Costco's Computer Redux

Consumers know Costco WholeSale Corp. as the place to buy paper towels and snack-size M&Ms in bulk, stock up on socks, and even get a good deal on a PC, notebook, or handheld computer. Many consumers, however, probably don't know that Costco is building a business refurbishing computers.

Costco realized it doesn't make sense to use the same procedures for handling a returned $999 PC as it does for dealing with a pair of returned $19.99 jeans. To handle the thousands of returned computers it gets each month, Costco had to refine the way it tracks that hardware as it moves from one of its 385 warehouses to its refurbishment center and is then sold by Costco's electronic hardware-services division and corporate sales staff.

Every 30 days, the division receives 2,200 to 3,500 returned computers, valued at $750,000 to $1.5 million. The computers are refurbished at a Sumner, Wash., site by about 45 workers. Costco plans to expand its own facilities and staff in the next 18 to 24 months to handle all returned systems, says Shay Reed, electronic hardware-services manager. The company also uses two third-party refurbishment centers.

The refurbishment effort started in 2000, and the software used to manage the process has gone through a number of changes. "We started this little adventure on an Excel spreadsheet," Reed says. The division then deployed a home-grown Microsoft Access database before shifting to Microsoft's Great Plains accounting package to maintain data integrity and track results. The division also implemented Teamplate Inc.'s business-process management software last year to smooth workflow processes.

"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," Reed says. "You need [to show] on a line-item basis the benefit to the bottom line."

One key goal: To be able to account for every item at every stage, at the serial-number level, and to automate as much of the process as possible. Today, the company has automated about three-quarters of the process of moving items from "received" to "salable." Still on the to-do list are adding automated search, warranty and parts invoice reconciliation, and warehouse-interface workflows. Costco most recently automated parts reordering and manufacturer reimbursement for components under warranty.

New revenue-generating opportunities drove 23% of respondents in anOptimize survey to improve operational efficiency.

Costco chose workflow software that offered flexibility to make coding changes so that the company 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 says there are extra fees for adding new processes, with the help of services integrator Tectura Corp. Teamplate for .Net ranges from $10,000 to $500,000.

Teamplate has an edge because it was first to market a full .Net system incorporating Web services, Gartner analyst Toby Bell says. The software's graphical interface, its integration with Microsoft technologies, and its ability to change workflows on the fly are advantages, he says.

How's the project doing? Success is based on recovering the most value from the used computers and reducing losses. On that level, Reed says, "we're exceeding expectations."