OPERATING AND MANAGING DISTRIBUTION SYSTEM

Retailers can learn a lot from the Costco distribution strategy and how it manages and
operates it. Especially since the company has decided to launch its delivery network in India.
Costco has found a way to optimize nearly every piece of the distribution network puzzle,
from warehousing and inventory management to delivery times and prices.

The individual pieces of the Costco distribution strategy includes the following decisions to
be made:

1) INVENTORY MANAGEMENT:

Costco in India will need a management system where it doesn’t compromise on the
cost as well as the availability of the product as well. In inventory management,
operations management’s focus is on maintaining optimal inventory ordering and
holding. Costco addresses this strategic decision area through a finished goods
inventory using just-in-time inventory management in some areas. For example, in
just-in-time inventory management, some goods that arrive at the company’s
fulfillment centers are immediately shipped to fulfill customers’ orders. Costco holds
other goods as part of its finished goods inventory. In addition, to ensure optimal
inventory ordering and holding, warehouse employees are trained to maximize the
speed of order fulfillment through mobile computers linked to a central computer and
database. In this way, Costco.com Inc.’s operations management optimizes its online
retail inventory size to minimize costs while satisfying market demand. This also
includes decisions regarding the costs, methods of procuring and keeping the
inventory.

Sellers who sell on the Costco Marketplace have different fulfillment options to

choose from. Sellers can choose whether they want to handle fulfillment or let Costco
sort, package and ship products through their own fulfillment centers.Also, as a third
party seller selling on the Costco Marketplace you have the option to use Costco’s
fulfillment services:

 Fulfillment by Costco (FBC) – Sellers leverage Costco’s fulfillment for products sold
on the Costco Marketplace.
 Sell using your own fulfillment (FBM) – Sellers handle fulfillment for their products
sold on the Costco Marketplace

2) DESIGN OF GOODS AND SERVICES:

The design of the output of the organisation is covered in this strategic decision area of
operations management. Costco addresses this concern primarily through technology. For
example, the company uses advanced information and communication technologies to
ensure that its online retail services are efficient and convenient for target customers.
Such technologies are also used to support maximum efficiency of Costco’s e-commerce
operations.

This aspect focuses on ensuring that there is concurrent innovation ensures customers
are getting the best products and services. The company will utilize the countless
automation and robotic solutions, both to pick and pack orders as well as stacking and
storing inventory. These tools not only will up the company’s efficiency and delivery
speeds, but they also cut down on warehouse and staffing costs – freeing up funds for
other logistics or supply chain needs.
 Even though it may not seem fully operational just yet, the drones will eventually
allow for 30-minute deliveries in some of the nation’s biggest markets. All customers
need is an Costco-branded landing mat (and to live within 15 miles of the nearest
drone-enabled warehouse), and the instant air-side deliveries are within reach.

3) QUALITY MANAGEMENT:

The objective in this strategic decision area is to maximize quality of operational

output to satisfy the expectations of customers. Costco’s operations management
approach involves continuous improvement efforts in its e-commerce business. The
company uses its organizational culture to support innovative idea creation among
employees For example, Costco encourages employees to be bold and pioneering in
creating new ideas to solve problems and improve the business.

As satisfying the customer’s quality requirement is one of the most important factor,
this will be ensured through regular quality checks, and many quality improvement
initiatives. And as the product offered as of vast varieties, Costco will regularly
introduce enhancements in its manufacturing process and even in its reviewing
process.

4) PROCESS AND CAPACITY DESIGN:

An objective of operations management is to optimize production processes and

capacity. In this strategic decision area, Costco applies extensive automation to
streamline its business processes. For example, considering online retail service as its
main organizational output, the company automates the ordering process to increase
the capacity to accept as many simultaneous orders as possible. This approach to
operations management highlights the importance of automation and related
technologies in enhancing Costco’s process and capacity in e-commerce.

