Know what I like about Costco, besides the prices? The employees ALWAYS seem to be perky and happy.

Maybe that seems like a pretty low performance bar to reach, but if you interact very much with employees throughout America’s great retail environment, you’ll know that most workers range from ambivalent and occasionally helpful (at best) to downright brutish, surly and rude (which is much more common).

That’s why this week’s long Bloomberg Businessweekstory on warehousing giant Costco and it’s (relatively) new CEO Craig Jelinik was great to read, because it was a reminder that yes, you can operate in the retail industry in a way that both makes a decent profit AND treats employees and customers right.

Training Program 18 Months Program Our goal is for you to be able to do works at every department in the warehouse in order to operate warehouse. There are four big categories - Administration, Merchandise, Fresh and Ancillary. Costco’s executives focus on putting their employees first, which has lead to low employee turnover rates. In the long run, this increased rate of retention has allowed Costco to save on labor costs while continuing to provide employees with significant wages and benefit packages. The main pro and the sole reason most of my fellow workers are 'stuck' with this company are the benefits. After working there four years I cannot think of one person, save the a few managers, who actually enjoy working there.

A philosophy of treating workers right

Costco, the second largest U.S. retailer behind Walmart, runs more than 600 warehouse stores stocked with around 4,000 different products. It’s a pretty frugal shopping experience, but the prices and employee experience are hard to beat. In fact, my only gripe is with other customers who always seem to block the aisle as they figure out whether to buy that 36-roll pack of toilet paper or not.

But, clueless shoppers and their carts are about the only negative thing about the Costco experience, because I’ve never, ever dealt with a Costco employee who wasn’t chipper, upbeat, and helpful — and that’s not something you can’t say that about just about any other retailer. And as Businessweek points out:

Despite the sagging economy and challenges to the industry, Costco pays its hourly workers an average of $20.89 an hour, not including overtime (vs. the minimum wage of $7.25 an hour). By comparison, Walmart said its average wage for full-time employees in the U.S. is $12.67 an hour, according to a letter it sent in April to activist Ralph Nader. Eighty-eight percent of Costco employees have company-sponsored health insurance; Walmart says that “more than half” of its do. Costco workers with coverage pay premiums that amount to less than 10 percent of the overall cost of their plans. It treats its employees well in the belief that a happier work environment will result in a more profitable company. “I just think people need to make a living wage with health benefits,” says Jelinek. “It also puts more money back into the economy and creates a healthier country. It’s really that simple.”

Conscientious companies do well

What a concept: treat employees well and you’ll have a more profitable company, and a healthier country. But as simple as it sounds, you have got to wonder why so few companies, retailers or not, are willing to embrace this philosophy.

Most retailers “see their employees as a cost to be minimized and typically end up underinvesting in them,” says Zeynep Ton, an adjunct associate professor of operations management at the MIT Sloan School of Management. She thinks that ends up creating operational problems that shoppers are all too familiar with: surly employees in stores engulfed in chaos, an environment that makes ordering online look a lot better. …

Many conscientious companies such as Costco are performing well financially. Over the last few years, Nordstrom, the Container Store, Sephora, REI, and Whole Foods Market, all of which are known for treating employees well, have outpaced rivals. “This is the lesson Costco teaches,” says Doug Stephens, founder of the consulting firm Retail Prophet and author of the forthcoming The Retail Revival. “You don’t have to be Nordstrom selling $1,200 suits in order to pay people a living wage. That is what Walmart has lost sight of. A lot of people working at Walmart go home and live below the poverty line. You expect that person to come in and develop a rapport with customers who may be spending more than that person is making in a week? You expect them to be civil and happy about that?”

We need to heed the lessons of Costco

Doug Stephens makes a great point. You can’t expect employees to be happy, and treat customers right, if they aren’t being compensated fairly. This is a huge problem for the American workforce, because as the headline on New York Times business columnist Floyd Norris’ latest blog post points out, U.S. Companies Thrive as Workers Fall Behind.

I have three Millennials in my immediate family, and two of them are recent college grads struggling to find a real job and career beyond the part-time work they have been doing. It makes me wonder: who is going to pay for all the wonderful (and pricey) products we see advertised if no one is willing to do much hiring or pay the people they do hire a decent wage?

With a current presidential administration that does little more than pay lip service to helping foster real job growth, and a Congress that seems unwilling to put their partisan bickering aside, I don’t see any government-led help coming anytime soon.

That’s why we should hope there are a lot more business people willing to learn the lessons of Costco and truly invest in employees and treat them fairly, because believe it or not, that’s actually a smart business practice that has been proven to work.

Should we be surprised it’s tough for middle managers?

