Costcp vs Sams Club

Sol Prices Price decree emerged as the unch al peerlessenged leader in member w behouse retailing, with farm animals direct primarily on the West Coast. Although he originally conceived Price community as a place where small topical anesthetic businesses could obtain inevit fit w be at economical wrongs, Sol Price soon reason that his fledgling operation could achieve far immenseer gross gross sales legers and clear up buying clout with suppliers by overly granting membership to separatesa shutting that launched the deep snub storage warehouse club indus set about on a steep growth curve. Price partnership was eventually merged with Costco in 1984.The same year, Walmart adopted the warehouse companionship concept and launched its first surface-to-air missiles nine-spot stores. The lodge warehouses typicly have concrete floors, thin decor, and goods displayed on pallets or simple wooden shelves. The warehouse floor plans are designed for economy and efficiency in the use of selling space, in the handling of production, and in the control of enumeration. Warehouse Business Model Warehouse Clubs are big box stores that sell groceries as head as general merchandise at first baseer bells The basic impersonate is to maintain really depleted prices, sell lofty volumes, and maintain very high Operating efficiencies.The business idea is that low prices on a limited selection of national brand name merchandise and selected private- denounce products in a wide wander of merchandise categories produce high sales volume and rapid strain turnover. All current warehouse Clubs operate infra the following model (Refer chassis 1) * low Profit margins. * Low prices * check selection ( most 4000 items) * Wide range of merchandise categories (tires to baby wipes) makes the rapid inventory turnover. * Volume purchasing * efficient distri scarceion * diluted handling of merchandise * no-frills warehousesWarehouse Clubs comprise a very big b usiness fortune and a current market of 500B+ (including Costco $71B, surface-to-air missiles Club $54B, BJs $11B and Walmart SuperCenters $390B. ) in that respect is a combined atomship base of more than 130 one million million million paying members across the existing warehouse clubs who pay membership fees in ex qualifying for the privilege of shopping at the warehouse clubs. The typical sales for severally SKU is $12M per SKU at Costco and $10M per SKU. This allows them to order massive amounts from shapers. Bulk packages sell grand quantities to consumers. The huge warehouse clubs eliminate the need for actual warehouses.At the same time, they reduce the need for handling. This greatly enhances distri scarcelyion efficiency. Their big(a)-scale membership base makes them strong. Figure 1 Warehouse Clubs are very popular with households with higher(prenominal) incomes(Refer adjunct C). Costco Background Costco was founded by Jim Sinegal and Seattle entrepreneur Jeff Brotman. The first Costco store began operations in Seattle in 1983. Costco Wholesale Corporation (Costco), with its subsidiaries operates membership warehouses that offer its members low prices on a limited selection of branded and selected private-label products in a range of merchandise categories.By offering note merchandise at a low price, they attract mostly affluent shoppers. Its typical membership profile is a relatively well heeled customer with an average yearly income of $75K. Costcos strategy is to sell quality items at low prices and to create a esteem hunt like atmosphere with a set of variable illustrious brand items available at low prices each week that Its buyers had been able to procure. Costcos warehouse format averages approximately 141,000 square feet. Its warehouses operate on a seven-day, 69-hour week.It carries an average of approximately 3,600 active stock keeping units (SKUs) per warehouse in its core warehouse business. umteen consumable products are offered for sale besides in case, carton, or multiple-pack quantities only. It operates warehouses worldwide including countries such(prenominal) as Mexico, UK, Japan, Taiwan, Korea and Australia. Costco and surface-to-air missiles Club are more similar than different. They have the same model. Costco is know as an Upscale surface-to-air missiles Club. Figure 2 Costco and surface-to-air missiles Club relation particleships Offered Costco offers memberships in the following formats. Gold tip Member = $ 55 Business Member = $ 55 Executive Member = $ 110Membership fees combined with its high