have a tied to Costco and a sense of belonging, giving customers another reason to come back and shop at Costco.

QUALITY CONTROL, IMPROVEMENT

The true definition of quality control is the stabilization and maintenance of a process to produce consistent output. The key to Costco's ability to maintain their low prices and quality is because of good wages and benefits .According to CEO Jim Sinegal ,this is why Costco has extremely low rates of turnover and theft by employees. And Costco’s customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers’ expense. Also by selling a limited number of items, keep costs down, rely on high volume, have customers buy memberships and aim for upscale shoppers, especially small-business owners.

Costco has in place a quality assurance program. It's objective is to ensure that all products are placed under the same stringent Costco quality guidelines. Each produce item has a Costco-supplier confidential specification sheet that lists specific acceptability factors. Inspections (testing) for fresh produce start at the very beginning while being grown and end at warehouse checkout as customers make the final purchase. If concerns arise, production ceases. Costco is known for its high quality control process especially in produce, jewelry and meats.


Costco wants to provide great products to it's customers while also keeping their prices down. In order to do this,Costco decided to improve it's transportation methods by adopting new technology to better not only their shipping time but costs as well.

Using DMAIC, Costco defined transportation as a need for improvement, measured the variables and set a goal, analyzed what the immediate problem was and came up with possible solutions, improved their current methods by changing the way they supply their warehouses, and controlled the outcome by making sure the new method works and continues to work over time.

To make sure everything is running smoothly, information on shipping time can be analyzed. If for whatever reason supplies are not delivered on time according to Costco standards, any of the Continuous Improvement processes may be used.

A Pareto Analysis may be used to discover a few problems, or defects, and say transportation time is the highest in defect percentage, it would be handled first (unless the next defect can be resolved quicker and cheaper).

A Fishbone Diagram (Cause-and-Effect Diagram) may also be used to determine probable causes of standard transportation time. Those potential causes will be researched and ruled out accordingly until the problem is found.

Another way Costco can improve it's transportation is to use the Process Capability Index. Once a range for shipping time has been established, and the standard deviation has been included, the process capability may be computed. If the equation (Cp= USL-LSL/6xstandard deviation), (Cpk=Min(USL-mean/3xstandard deviation, LSL-mean/3xstandard deviation)) equals 1, the solution can work. If, however, the result is less than 1, the solution must be improved by either centering the mean or reducing the standard deviation.

Costco may also combine Lean and Six Sigma methods to keep up with both defects and improvements. Lean focuses more on getting rid of waste within the company and improves work flow, and Six Sigma focuses on defects which are noticed by the consumer and reduces variance. Both methods, although different, can still work together and further each other in their cause of improving the company. In this way, Costco can continue to identify defects and resolve them in the most efficient manner.

Product Flow, Customer Ordering

Product Flows

Product flows are generally classified in manufacturing companies. In order to identify the product flow for Costco, a retailer, we will look at the process of ordering an item to its delivery to the store. Items are high-volume orders.
Continuous best fits this mold because it generally is highly standardized and automated products with high volumes. This also includes the low amount of variety, where the cheapest product stands out amongst the others. Customers generally purchase in bulk based off price, therefore solidifying the idea that Costco falls into the continuous mold. This allows for Costco to compete in highly price sensitive markets and succeed in its efforts.

Customer Ordering

As a retailer, Costco uses the made to stock (MTS) process. Inventories are collected before customer orders in order to have sufficient inventory on stock. The advantage is that inventory levels are generally high and can be filled quickly, while the disadvantages are that less customization or customer input on which products they desire aren’t possible.
Costco orders products in bulk, a main reason why they are able to sell products at such low prices. Customer input is nearly unheard of in a system such as the one Costco has in place although customers are appreciative of the low prices. Costco could not be nearly as successful with any other method of customer ordering.

Costco Process Characteristics Matrix

It would fall in line with Batch flow.

Suppliers--->Costco Depot--->Warehouses--->Customers

Suppliers--------------------->Warehouses--->Customers

Factors Influencing Process Selection

Delivery, Quality, Time, and Cost are some factors influencing Costco process selection. For high demands such as diapers Costco keeps a two week inventory with delivery lead time of one week, from when an order is placed to when the Costco truck pulls up. Costco offers high quality products at affordable prices and backs up its products with unbeatable merchandise return policy. Costco consider the time it takes to get paid for a product once it gets sold. Costco also try to reduce costs along the supply chain to improve profitability and influence the kind of products and prices they offer their customers.

Mass Customization Adoption Methods

Costco does not make the products specifically for the consumer, they provide various products from their suppliers. In a way Costco already uses some customization methods. Products are held in Costco's inventory until they are sold to the consumer. The consumer buys what they specifically need when they need it, therefore the postponement method is used. If the consumer decides to shop online, their order is placed specifically to their needs and Costco delivers the items to the consumer. These items are not made for the consumer, but the order being shipped is customized to their needs, so the service provided is a modular production.

Costco: Inventory Management

Costco & IRI Team

Costco and data managing partner Information Resources, Inc. (IRI) joined forces in 2004 to create an innovative inventory system technology providing real time inventory information called Collaborative Retail Exchange (CRX). Inventory is monitored and re-ordered as part of this continuous re-order system. This continuous re-order system is used in a market setting in which demand over a period of time is uncertain and fluctuating. Costco adds estimated future demand during lead time (based off past sales) combined with a sales cushion during lead time (which is necessary due to market demand fluctuations) in order to find a reorder inventory point. Once stock falls below that reorder point “R” an order is immediately placed. The quantity ordered is the same amount calculated under the EOQ equation. This ensures a constant amount of stock necessary to meet market demand.

CRX System Data

The CRX system gives certain suppliers access to information such as how many items were sold in the last week and current inventory levels. These suppliers must be approved by Costco before granted access to this private data. IRI offers the service to those suppliers of managing and notifying suppliers that inventories are dangerously close to the reorder point and once they point is actually reached. This system is innovative because its puts inventory management mostly in the hands of the suppliers, whose job is to ensure Costco has sufficient inventory to meet market demand. Suppliers are truly in control of their own inventory. Once an item is scanned and a sale has been completed, the system is automatically updated and inventory managers are notified if inventory levels are nearing or have reached the reorder point. The main goal of the CRX was to improve communication between Costco as a company and its suppliers. Costco decides which suppliers are allowed access to the private CRX data.

Efficiency of CRX

The CRX system allows Costco to use this continuous review system efficiently because without the system, each warehouse inventory manager would be forced to manually count their inventory on hand and input it into the system. This method would be extremely inefficient. The CRX system is undoubtedly one of the many reasons Costco improves its sales figures quarter after quarter. The CRX system prevents downtime and overstocking inventory. This is important because total operating costs are high when inventory is overstocked, as well as Costco losing otherwise earned interested through having a large amount of money tied up in unnecessary assets.