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In today's business universe, the boardroom mantra ringing out across the globe is "control costs at all cost." Executives that have survived in a difficult business environment know that if you want to compete successfully, you must have increasing transparency into the costs of doing business.

As a direct result of the benefits offered by the Microsoft .NET platform, sweeping new improvements in information systems are helping managers to understand and drive down costs in managing both the goods and the service business. By leveraging the power of Teamplate for .NET with MBS Great Plains and an array of Microsoft .NET applications, system consultant and integrator Tectura has helped Costco Wholesale dramatically reduce the costs associated with managing its computer and peripherals business.

Costco Electronic Hardware Services: A Case Study
Costco Wholesale Corporation operates an international chain of membership warehouses, mainly under the "Costco Wholesale" name, that carry quality, brand-name merchandise at very competitive prices. Its Electronic Hardware Services (EHS) division was created in 1999 to recover cost and reduce losses on computers and peripherals returned by Costco members. Costco's EHS central refurbishment site handles returned merchandise from 346 Costco locations in North America and Puerto Rico. During the process, computers and associated peripherals are moved through the refurbishment cycle - repaired, tested, cleaned up, repackaged, and sold as refurbs. The process also includes filing and tracking warranty claims with manufacturers.

The mission of Costco EHS is to provide the highest quality, lowest cost refurbishing service whether through its in-house facilities or through third-party refurbishers. In order to gauge the effectiveness of its in-house processes, Costco EHS compares its own results to the equivalent refurbishment services offered by its partners.

Tracking and Accessibility Taken to Another Level
The key to determining the cost-effectiveness of in-house refurbishment is the collection of statistics and application of cost-accounting principles at various points in the refurb process. Data collection had to satisfy the following requirements:

  • Unique tracking of inventory costs at discrete steps within the refurbishment process and integration with financial systems
  • Track peripherals that were linked to serialized and reserialized CPUs and also linked to the receiving PO at the originating warehouse
  • Create a single database that 60 people at two locations could access as a single system
  • Automate processes within the refurbishment cycle
  • Create, submit, and track warranty claims
  • Gather support metrics to provide a clear indication of business profitability
  • Operate in a Microsoft-standard environment

    Workflow and customization of the accounting software were essential to the solution. The real business pain that EHS was trying to alleviate was its inability to accurately track inventory during the refurbishment process and the collection of decision support metrics. In addition, over 60 EHS employees were at two different locations - corporate headquarters in Issaquah and Sumner, Washington - including skill-specific technicians, warranty claim administrative staff, shippers, receivers, inventory management, parts clerks, sales representatives, and operations management. The tracking and measurement system had to provide the capability to have all employees act as one team and replace multiple site-specific databases with a single, secure, high-performance database.

    One of the main challenges was the sheer volume of returns processing. In one week, moving refurbished items from "receiving" to "saleable" totaled 1,000 items received to 600 items in saleable condition. Each item moves through inventory transaction sites up to eight times during the refurbishment process - over 7,000 inventory transactions per week would be required to clearly understand the finer details of the business. Prior to the solution implementation, the refurbishment site was tracking only two inventory transaction sites - Received or For Sale. The Teamplate for .NET solution now provides the sales staff with real-time status of the refurbished items prior to their availability for resale.

    Shay Reed, EHS Manager, along with teams from TECTURA and Teamplate, leveraged the strengths of Microsoft Business Solutions and the Teamplate for .NET workflow automation tool to develop a solution to meet Costco EHS's unique requirements. This solution provides the ability to track equipment at the serial number level, and also enables EHS to track the components and peripherals related to a specific serial number as distinct inventory items through the entire refurbishment process. The system also sustains the relationship of "item" to "parent serial number" through to the originating warehouse. The item cost is also captured to compare it to the market resale value at the resale step. The ability to track 7,000 inventory site movements per week was made possible using the Template for .NET workflow automation capabilities and creates the ability to determine profit or loss for a particular item.

