Costco Aims To Bring Refurbishing Computer Systems In-HouseCostco Aims To Bring Refurbishing Computer Systems In-House

Consumers know Costco WholeSale Corp. as a place to buy in bulk things such as paper towels and snack-size M&Ms; stock up on socks and underwear; and even get a good deal on a PC, notebook, or handheld. But Costco has realized that it can't follow the same procedures for dealing with a returned $999 PC as it does for dealing with a pair of $19.99 jeans--that is, hand them off to a local or national salvager for pennies on the dollar. As the retailer moves closer to its goal of becoming the single source of refurbishing these systems for resale, it's refining its business processes for tracking returned hardware from any of its 385 warehouses to its refurbishment center until those systems are resold.

Costco's Electronic Hardware Services division receives approximately 2,200 to 3,500 systems, valued at $750,000 to $1.5 million, every 30 days from its warehouses at the refurbishment site in Sumner, Wash. The site is staffed by about 45 workers. Costco's plan is to have enough capacity to do all the business in-house within the next 18 to 24 months, says Shay Reed, the company's electronic hardware services manager. For now, Costco also maintains relationships with two third-party refurbishment centers.

"We started this little adventure on an Excel spreadsheet" back in 2000, Reed says, then migrated to a homegrown Microsoft Access database before deploying Microsoft's Great Plains accounting package to maintain data integrity and track results, and Teamplate Inc.'s business-process management software to smooth workflow in the middle of 2002. Costco has to make sure it's operating this new business effectively, but accurately tracking inventory and collecting decision-support metrics was difficult before it invested in the new technology.

"We're Costco--a low-margin business, not a refurbishment facility--so we needed to prove that this is a business we should be in. You need on a line-item basis what the benefit is to the bottom line," Reed says. Also, the warehouses had to be assured they were benefiting from the deal--though individual warehouses lost money selling to salvagers, each required assurance that it would reap the benefits of the new process directly and not be penalized for other warehouses' shortcomings. This all made it critical to be able to account for each and every item at every stage, at the serial-number level. Before implementing the software, Costco automatically tracked only two of the eight inventory transactions--receiving the item, checking that all components are included, performing a system restoration, doing quality assurance, packing, and so on.

The process of moving items from "received" to "saleable" now is about 75% automated, with processes that flow from Teamplate becoming transactions in Great Plains software. The division hopes to increase that percentage by adding automated search, warranty and parts invoice reconciliation, and warehouse interface workflows to the mix in the near future. Most recently, Costco added a new workflow for parts reordering and manufacturer reimbursement for warrantied components; the process enables the automated submission of requests to manufacturers for the specified credit or part order, verifies that the part is received, and makes sure that requested credits are received by reconciling them against the manufacturer's final documents, to keep transactions from slipping through the cracks.

Before the software installations, it was difficult to track and project-recovery rates because the mechanics that produced financial statements weren't automatically generated or specific. Any system lacking the capacity for research and audit creates a "hold-your-breath-and-cross-your-fingers" opportunity, Reed says. Now it can project down to a penny on a daily basis what's in, what's sold, and what kind of parts are on hand.

The process of choosing the technology was an intensive effort, requiring two years of research to find workflow software that offered flexibility to make coding changes so Costco could upgrade process efficiency as needed. Reed decided to go with the slightly more expensive .Net version of Teamplate. She declined to provide cost specifics but did say that there are extra fees for adding processes to the mix, with the help of services integrator Tectura Corp., in addition to the up-front license fee.