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BUS317 Strategic Management

TAFE Assessment Cover Sheet - nswQuestion: Strategic Management: BUS317

Write a corporate value chain 1000 – 1050 word essay on (“Megafactories: The Costco Craze”), construct the corporate value chain of Costco, identifying the key activities behind the competencies that have been developed to create for the firm. Why is the value created in the corporate value chain deemed valuable?

The essay is to be based on information gleaned from the video as well as your own research. It is to be fully referenced and grounded in theory.

1) Introduction
2) The value Chain – Inbound Logistic
3) The Value Chain – Marketing and Sales
4) The Value Chain – Human Resource Management
5) The Value Chain – Procurement
6) Core Competencies – VRIN Framework (Value, Rarity, Inimitability, Non-substitutability)
7) Recommendations – The effects of Environmental factors on Costco (List two factors)
8) References (APA) – At least 10 to 15 references

Answer: Megafactories: The Costco Craze


Costco Warehouse Corporation is headquartered in Washington, United States. The company is a membership warehouse club that is dedicated to providing its members with the best possible price on quality brand name merchandise. Costco provides a wide range of merchandise and members services to its members.

Costco provides a wide variety of products and services to businesses and homes from computers and clothing to gardening and food. Costco’s sales model is based on selling products at low prices and high volume. Costco does not have multiple brands it has its own private house brand name Kirkland Signature Label. Costco is designed to make the shopping experience pleasurable for members (About Us, 2014).

The Value Chain

Inbound Logistics:- The value chain of Costco Warehouse is the chain of activities operating to provide a valuable service to its members. Costco links all the primary and support activities in the business. Costco creates additional value in the value chain by performing all the inbound activities such as receiving material, storing, and distributing material inefficient way. The company has specific carriers.

The business uses the shipper load and count method to pay to the supplier by freight. The company orders product in bulk by the palette. The vendors or suppliers are responsible for packaging, loading, and counting orders (Bus 109, 2014).
Costco demand that all inbound loads should be delivered to the warehouse on shipping pallets rather than on stringers. These pallets are then used by the warehouse to display products on sale. This technique adds value to the supply chain by cost savings, operational efficiency, and time (Stacking up Pallet Pros and Cons, 2011).

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Marketing and Sales:- Costco aims that products and services are targeted to the correct customer group. The customer of the company is large families and business houses. The company uses multiple marketing mix strategies. The activities include advertising, channel selection, promotion of a product, selling, product pricing and retails management all these activities are synchronized to create value for the customer.

The company educates, communicate, and motivate the customer regarding product and services. Costco has used an effective marketing mix i.e. price, product, placement, and promotion. Costco has used a penetration strategy.
Costco focuses on selling the products at a low price and in bulk quantity. Keeping the price at a low company has grabbed a large market share. The company price its product after estimating the value created by-product to satisfy customer needs.

Costco adds value by placing the products to buyers worldwide through a strong distribution model that includes mass merchants, retail chains, independent stores, and small specialty stores.

The company also sells its products online through online retailers. The company promotes its selected merchandise by the Costco magazines publishes for members (Designing and Managing Integrated Marketing channels, 2009).
Human Resource Management:- The Company invests highly in hiring, training, recruiting, and compensation of employees. Costco is paying the highest wages and benefits in the retail industry. The company promotes employees from within. The company adds value by delighting the customer through a unique customer experience.

The company has instilled company mission and values in their employees; Costco has considerable added value by investing more in its sales associates, health care benefits, and work with unions.

The company’s effective HR management has added value to the whole value chain by low turnover cost per employee and higher profitability per employee (human Resource Strategy, 2008).

Procurement:- To reduce labor costs the company uses vendor-managed inventory. The system used by the company is Connection Hub, which integrates and manages all supplier listings. The activities include is the purchasing of raw material, supplies, machinery, fixed assets that are needed to carry on the basic secondary activities.

Costco has a simple procurement business plan where the company purchases directly from manufacturers and route all the purchases to a consolidation hub or individual warehouses in less than 24 hrs. The company warehouse system regularly checks which item is sold and products need to be reordered.

The purchase order is sent to the manufacturers for more products, and the product is directly shipped to the warehouse for restocking. The company creates value by rapid turnover rate and high sales volume. The company has very high operating cash flows which improve business working capital and help them to work more efficiently. The benefit of the value created at each step is passed to the end consumer (Taking Stock in Costco, 2013).

