Costco Wholesale Corporation : IT Technology Application

COSTCO Research Report
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COSTCO Research Report
Introduction
Every business exists in a certain environment that consists of both internal and external factors and thus, it is upon the company to establish its strengths and weaknesses and position itself appropriately to deal with the ensuing opportunities and threats. Information technology (IT) is one of the major developments not only in the retail sector but also in its widespread application in other industries as a measure to alleviate internal business problems and promote efficiency (Ricciardi et al., 2018). IT has become a phenomenal addition to many companies’ operations include Costco. The company acknowledges the importance of IT systems in their quest to operate efficiently and consequently, its overall performance.
Costco asserts that “failure to execute complex IT projects and have these IT systems available to our business will adversely impact our operations” (Costco, 2020, p. 22). It is fair to highlight that Costco has lagged relative to technology given that most of its primary mode of operations was predicated upon an in-store value proposition. In this case, the focus will shift to its efforts in integrating various technological resources with the prime focus being PaxPro information management software systems, Costco Collaborative Retail Exchange (CRX), which advances the company’s supply chain efficiency, and e-commerce, which is the major IT application.
Costco Wholesale Corporation
Costco Wholesale Corporation (Costco), which trades as COST at NASDAQ, is an excellent example of a well-performing company, financially, and one that has been in the industry for an extended period. The company’s history dates back to 1983 when James D. Sinegal and Jeffrey H. Brotman opened the first Costco in Seattle. 7 years earlier, Sol Price had set his operations in San Diego where he had open a warehouse club retailing with whom he was the pioneer of this model. In 1993, the two companies, Costco and Price Company merged their businesses to form PriceCostco changing to Costco Companies, Inc. in 1997. This position set the pace for the company’s exponential growth apparent in that it was the first enterprise that grew its sales from zero to $3 billion in less than six years. The merger in 1993 meant that the new-formed entity had 206 locations, which were responsible for the $16 billion in annual sales (Costco, 2021).
Today, the company is regarded as “the largest membership-only warehouse club in the United States” (Alshakhoori et al., 2015, p. 30). The operating philosophy guiding the firm is to keep the costs down thereby ensuring that their members receive the benefits thereof (Cascio, 2006). Further, the company complements this option with its never-ending quest to attain optimal efficiency, which explains why it operates the no-frills warehouse format. The company's desire to ensure that its quality is unrivaled is evident in its 4,000 stock-keeping units, which is are significantly lower than the 30,000 that are found in most of its competitors and supermarkets (Costco, 2021). Thus, the company chooses its commodities carefully relative to features, brand, price, and quality to guarantee optimal value to its customers.
According to its 2020 annual report, the company’s global membership surpassed 100 million members with their overall contribution from membership revenue accumulating to $3.54 billion. Moreover, the company’s net income for the same financial year was at $4 billion while the net sales increased by 9% to $163 billion (Costco, 2020). The company’s share price has recovered from the initial shocks of the prevailing COVID-19 pandemic and is currently (18th April 2021) trading at $370.72 and with an astronomical market capitalization of $164.056 billion (Yahoo Finance, 2021). There is no shred of doubt that the company’s pursuit of entrepreneurial excellence has brought them massive financial gains. Everyone is committed to seeing the organization succeed and this position explains why the company commits its efforts to ensure that the employees have a sense of belonging to the firm. In this regard, the company offers its employees top-notch benefits that complement fair wages and exceptional organizational culture.
Information Technology Applications
PaxPro Information Management System
The automation of the information management processes marks a major step in the right direction considering the magnitude of data available at a company of this size. The company has used Paxonix’s PaxPro software to automate its information management processes that constitute the packaging graphics and marketing communication efforts (Retail Info Systems, 2008). The company sought Paxonix's prowess in this niche because of a steady increase in market demand for the company’s package designs and to provide marketing collateral for its retail locations. Consequently, the company required a comprehensive solution that would be vital in automating and streamlining the project management process.
Initially, the company’s operations were predicated upon Excel, desktop tools, and printed proofs in managing the processes thereof. However, this was inefficient and the company has to seek an alternative that was flexible and convenient. An automating system would be welcome and besides, it would guarantee the availability of critical information to anyone at any time. PaxPro’s forms were crucial in connecting the company’s individuals, processes and data. Therefore, PaxPro would be vital in capturing data, sharing information, and approving processes thereby assisting in reducing errors and delivering vital data quicker to decision-makers.
Costco Collaborative Retail Exchange
Another IT application in the company is related to the company’s supply chain. As mentioned earlier, Costco is among the class of largest retailers not only in the U.S. but also worldwide. This position implies that the company deals with an extensive range of commodities and in great volumes. In such circumstances, it becomes fundamental that the organization articulates an efficient supply chain and thus, the incorporation or formulation of a suitable retail system. In the quest to achieve this objective, the company implemented the Costco Collaborative Retail Exchange (CRX), which is the firm’s supplier information platform (Business Wire, 2016). The platform facilitates the tracking of various commodities giving the concerned entity a real-time update. Further, Costco’s CRX provides the management with a three-year historical view of seasonal trends and the competitive landscape. Therefore, it can be argued that rather than rely on several disparate sources in gathering data, the company can relay its confidence in the CRX technology as a convenient method of giving producers a detailed solution for total Costco tracking. The tool enables manufacturers to have a detailed view of Costco’s global business.
