Case Study: COSTCO

1. Case Study: COSTCO COSTCO’s management has had multiple complaints from customers who state that they avoid shopping at COSTCO due to the long lines, unless they have a lot of items to purchase. If they only need one-to-five items, they shop elsewhere. Management has not had these complaints from customers who own businesses and purchase in “bulk”. Business customers have morning hours set aside to accommodate them. COSTCO views itself as being extremely efficient in satisfying the needs of customers who purchase in bulk. Each register has two employees, a cashier and a person whose job it is to unload the cart quickly so that the cashier can concentrate on quickly ringing up the items. MIS 101 INFORMAL INVESTIGATION COSTCO’s management has investigated these complaints and have decided to offer extremely fast checkout procedures for customers wishing to purchase one-to-five items. QUESTION: How can COSTCO quickly process these one-to-five item customers using their present staffing within 90 seconds once the customer decides to checkout? CONSTRAINTS: 1. COSTCO has tried express registers and has found them inefficient. They have also tried self-checkout registers, but customers too often need assistance. Both these devices are deemed inefficient. 2. COSTCO does not want to add more registers due to the reduction in floor space. 3. COSTCO does not want to add additional employees. 4. COSTCO does not want to use RFID because most items are not RFID tagged. However, they are eager to use RFID in anyway feasible . 5. COSTCO wants the one-to-five item customers processed in less than 90 seconds once they decide to checkout.

2. Case Study: COSTCO GROUP INSTRUCTIONS: Get into groups of three to five. Choose a group leader. The group leader will take notes and will submit a typed document within one week describing the group’s plan for a system that will accurately process the one-to-five-item customers in less than 90 seconds once the customer decides to checkout. Each participant in the group will receive two points and the group leader will receive six points. Each group will have 30 minutes to discuss a solution. The class will take an additional 20 minutes, or longer, to verbally share solutions with other groups. CONSTRAINTS: 1. COSTCO has tried express registers and has found them inefficient. They have also tried self-checkout registers, but customers too often need assistance. These are deemed inefficient. 2. COSTCO does not want to add more registers due to the reduction in floor space. 3. COSTCO does not want to add additional employees. 4. COSTCO does not want to use RFID because most items are not RFID tagged. However, they are eager to use RFID in anyway feasible . COSTCO wants the one-to-five item customers processed in 90 seconds once they decide to checkout. All items purchased in this system must have barcodes.

3. COSTCO SALES MODEL Costco Sales Model Costco focuses on selling products at low prices, often at very high volume. These goods are usually bulk-packaged and marketed primarily to large families and businesses. Furthermore, Costco does not carry multiple brands or varieties where the item is essentially the same except when it has a house brand to sell, typically under the Kirkland Signature label. This results in a high volume of sales from a single vendor, allowing further reductions in price, and reducing marketing costs. If Costco management feels the wholesale price of a product is too high, they will refuse to stock the product. For example, on November 16, 2009, Costco announced that it would stop selling Coca-Cola products due to the soft drink maker refusing to lower its wholesale prices.[19] Costco resumed selling Coca-Cola products on December 14, 2009.[20][21] Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own bags or use the merchandise shipping boxes from the company's outside vendors. Lighting costs are reduced on sunny days, as most Costco locations have several skylights. During the day, electronic light meters measure how much light is coming in the skylights and turn off an appropriate percentage of the interior lights. During a typical sunny day, it is very common for the center section of the warehouse to have no interior lights powered on.[22] Most products are delivered to the warehouse on shipping pallets and these pallets are used to display products for sale on the warehouse floor. This contrasts with retail stores that break down pallets and stock individual products on shelves. Costco limits its price markup on items to 15%.[23] Credits: Wikipedia

4. FORMAL INVESTIGATION TRADITIONAL SYSTEMS INVESTIGATION: Systems Investigation is the first phase in the traditional SDLC (System Development Live Cycle) of a new or modified business information system. The purpose is to identify potential problems and opportunities and consider them in light of the goals of the company. Systems investigation answers the following questions: 1. What primary problems will a new or enhanced system solve? 2. What opportunities will a new or enhanced system provide? 3. What new hardware, software, databases, telecommunications, personnel, or procedures will improve an existing system or are required for a new system? 4. What are the potential costs (variable and fixed)? 5. What are the associated risks? INITIATING SYSTEMS INVESTIGATION This a formal procedure which required a SYSTEMS REQUEST FORM that includes the following information: 1. Problems in or opportunities for the system 2. Objectives of the system investigation 3. Overview of the proposed system 4. Expected costs and benefits of the proposed system NOTE: Always keep in mind that you will need top-level management’s support in order to drive the process. Without this support, the development of the system may never be completed.

5. FORMAL INVESTIGATION FORMAL SYSTEMS INVESTIGATION: THE INVESTIGATION TEAM 1. Managers 2. Users 3. Stakeholders 4. Information systems personnel. FEASIBILITY ANALYSIS 1. Technical feasibility: Can the necessary hardware, software, and other system components be acquired or developed to solve the problem? ECONOMIC FEASIBILITY 1. Does the project make financial sense. 2. Will the predicted benefits offset the cost and time needed to obtain them? NET PRESENT VALUE 1. Often used to rank competing projects and determining economic feasibility. 2. It represents the net amount by which project savings exceed project expenses, after allowing for the cost of capital and the passage of time. The cost of capital is the average cost of funds to finance the operations of the business. Net present value takes into account that a dollar returned at a later date is not worth as much as one received today because the dollar in hand can be invested to earn profits or interest in the interim. LEGAL FEASIBILITY 1. Are there laws or regulations that would limit or prevent the development of the system.

6. FORMAL INVESTIGATION OPERATIONAL FEASIBILITY 1. Can the project be put into action or operation? 2. There may be logistical or motivational (acceptance to change) considerations. Keep in mind that new systems affect people. NOTE: It is always best to involve the users in the development of the system. Let the users know that they are an important part in the development of the changed or new system. SCHEDULE FEASIBILITY 1. Determine whether the project can be competed in a reasonable amount of time: a process that involves balancing the time and resource requirements of the project with other projects. FINAL DOCUMENT: SYSTEMS INVESTIGATION REPORT 1. Summarizes the results of the investigation. 2. Suggests to management whether to terminate or proceed to the next step, system analysis. Credits: Principles of Information Systems by Ralph Stair and George Reynolds.