    As a computer moves through the refurbishment process, warranty claims to the manufacturers for parts and labor are initiated at the click of a button. Teamplate for .NET launches a new process enabling the Warranty Claim Administrator to enter the warranty claim at the manufacturer's site and tracks the specific warranty claim until it is reconciled in the financial system. Previously, the majority of warranty claims were on the larger items, such as CPUs and monitors. Other peripheral items, like keyboards and mice, were not as frequently claimed due to the difficulty in tracking the peripheral and linking it to a specific CPU serial number.

    The automated process also helps to ensure the appropriate skill level and cost labor is being utilized to maximize resources available.

    The Teamplate for .NET interface automates inventory transactions and updates the Great Plains database, replacing the site-specific databases and providing the exact status of inventory position. Now able to break down the available information to the component level, EHS can effectively manage product flow and business activity to ensure the highest cost recovery position. For example, EHS may identify a number of inventory items to move through the refurbishment process more quickly to meet a sales order delivery date and create a higher profit.

    Teamplate for .NET is the user interface at the Sumner, Washington location. It provides management of the automated workflow affecting the appropriate use of business rules of the refurbishment life cycle. At the Issaquah corporate location Great Plains and Teamplate for .NET operate in tandem as the user interface, providing financial reporting and analysis capability.

    After reviewing nine different possible solutions, Costco selected MBS Great Plains integrated with Teamplate for .NET. The selection was based upon flexibility, expandability, cost, and the ease with which the average user could understand and apply the program to their daily functions. Technically, the solution had to be compatible with the Microsoft product family currently in use at EHS in order to provide data integrity and seamless integration. Additional criteria, including financial stability of the vendors and ongoing support were considered prior implementation.

    As a result of the success realized with the refurbishment tracking and the analysis system, other business areas have been earmarked for automation with Teamplate for .NET workflow. They are:

  • Interfacing technical calls with the refurbishment process
  • Integrating the warehouse receiving
  • Incorporating parts inventory into Great Plains
  • Automating the sales process
  • Determining additional cost recovery through innovative packaging processes

    The Power Behind Automation
    Managing the business from a workflow perspective is an innovation - knowing the status of processes in real time provides the division with the visibility into "soft costs" that were previously unavailable. Now, Costco EHS can determine the real costs of their repair business, which items provide the highest cost recovery to repair, or which inventory to use for particular end products. All of this provides management with information that enables a streamlined, successful operation.

    The unique requirement of tracking inventory through the refurbishment process has created an innovative way to apply standard financial accounting software. Perpetually tracking the inventory item, and its cost at a specific process step, has created the "Specific Life Cycle Cost Tracking" accounting approach. This required unique customization of the Great Plains system and the Teamplate for .NET workflow. In most cases, companies track standard costs by aggregating product costs. Costco EHS wanted to break every item received into its many component pieces, cost it, and then tie it back to the originating Costco location at any given time.

    By providing low-cost, high-quality refurbishment services, Costco EHS reduces the cost associated with returned merchandise. Ultimately, by reducing the cost of returned computers, EHS provides Costco with a means to achieve their business objectives - leveraging creative ideas to exceed business expectations and providing its members with cost-effective products. In the computer market, this translates to consistently pricing equipment more competitively and minimizing inventory write-downs.

    The innovative techniques of automating the refurbishment process have created another unique position in the marketplace. Now that EHS controls refurbishment by serial number, Teamplate for .NET instantly flags if a serial number has been through the process before and captures how it arrived at the site a second time. EHS can now sufficiently track the item to maintain program standards originally set by the manufacturer, ultimately providing a higher quality product for resale and, therefore, improved cost recovery. Before the solution was implemented, it was impossible to provide proof that every component in a unit had been through the refurbishment process and met those standards. In turn, this provides confidence to the warehouse and legal department that all items sold have met Costco's high standards, and eliminates the risk of legal action.