Another great aspect of this platform is its consistency in establishing internal data points that guarantee all manufacturers’ needs are met and more importantly, facilitating a collaborative relationship between manufacturers and buyers. Information Resources, Inc. (IRI), which is the company Costco contracted to provide this service, did an exceptional job apparent in the success of this platform in the U.S. (Business Wire, 2016). Consequently, Costco had to incorporate the platform in its other global locations including Canada, Mexico, and Australia.
One Stream Software
As mentioned earlier, Costco is a multinational that operates in almost a dozen countries with relatively great economic growth rates. The diverse nature of its geographic operations places the company in a precarious situation whereby it is faced with the challenge of consolidating its various operations including financial, reporting, planning, and analysis of the information thereof. To this end, the company has sought the services of OneStream Software, which is a company recognized for its proficiency in corporate performance management solutions. Costco brought OneStream into the picture in 2020 as it sought to consolidate the operations mentioned above into the cloud (Yahoo Finance, 2020).
This move eliminates the need for in-house budgeting and legacy applications software with a more unified OneStream XF Cloud platform. The partnership is bound to bring significant benefits to the retail giants in how it consolidates, plans, and forecasts its operations. The shift to the cloud in the age of unending data is a major masterstroke for the organization and this move allows them to achieve more efficiency. An exceptional aspect of OneStream is that it is more effective in managing critical financial processes and more importantly, it is flexible to match changing business needs.
E-Commerce
Ultimately, it is extraordinary speaking of the U.S. retail industry without including the tremendous impact e-commerce has had on the sector. Since the turn of the century, many companies have adopted e-commerce given the increase in the availability of necessary elements and equipment such as widespread network coverage (the Internet) and mass adoption of smartphones. The e-commerce case has become more solid in the prevailing COVID-19 pandemic (Tran, 2021). The implication of the pandemic has been calling for social distancing meaning that people cannot conduct their daily activities ordinarily. Similarly, people can no longer go to shopping locations for fear of contracting the virus meaning that their wants can be delivered to their doorstep. E-commerce refers to “any type of business, or commercial transaction, which involves the transfer of information across the internet (Dinesh & MuniRaju, 2021, p. 7). This position explains the reason why most retailers have dedicated much of their efforts to building, improving, and promoting their online stores. Before the shutdown, most of these retailers lacked an online presence, but with its onset, it was apparent that many entered this realm by posting their content on social media sites (Koch et al., 2020). Also, they began doing pick-up and delivery services. A more explicit case is that of a German online platform that in the second quarter of 2020, acquired a substantial number of partners thereby expanding its offers (Koch et al., 2020). Nonetheless, companies have to make efforts to ensure their success through investigations on consumers’ online purchase motives particularly, with the current situation around the globe.
The e-commerce case is a robust one in this particular case study considering the sustained reports that Costco is bound to fail if it continues with its present primary brick and mortar model as its method of conducting business. A certain degree of credibility can be offered to such reports given the exponential adoption of technology worldwide and more importantly, the disruptive nature of e-commerce in modern businesses. In 2015 alone, global e-commerce sales were marked to be at $2.25 trillion (Prashar et al., 2017). E-commerce facilitates the interconnectedness of the globe and this figure illustrates that it is spearheading disruption in how business is conducted, but positively given its efficiency. This development indicates that it would be catastrophic for Costco to neglect this proposition entirely. Further, the company’s involvement in e-commerce gives it a competitive edge becomes it is poised to seize the economic opportunities that tag with both this new phenomenon and its conventional manner of operations.
The onset of the COVID-19 pandemic gave the company an appropriate window in which to sneak the e-commerce element into its operations. Besides, the company would have faced massive reductions in its sales and eventual net profit if it were to fail to be proactive. Nonetheless, the company’s conviction in the role that its physical stores will play in its future is unrivaled. This bold assertion is derived from its current chief executive officer, Craig Jelinek, who states that they are keen on doubling down their physical stores as he is convinced that they will remain critical for the company. On the other hand, his sayings that the company remains committed “to bring value on high-end goods and quality merchandise” imply that these advantages will be apparent even in a significant shift to the e-commerce side of things (Stankiewicz, 2020). These are advantaging that Costco customers continue to enjoy as most of them have turned their attention to the company’s website because of the pandering damages of the virus.
Advantages of and Challenges to E-Commerce to Costco
Advantages
As mentioned earlier, Costco has been sluggish in its adoption of e-commerce although the onset of the pandemic acted as a relatively compelling factor for the company to integrate this phenomenon. One of the major advantages that Costco has witnessed so far in its process of gradually incorporating e-commerce is the exponential upsurge in its sales. According to the company’s official release relative to the 13 weeks ending 29th November 2020, net ...