member count (64M), allow Costco to maintain low prices. Sams Club Background Sams Club is part of the 3700 stores Walmart mountain range. Walmart followed Costco into the warehouse club business and the first Sams Club store was opened in 1984. Sams Club has more products than Costco, but is smaller than Costco in total revenues. Wal-Mart Stores, Inc. (Walmart) operates retail stores in vari ous formats around globally. Everyday low prices (EDLP) is the Companys pricing philosophy under, which it price items at a low price everyday. The Companys operates in three business segments the Walmart U.S. segment, the Walmart International segment, and the Sams Club segment. Its Sams Club segment consists of membership warehouse clubs operated in the United States as well as countries such as Africa, Brazil, China and Mexico. Sams Club primary focus was Small Businesses until 2006. Currently, it tar follows all consumers, including small business. Many Sams Club locations are adjacent to Wal-Mart Supercenters. The concept of the Sams Club format is to sell merchandise at very low profit margins, resulting in low prices to members. Membership Offered profit Member = $35 Business Member = $ 40 Plus Member = $ 100Membership cost less than Costco. Sams also has less members (48M versus 64M) Competition and merchandise Position of Rivals Sams Club has slightly more locations than Costco, but has overall swallow revenues. This is cod to Costcos larger number of members and higher sales per customer per location. Costco maintains low margins of less than 15% on each item as a strategy, to offer low prices to its members. In the discount warehouse retail segment, thither are three main competitorsCostco Wholesale, Sams Club and BJs Wholesale Club. At the end of 2012, there were just over 1,200 warehouse locations across the United States and Canada.Figure 3 foodstuff Positions of rival Warehouse Clubs Key Ratios Inventory turnover is an important careful in the wholesale club industry. Costco has the highest inventory turnover, but Sams Club and BJs, both are close. Costco has the terminal profit margin, due a combination of factors, including the high pay and benefits, it offers its employees. Figure 4 Key Ratios Comparison across Functional Areas We believe Supply Chain cannot be looked in isolation and it involves human capital, use of schooling techno logy and Marketing. We compared Costco and Sams Club across 5 broad functional sphere of influences. We did not go deeply into the Finance area.Broadly, we found that warehouse clubs including Costco and Sams Club preferred to buy the real estate and buildings rather than lease it. 1) compassionate Capital twain warehouse clubs chose to * Promote from deep d take * Empower Warehouse Manager. 2) Information Technology. Both warehouse clubs leverage technology to drive efficiencies and lower cost 3) dispersal and Supply Chain Both clubs broadly try to optimize and drive efficiencies in their scattering and supply chain processes. * Cross-dock, prep and Forecasting, VMI. 4) Marketing Both do not spend as overmuch on marketing. * Little to No marketing 5) Finance Own versus direct of real-estate and buildings Even though the warehouse clubs are more similar than they different, differences do exist We will go through each functional area in more detail. 1) Human Capital Costco Employees are the highest paid in the industry with good benefits. They are well treated and are passing motivated. Costco covers 82% of its employers for health insurance compared to only 47% by Sams Club Human Capital Advantage Costco Costco is able to infer more benefits from keeping its employees happy. Costco has a higher sales per employee, Higher sales per store as well as a higher sales per SKU than Sams Club.This is clearly due to its highly motivated workforce. 2) Information Technology Both the warehouse Clubs are able to derive benefits of introduce membership information and sales associated with members through the use of their IT systems. This allows them to rough-and-readyly brood and predict/forecast seasonal demand information. Since all customers must victimize card when checking out, clubs know exactly who is buying what. Costco uses information technology to link all its warehouse locations to corporate HQ. It provides real time information and the effect ive use of its inventory and control systems.It has outsourced 75% of its IT subdivision to an India location and built effective interfaces from Costco. com to UPS and Fedex to facilitate