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Competitive Advantage:- The company is successful in delivering the best quality product at the best possible price. The core competencies of Costco lie in cost leadership. The company caters to affluent members who have the ability to make bulk purchases and are prepared to spend per visit. The company is filling the gap between retailers and wholesalers which is an attractive concept or member.

To have a cost leadership company does not hold the entire brand. It makes the company differs from its competitors (Costco what makes them competitive, 2012).
The company is a source of great value in terms of cost and benefits to its members than its competitors such as WAL Mart. The company supply chain model is inimitable, and it is an absolute advantage for the business. The company stock has received a premium valuation and cash flow operation is also rising.

The company uses innovative IT techniques and other strategic innovations have sustained competitive advantage over its competitors (Costco is too expensive, 2013).

The company strategy for competitive advantage is a mix of quality goods and services at low cost and differentiation. The company beat its competitors in competitive pricing and offering exceptional high-end value and services to its members. The company treats its customer with delightful service. Also, the company values their non-substitutable resources that are employees.

They treat their employees best in the warehouse industry by rewarding them with challenges and opportunities for career growth, competitive wages, and benefits, a healthy and safe working environment. The ethics followed by Costco differentiate them from competitors such as WAL Mart and Sams Club (Strategic Planning for Competitive Advantage, 2013).


Environmental factors have a considerable impact on the normal functioning of any business. These factors are challenges and threats to the success of any organization. The company should enhance its core competencies and make sound strategies to deal with environmental factors. (FEATURE: Current Events: Retail newsmakers, 2009).

The major environmental factors affecting the business are economic factors and demographic factors. The company performance is based on economic factors such as tax payment system, investment, and allowances, moving and raising of capital, price of a commodity, the monetary and fiscal policy of the country, and rate of exchange (FEATURE: Current Events: Retail newsmakers,2009).
Costco needs to operate efficiently by adhering to policies, improving customer relations,managing the risks, improving its reputation, and avoiding legal proceedings cost (5 Success Factors in Mastering the Retail Balancing Act, 2009). Demographic factors such as age, structure, gender, income distribution, family size, education, religion, race affect the performance of the business, Costco operates its business both in developed and developing countries.

The difference in population growth, the income level of families’ cultural diversity provides opportunities to expand its product line and sales volume (FEATURE: Current Events: Retail newsmakers, 2009). Costco to continue sustaining its core competencies and value its services must be vigilantly adaptive toward changing environment needs.

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About us. (2014). Retrieved June 1, 2014, from https://www.costco.com/about.html
Bus109. (2014). Retrieved June 1, 2014, from https://quizlet.com/19542242/bus-109-flash-cards/
Costco what makes them competitive? (2012). Retrieved June 2, 2014, from https://charmike4.hubpages.com/hub/Costco-What-Makes-Them-Competitive
Costco is too expensive. (2013). Retrieved June 2, 2014, from https://seekingalpha.com/article/1630012-costco-is-too-expensive
Designing and Managing Integrated Marketing channels. (2009). Retrieved June 1, 2014, from https://wps.pearsoncustom.com/wps/media/objects/2426/2484677/MKT101_Ch13.pdf
FEATURE: Current Events: Retail newsmakers. (2009). Retrieved June 2, 2014, from https://www.progressivegrocer.com/progressivegrocer/content_display/in-print/current-issue/e3if75f39c71ceea082832f58ed630bdf63
Human Resource Strategy. (2008). Retrieved June 1, 2014, from https://www.shrm.org/about/foundation/products/documents/hr%20strategy%20epg-%20final%20online.pdf
Stacking up Pallet Pros and Cons. (2011). Retrieved June 1, 2014, from https://www.inboundlogistics.com/cms/article/stacking-up-pallet-pros-and-cons/
Taking Stock in Costco. (2013). Retrieved June 1, 2014, from https://www.oldschoolvalue.com/blog/featured/taking-stock-in-costco/
Strategic Planning for competitive advantage. (2013). Retrieved June 2, 2014, from https://costcowholesalemarketing100.blogspot.in/2013/02/chapter-2-strategic-planning-for.html
5 Success Factors in Mastering the Retail Balancing Act. (2009). Retrieved June 2, 2014, from

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