Costco quietly solves huge organ problem, pain point

Costco quietly solves huge organ problem, pain point

The pandemic has made the average American think a lot about supply chain and logistics even if they don’t use those words. Most people think in terms of “Where is the toilet paper I ordered” or “Why can’t I deliver the fridge”, rather than in a more technical way.

Amazon (AMZN) Raising the bar when it comes to all things delivery related. Consumers expect that almost everything you order should appear the next day. The only exception to this might be really big items like hardware because the online leader doesn’t sell them (at least in part because fulfilling them is so challenging.

Many companies that sell hardware use third parties for delivery which adds costs and creates a layer over which the company has no control. costco (cost) who has been very cautious when it comes to managing members’ expectations about deliveries, has gone in a different direction.

The Warehouse Club has had several large and huge in-house deliveries and it has been very successful.

Costco wants to control the member’s experience

When a food delivery company messes up your order, it may or may not be related to the primary restaurant. Maybe the delivery driver didn’t take every bag or maybe he didn’t put where you ordered the baked potatoes in the bag in the first place.

Either way, at least some of your anger is directed at the restaurant, which has few, if any, options to correct the problem. Now, imagine if you ordered a large appliance – think a stove or a fridge/freezer – and the third-party delivery company made a mistake.

It could tell you the wrong day, miss a four (or even eight) hour delivery window, or simply not show up at all. This reflects poorly on the company which also cannot control how the situation is handled or any special requests are handled.

Costco removed these problems from its equation by buying its own fulfillment company. CFO Richard Galante provided an update on those efforts during the company’s second-quarter earnings call.

β€œWith Costco Logistics, we continue to move from seller shipping to direct shipping from our own inventory, particularly on large and bulky items,” he said, β€œOverall, this lowers the cost of merchandise and improves delivery times on service levels to our members.”

Costco has made great progress on delivery

Costco purchased Innovel Solutions for $1 billion in March 2020. Since this purchase, it has made great strides in its ability to deliver large items to its members.

β€œPrior to this acquisition, in the United States, for a few years we had been completing about two million large, bulky deliveries and installations annually,” Galanti said. β€œIn fiscal year 22, we completed 4.3 million large-scale deliveries and installations.

Previous Costco deliveries and installations of $2 million were carried out by third parties.

β€œIn fiscal year 22, we executed about 70% or just over 3 million out of 4.3 million. In the fourth quarter, in fact, that percentage of deliveries and installations that were made by us was 81%,” the CFO added.

Warehouse Club also enables improved delivery times.

β€œPre-acquisition, our average estimated delivery time was above 15 days, and we’ve been working with over 100 delivery partners. Today, our average delivery time is just under five days, and we’re continuing to work to improve that. Reducing the number of primary delivery partners to eight,” he said.

This may seem like a small solution, but this is Costco’s control of a portion of the selling and fulfillment process that it had previously placed in the hands of a third party. This allows it to control the process and make sure its members stay happy.

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