How Costco takes out cost
In many companies, it is a management mantra to “take out cost”.
What does it actually mean to “take out cost”? A great example is found here in a recent story about Costco. Some things to think about:
“Taking out cost” does not mean indiscriminately slashing headcount or some vague blather about leadership. It means systematically evaluating processes and activities to identify opportunities for improvement. Notice the very specific and tangible actions that Costco is taking:
- Changing the packaging on cashews from round containers to rectangular containers — which increases units per pallet and requires fewer replenishments and fewer delivery trucks.
- Making advanced purchases to build inventory prior to price increases from suppliers.
- Evaluating vertical integration to grow its own pumpkins so it can maintain its prices on pumpkin pies.
- Moving from a single source supplier of bananas to multiple sources.
- Giving cheap restaurant pagers to delivery trucks to speed up the unloading process at store receiving docks ($7 million per year in labor savings).
