Tuesday, September 29, 2009

Installment #3 – Thinking you can leave logistics to the end

As a company Costco has made it their business to perfect the movement of merchandise. If you have ever been fortunate enough to be in a warehouse prior to opening you know exactly what I mean. It is like a freeway in there, forklifts going 20 MPH, pallet jacks rumbling by and scaffolding towering above you. They even have a designated area for you to stand so you do not get hit. Costco works on the cross dock system meaning everything that hits their backroom is staged to go out the next morning, there is nothing permanently stored in the backroom. The end result to all of this movement is increased value to their member. The faster and more cost effective they can be at bringing products to the selling floor the more money they save and pass on to the member.

How does Costco manage this process and continue to move it forward? They make it a requirement to become a vendor. There is significant cost related to logistics (see routing guide) and should be evaluated prior to giving Costco final pricing.

Below are some of the logistical items related to doing business with Costco:

  1. EDI – Electronic Data Interchange is required by Costco warehouse in order to launch a full campaign. If you are not yet EDI compatible and starting from scratch this can be quite expensive. If you need help getting set up on EDI feel free to email me, TLB Consulting can offer you very competitive pricing on EDI set up.
  2. Delivered pricing – Costco will usually require delivered pricing to their Depot. This means whatever price you quote them should include shipping to all of their facilities. Costco has Depots all over the country and you will need to cost average shipping to all of them in order to know how much to build into the price.
  3. Display cost – Will your product have a display? If so Costco usually wants this for free. Build this into your cost to ensure you are covered.
  4. Packaging – Remember there are no sales people pushing your product at Costco. Your packaging and copy is there to be your silent sales person, don’t skimp on this area it can make or break you.
  5. Pallets – Costco usually requires a special pallet as product will probably be sold on the pallet you send your product on. CHEP pallets are most common at Costco and can be costly.

I am not trying to scare you away from Costco by giving you this information, just the opposite. Costco can be the best retail partner you have ever had, however if you are unprepared and provide them with a cost that does not take into account the cost of doing business with Costco you could end up making far less than anticipated.

Don’t hesitate to visit my website or contact me directly to learn how TLB Consulting can help you successfully navigate this process.

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Here is to your sales.


Installment 4 - Thinking you should take your product to Costco first.