Process Selection

a. What type of product flow do they use?

Costco Wholesale Warehouse uses the batch flow. It carries an array of finished goods at it’s location for its customers. Costco limits it product selection to fast-selling, branded and private-label products. On average Costco carries between 3,700 to 4,500 products per warehouse. In comparison, discount retailers and supermarkets normally stock between 40,000 and 60,000 products.
Costco purchases in large volumes due in large part to its size. However, the company also has a practice of purchasing whatever it can get a good deal on. If Costco can negotiate a favorable price it will purchase a large quantity from that supplier. If it cannot, it will not purchase the product and will switch its massive volume of purchasing to another supplier. Costco has aligned itself with several different suppliers.
Besides its physical inventory Costco also supplies its members with a plethora of services that are provided by a third party. Examples include; Ameriprise, which works with Costco to offer discounted auto and home insurance, Lending Tree provides real estate agent services, and their very own Auto Buying Program has relationships with new car dealers to make buying a new car easier and more affordable.

b. What type of customer order do they process?

All the products available in their stores are available on their website; however some items are available only online. Products are made-to-stock because they are over the counter merchandise finished goods that are sold in bulk to a customer. Ordering a product is only available on their website, Costco.com, or tires can be ordered directly from the tire department located inside most warehouses.
Within the store itself the bakery department would be considered made-to-order because a customer can customize cakes or pies to their specifications and can be ready in a couple of hours.
Business members can take advantage of the Business Center located on their website, which carry a product selection tailored specifically for food service, convenience stores and offices.

c. Which cell do they fall into in the process characteristics matrix?

Costco is a distributor of finished goods and a few made-to-order items. They purchase in batches and sell high volumes of a particular product. In comparison to other wholesalers they carry fewer in-store products but offer overall more than all of its competitors.

d. What are some of the factors influencing their process selection?
Costco constantly focuses on having the most available capital. The company strives on high volume sales and rapid inventory turnover. This will give them the opportunity to sell and be paid for inventory before they are required to pay the actual merchandise vendors. As their sales increase and inventory turnover becomes more rapid, a greater percentage of inventory is financed through payment terms provided by vendors rather than by their own working capital.

e. Can they adopt any of the mass customization methods discussed?

The customization of finished goods sold at Costco would be unnecessary to a customer because many plan to resale the items for a profit. However, using a fast changeover approach for orders made online can be possible since orders would be forwarded immediately to the third party. Any product ordered online is always shipped to the customer’s house, but a special order should be sent to any requested warehouse along with merchandise from the same distributor.