THE GENIUS OF SIMPLICITY
IT’S THE DIFFERENCE BETWEEN PERFECTION AND EXCELLENCE.
IT’S GOING TO COST YOU A LOT
MORE MONEY TO GET TO PERFECT, BUT EXCELLENT IS GOING TO COST YOU LESS.
anything that they’ve done. So we have a process in place, standards to help ensure that once a supplier has been with us for a certain period of time, typically at least one or two years, a decision to terminate that relationship must be vetted at the highest level of management.
If they’ve done something dishonest, if a vendor did something wrong, they’re out. If the proverbial manufacturer of butter cookies took a little butter out of the cookie because butter prices went up, changed the quality without telling us, that’s fatal. You have to be upfront and honest with us. At the same time, if the price of something has changed dramatically, come to us and talk to us about it, and we’ll work with you. Te message throughout the organization is that we want our buyers to be tough but fair with our suppliers. We want the best quality at a great price, and they won the business based on that. But ultimately we recognize that they’ve got to make money, too. We just want us and them to make a little money, a lot of times.
Q. Tere’s a lot of discussion in the military about the 80 percent solution. And that is, when you look at the portfolio, what you may want, ideally, may not be what you get because of pricing and because of
affordability, availability,
whatnot. From that point of view, to get back to the peach example, how does Costco choose which peaches it’s going to
get, other than through oversupply and the possibility of a discount?
A. Somebody has to prioritize all those requirements: What must you live with, and what can you live without? So we’ve started with the premise that you, the customer, will generally be happy with any one of the three or four high-quality brands. And we’ve also started with the premise that most cans of peaches are not bought to present them on a party tray in a particular way, in other words sliced vs. diced vs. halves.
Now that doesn’t carry through to every item. We’re going to sell only the best- quality fresh meat, USDA Choice and above, even though we might be able to save you money if we sold processed, Good or Select, which is certainly healthy and fine to buy, but it’s not the cut that we’re prepared to sell our members. In the case of peaches, many of those brands are fine, but there’s probably an institu- tional-grade can of peaches that we’re not prepared to sell, even though we could save the customer a little more money. Not that there’s anything wrong with it; it’s our choice.
logistics,
It’s the difference between perfection and excellence. It’s going to cost you a lot more money to get to perfect, but excellent is going to cost you less. You’ve still got to put a lot of effort into it. It’s
the same thing with the 80-20 rule: We’re going to sell the 20 percent of items that represent 80 percent of the sales. We’re going to spend all of our time focusing on the things that can accomplish 80 percent of what we do and recognizing that
those last
incremental improvements are inefficient.
little sometimes
Q. Getting back to the vendors, a follow- on question: How do you encourage cost efficiencies, productivity and innovation in your vendors? Do you have any sorts of incentives?
A. Tere’s no incentive, like, if you save us this much more, you’ll get a piece of the action. But when you get back to the limited selection, what always amazes people when they hear from our buyers is first, the degree of knowledge that they have, not only on the quality—if it’s apparel, the thread count; or if
it’s
food, commodity pricing—and the cost of the tin cans and packaging, and the freight costs. When we’re trying to manage 3,800 items in a location, the buyer’s trying to buy those 3,800 items compared to buyers managing 150,000 to 250,000 different items.
Part of our genius, if you will, is our simplicity. It’s a lot easier to be smarter on fewer things. We’re a very lean company. We don’t have any research
110
Army AL&T Magazine
April–June 2013
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