shipping. Costco has also tried to reduce operating cost through reduction in energy consumption. It has incorporated skylights in all warehouses and solar panel in 40 of the warehouses. It has also incorporated an huge Recycling Program. Sams Club uses information technology more effectively due to Walmarts support. It is able to leverage Walmarts size and scale to its advantage. It uses a satellite system to collect data and observer merchandize flow.Wal Marts satellite network sends point of sale (POS) data directly to 4,000 vendors. It also has very strong system that support the CPFR process and allow for cooperative planning, forecasting and replenishment with its suppliers. Information Technology Advantage Walmart Sams Club Figure 5. CPFR process(Collaborative Planning, Forecasting and Replenishment 3) Distribution and Supply Chain Costco and Sams Club both use Cross move into (Refer figure 6 below) to derive efficiencies. Merchandise is shipped directly from manufacturing businesss to Warehouse. This allows them to eliminate multi-step diffusion channels and thus lower costs.Goods in depot are distributed within 24 hours. Merchandise is placed right on the sales floor, typically above. Both leverage their large scale operations to get lowest prices from Manufacturers / Suppliers. Warehouse Manager has decision making to run each individual warehouse as a Investment Center. No one manufacturer supplied a significant percentage of the merchandise that warehouses stocked and management believed that if one or more of its current sources of supply became unavailable, the lodge could switch its purchases to preference manufacturers without experiencing a substantial disruption of its business.Costco Supply Chain Costco has 9 cross-docking statistical disseminatio n centers and has direct buying relationships with many producers of national brand-name merchandise (including Canon, Casio, Coca-Cola, Colgate-Palmolive, Dell, Fuji, Hewlett-Packard, Kimberly-Clark, Kodak, Levi Strauss, Michelin, Nestle, Panasonic, Procter amp Gamble, Samsung, Sony, KitchenAid, and Jones of tender York) and with manufacturers that supplied its Kirkland Signature products. Sams Club Supply ChainApproximately two- terzettos of the merchandise at Sams Club was shipped from the divisions own dispersion facilities and, in the case of perishable items, from some of Wal-Marts grocery distribution centers the balance was shipped by suppliers direct to Sams Club locations. ilk Costco, Sams Club distribution centers employed cross-docking techniques whereby incoming shipments were transferred right away to outgoing trailers destined for Sams Club locations.The Sams Club distribution center network consisted of 7 company own and operated distribution facilities, 13 third party owned and operated facilities(3PLs), and 2 third party owned and operated import distribution centers. A combination of company owned trucks and independent trucking companies were used to transport merchandise from distribution centers to club locations. Sams Club has vender Managed Inventory(VMI) relationships with many of its large suppliers such as PampG, GE and Wrangler. Sams Club due to its relationship with Walmart is very strong in the Distribution and Supply Chain and is very efficient.It also has a practice of dealings with only Manufacturers. * Costco Strengths * Buyers scour the business world to find overstock brand items that can be sold at a discount to create a Treasure Hunt atmosphere. * Sams Club Strengths * leverages large Walmart Hub and Spoke Distribution Network. * Vendor Managed Inventory(VMI) relationships with many suppliers such as Wrangler, PampG and GE. * Deals only with Direct Manufacturers. Supply Chain systems Advantage Walmart Sams Club. What is cross docking?Cross-docking is a practice in logistics of un cargo reals from an incoming semi-trailer truck or railroad car and loading these materials directly into outbound trucks, trailers, or rail cars, with little or no storage in between. This may be done to change pillow slip of conveyance, to sort material intended for different destinations, or to combine material from different origins into transport vehicles (or containers) with the same, or similar destination. Hub and spoke are arrangements, where materials are brought in to one central location and then sorted for spoken language to a variety of destinations.Figure 6 Cross-docking What is Vendor Managed Inventory(VMI) Vendor Managed Inventory(VMI) is a government agency of optimizing