    Positive Impacts
    Several business problems were solved by Teamplate for NET. The most impactful were:

  • Unique tracking of inventory costs at discrete steps within the refurbish process integrated with financial systems
    - Business Impact: Information captured during the refurbishment process is automatically integrated with financials, enabling management to make business decisions with real data
  • Track peripheral items to serialized and re-serialized CPUs while linking the receiving PO to the originating warehouse
    - Business Impact: Clearly identifying costs associated with a single item to establish a true chain of costs associated with the refurb process
  • Create a single database that 60 people in two locations could access as one
    - Business Impact: Confidence in data integrity
  • Automate the refurbishment process
    - Business Impact: Better resource planning and utilization, reduced training on how refurbishment process works and reduction in administrative tasks for technical staff
  • Create, submit, and track warranty claims
    - Business Impact: Increased capability to submit all eligible warranty claims and increase cost recovery percentages
  • Gather support metrics to provide a clear indication of business profitability
    - Business Impact: A true cost recovery view is now available, triggering plans for increasing cost recovery and reduction of administration efforts on two third-party programs
  • Operate in a Microsoft-standard environment
    - Business Impact: Successful implementation of an integrated solution and rapid development of changes or enhancements as the business dictates

    One of the most dramatic results from implementing the Teamplate for .NET solution was the ability to identify repeat trouble patterns before the manufacturer did. In one example, this observation resulted in 100% cost recovery from the vendor and Costco was proactive in removing the item from sale, thereby avoiding further returns. Prior to EHS, these defective, returned computers would have been sold to a standard salvager at 22 cents on the dollar. This 100% cost recovery was valuted at more than $300,000 compared to $88,000 from salvage - a 354% increased cost recovery in this instance.

    By controlling refurbishment in-house, Costco EHS is saving costs associated with hiring third-party refurbishment companies. These costs include flat refurbish rates of $55 to $90 per unit and a sales commission, plus the cost of replacing necessary parts. The average cost of third-party refurbishing is $150 per unit. Costco EHS provides Costco with a flat rate of $50 per unit without any additional cost for the part or sales commissions. This is a saving of $100 per unit - a 66% reduction in refurbishment costs compared to industry standards.

    Next year's business plans consider bringing all units currently sent to third-party refurbishers in-house. Based on projected volume, estimated cost recovery for that year will be over 3 million dollars - an increase of 66%.

    The Next Frontier
    The entrepreneurial spirit that Costco is recognized for is founded on taking risk, changing, and adapting to change to facilitate business.

    Costco EHS was looking for a powerful solution secure enough to handle their needs but with unlimited flexibility to add new functionality to the solution, as their business needs changed. This directly corresponds to the decision to go with a .NET platform. As an early adopter of this technology, EHS decided to take a risk on the newest technology on the horizon. Weighing the implementation costs and the life expectancy of the solution with the stability of the .NET environment and its future capabilities, EHS was able to make their product decision. They also had a very good comfort level that TECTURA and Teamplate would create the right solution and support any issues encountered.

    The decision to go with .NET directly translated into quick, low-cost development of application enhancements to meet the ever-changing demands of Costco EHS. Most changes are expected on the fly. Creating solutions to difficult issues and working way outside of the box, TECTURA found there were no limitations or extended development efforts encountered in working in the .NET world. Flexibility within the solution was key and the speed of development was evident in creating the new process. After requirements were determined, the solution development and implementation happened in less than 14 days.

    An important EHS philosophy on successful technology implementations is to minimize the number of platforms, products, and vendors applied to a particular solution. There is also a requirement for using core Microsoft products with a SQL foundation. In this way, data integrity, which is of primary importance, can be more easily maintained.

    EHS is looking forward to a continued partnership with TECTURA, automating additional processes that can benefit from Teamplate for .NET as well as integrating with Microsoft Business Solutions.


    The Technology
    The integrated solution incorporates the following technologies:

  • Great Plains, Version 6.0, 10-user license: Implemented modules include:
    - General Ledger
    - Inventory Control
    - Sales Order Processing
    - Purchase Order Processing
    - Receivables Management
    - Payables Management
    - Landed Cost
    - Refund Checks
    - Customer/Vendor Consolidation
    - FRx Desktop
  • Teamplate for .NET
  • Microsoft SQL Server 2000
  • Microsoft Windows 2000
  • Microsoft Exchange and Office
  • Microsoft Access
  • - Microsoft Internet Explorer

    Author Bio
    Bringing a unique blend of business, sales and computer experience, Jennifer Peers has a distinctive approach to interviewing a client and encapsulating the business value and benefits of their particular situation. [email protected]

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