5) LOCATION STRATEGY:

The accessibility of resources and markets is considered in this strategic decision area
of operations management. In the case, the emphasis is on the strategic location of
warehouses or fulfillment centers. For example, Costco must maintain warehouses
 that are optimally near the largest possible number of customers of the online retail
business.

The company will take advantage of its global reach and use the channel already
existing to its advantage for getting the sufficient materials . It will use the
international network, as under this, Costco will target areas with high-density for
displays and sales transactions. Where it can ensure thar more foot traffic can be
ensured as it is more visible.

6) LAYOUT DESIGN AND STRATEGY:

In this strategic decision area, operations managers have the objective of optimizing
the movement of human resources, materials, and information. Costco addresses this
objective through efficient layout designs that align with computer-assisted processes.
For example, in the company’s warehouses and fulfillment centers, items are
organized according to a computerization policy. The corresponding layout involves
maximization of shelf space and minimization of aisles to achieve optimal capacity
without reducing process efficiency in Costco’s online retail business.

7) UNISON OF HUMAN RESOURCE AND TECHNOLOGY:

Costco’s extensive network of employees and partnerships enables the company to

fulfill speedy deliveries practically anywhere in the world, but it is its embracement of
innovative technology and automation solutions that ensure streamlined processes and
efficiency. Costco utilizes robotics to pick and pack orders as well as stack and store
inventory. This allows the company to expedite its processes beyond human speed
while also alleviating manual labor for its employees, which frees up time and funds
to be allocated to other tasks and business initiatives. 

8) SUPPLY CHAIN MANAGEMENT:

Costco operates 11 online marketplaces (websites) worldwide, allowing sellers to

grow their business internationally, independent of where their business is physically
established. These marketplaces represent many of the world’s largest e-commerce
opportunities.

(A) Warehousing: The warehousing strategy of Costco ensures that products are easily
accessible from pretty much everywhere in the world and they are spread in such a
way that it further ensures that the supply chain has even smoother functioning. All
the company’s warehouses are strategically placed near big metros and population
hubs, and inventory is spread amongst them to ensure supply can meet demand. There
are even mini-warehouses in smaller areas to ensure orders can be sent and delivered
fast, no matter what is being purchased. Warehouses are also optimized internally.
Each with five unique storage areas, the organization strategy allows team members
 and pick-and-pack robots to pull products almost instantly and move them toward
delivery.

(B) Delivery: One of the biggest differentiators between the Costco’s strategy and other
online retailers’ is the plethora of delivery options offered. The biggest game changer
is the number of ways in which Costco can make the deliveries happen. Costco
employs a whole host of strategies – from more traditional to super high-tech – to get
its products out in lightning-fast times and all over the world. There are Costco-
branded trucks and delivery vans and there are even deliveries by bike in certain
areas. The retailer also may leverages existing delivery routes worldwide. These
wide-ranging strategies allow the company to get orders out faster, easier and more
efficiently to basically everywhere in the world , even remote and rural areas that are
not served by traditional options.

9) MAINTENANCE:

This strategic decision area emphasizes the reliability and stability of business
processes. Costco’s operations management involves specialized teams for
maintaining technological assets. In addition, workers are regularly trained to
maintain human resource capacity to satisfy the company’s needs for its e-commerce
business. Moreover, Costco is always on the lookout for advanced technologies to
improve its operational efficiency.

10) JOB DESIGN:

Costco’s operations management uses a combination of in-house employment

processes and third-party employment agencies. For example, workers from these
agencies fill temporary positions and are evaluated to determine suitability for
permanent positions, especially in warehouses and fulfillment centers. Costco’s
recruitment and hiring processes are aligned to organizational growth and human
resource needs in corporate offices

11) SCHEDULING:

Operations managers consider intermediate and short-term schedules to ensure that

resources satisfy market needs. In this strategic decision area, Costco relies on the
involvement of suppliers for its online retail business. For example, suppliers access
the company’s website to determine demand levels and implement their shipping and
delivery schedules accordingly. Also, Costco’s operations management automates
shipping schedules involving its fulfillment centers, which provide shipping services
to sellers for a fee.