Supply Chain performance in which the manufacturer is responsible for maintaining the allocators inventory levels. The manufacturer has access to the distributors inventory data and is responsible for generating purchase orders. Please refer Figure 7 To further define it, lets look at 2 business models (Refer Figure 8) Under the typical business model (Purchase severalise driven) When a distributor needs product, they place an order against a manufacturer.The distributor is in total control of the timing and size of the order universe placed. The distributor maintains the inventory plan. Vendor Managed Inventory model (Demand driven) The manufacturer receives electronic data (usually via EDI or the internet) that tells him the distributors sales and stock levels. The manufacturer can view every item that the distributor carries as well as true point of sale data. The manufacturer is responsible for creating and maintaining the inventory plan. Under VMI, the manufacturer generates the order*, not the distributor. Note VMI does not change the ownership of inventory. It remains as it did prior to VMI. Figure 7 Vendor Managed Inventory Figure 8 Demand driven (Vendor Managed Inventory) versus Purchase ensnare driven system. 4) Marketing Advertising Costco limits its advertising to cut marketing cost. Both warehouse clubs are engaged in direct mailing to electric potential and current consumers But Costco does not have a PR department and believes the most effective advertisement is Word-of-Mouth. Sams Club does advertise and through television and Cable media.Marketing Advantage Costco Known for its great customer satisfaction and service. High Customer Loyalty(87% renewal rate. ) Vertical consolidation and Alternative Sales bring Both the warehouse have created their own private labels and rely on other manufacturers and suppliers to manufacturer their products and provide summit quality at a low price. Costcos private label is branded under the Kirkland Signature brand which is considered as a quality brand. Sams Clubs have several private labels such as Members Mark, Artisan Fresh, Daily Chef and Simply Right.Costco and Sams Club , both have websites, which allow them to sell pr oducts that are typical not in the warehouse. It also allow them to sell services such as insurance and travel which leverages the companies information technology rather than the somatogenic supply chain. Alternative services offered * Consumer Services * Travel * Optical * automotive * Financial Services * 401(K) * Loans * Insurance * Pharmacy * Recycle electronics Conclusion Costco Wins tour One , but the Battle Continues. Costco has 64 million very doglike members and is known as a provider of top quality merchandise at low prices.Its buyers are able to scour the world to get acquire overstocked support goods at low prices to create a comfort hunt atmosphere in its warehouses. It private label is considered a premium branded product that has top quality. Its employees are exceptional and Costco has a high performance workforce. * Best-Cost Provider * 64 million very loyal members * high-grade merchandise * Low price * Treasure-hunt items * Kirkland Signature * Top-quality in-house brand * olympian employees * Economies of Scale Appendix A Savings for Members Warehouse Clubs offered low prices in comparison to supermarkets.A sample comparison of frequent buys at Costco versus a local grocery store is attached. Costco price for the list is $171. Grocery Store price is $538, a savings of $367. Appendix B Porters quint forces (Warehouse Clubs) Appendix C Warehouses Popular with families with higher income Appendix D Costco derives value from paying its employees more Appendix E Costco and Sams Club Websites Appendix F References WAL MART STORES INC (Form 10-K). WAL MART STORES INC (Form 10-K, Received 03-27-2012) COSTCO WHOLESALE corporation -NEW (Form 10-K, Received 10-14-2011) Costco Deploys EnFlexA? EWebConnect for try Facility Information Management EnergyVortex. Costco Deploys EnFlexA? s EWebConnect for Enterprise Facility Information Management. N. p. , n. d. Web. 15 Oct. 2012. <http//www. energyvortex. com/pages/headlinedetails. cf m? id=1003>. Standard&Poor(S&P) traverse on Costco and Walmart Corporation. Reuters Report on Costco and Walmart Corporation Distribution Channels and Logistics. Distribution Channels and Logistics. N. p. , n. d. Web. 15 Oct. 2012. <http//www. consumerpsychologist. com/intro_Distribution. html>. Consumer Reports Costco and Sams Club. Received 10-27-2011