Of course, there’s more than Costco’s enlightened people policies in the news this week. Here are some HR and workplace-related items you may have missed. This is TLNT’s weekly round-up of news, trends, and insights from the world of talent management. I do it so you don’t have to.

• Older workers? They’re just more reliable. According to the British newspaper The Telegraph, “A study which examined performance in the workplace found age has an impact on how consistent we are at work, with older people showing less variation.” And, as the newspaper also notes, “The findings could have implications for the debate about the role of older people in the workplace.”
• How LinkedIn is stealing your best employees. We all know that LinkedIn has become a great recruiting tool, but this story in The Washington Post details just how it all works — and why you should be concerned about your workers. As the newspaper says, “LinkedIn has …shaken up the job candidate experience for workers of all sorts. Satisfied employees in high-demand fields are frequently getting unexpected nibbles to gauge their interest in new opportunities. And active job seekers might now face increased competition, as they’re often vying with candidates who don’t necessarily need a new job.”
• Surprise — life is tough for middle managers. I spent many years as a middle manager, and for as far back I can remember, the life of a middle manager has always been pretty tough. So, make what you will of this week’s Wall Street Journal story that seems to have just figured this out. See if this sounds familiar, from the Journal story: “Midlevel managers — whose ranks numbered 10.8 million in the U.S. last year, according to the Bureau of Labor Statistics — are often dismissed as paper-pushers, perpetuators of group think and symbols of organizational bloat. But management experts say they’re an essential layer of a company, turning top-line strategy into action, day by unglamorous day. Yet managing without much autonomy is stressful, and opportunities for getting ahead are limited.”
• How to make your office more fun. Leave it to Fast Company to come up with a list of 10 Ways to Make Your Office More Fun. Some of their suggestions: an office dog, communal lunches, and an in-house barista.

Costco Wholesale Corporation maintains its position as the second biggest retailer in the world through successful operations management (OM). The 10 strategic decisions of operations management tackle the operational concerns in various areas of the business. Costco has different operations management practices based on varying market conditions around the world. However, Costco has developed standards and policies for operations management throughout the organization in general. As such, Costco’s standardization helps ensure consistency and a unified direction for operations management toward the long-term fulfillment of its mission and vision.

Costco Wholesale Corporation successfully applies the 10 strategic decisions of operations management in all of its business areas through standards and policies for efficiency and productivity, despite variations in market conditions.

Costco Wholesale’s Operations Management, 10 Decision Areas

1. Design of Goods and Services. Costco Wholesale’s products are retail service, optical services, photo center services, and insurance services, among others. In this strategic decision area of operations management, Costco’s aim is to achieve the highest possible quality even with low costs. This is especially true with the company’s Kirkland Signature brand.

2. Quality Management. In this decision area of operations management, Costco Wholesale’s strategy involves service quality control through HR training and development, as well as co-branding using the Kirkland Signature brand to indicate high quality. The Kirkland Signature is especially effective in establishing consistency in quality in all Costco warehouses/stores.

3. Process and Capacity Design. Costco’s processes emphasize speed and efficiency for maximum capacity. In this strategic decision area of operations management, the company’s main objective is to optimize cost-effectiveness. Costco Wholesale’s warehouse-style stores contribute to this objective. For example, pallets used in the stores maximize the efficiency of moving goods while ensuring capacity utilization of these Costco facilities.

4. Location Strategy. Costco Wholesale’s strategy for this decision area of operations management is to maximize market reach. This is achieved through warehouses that are located in or near urban centers. Most of Costco’s locations are in cities. This strategy enables the company to maintain high revenues per facility, thereby contributing to the organization’s continued profitability.

5. Layout Design and Strategy. Costco Wholesale uses the warehouse-style layout for its stores. The company’s goal in this strategic decision area of operations management is to minimize the use of extra spaces. Costco uses its warehouse-style stores as retail spaces doubling as storage spaces. In this way, the firm does not spend for extra storage space.

6. Job Design and Human Resources. Costco’s strategy in this decision area of operations management highlights fast-paced jobs as well as internal leadership development to promote employees. Costco’s objective is to motivate employees and reduce turnover. Through internal leadership development, the company develops most of its leaders from its current employees.

7. Supply Chain Management. Costco has a supplier diversification strategy for this decision area of operations management. However, the company’s supply chain management is focused on quality and low prices. As a result, Costco offers a limited array of products at its warehouses/stores. The company does not sell products with high bulk/wholesale prices.

8. Inventory Management. For this strategic decision area of operations management, Costco Wholesale Corporation ensures inventory efficiency by using warehouse-style stores as retail and storage spaces in one. Also, the company displays goods in their shipping pallets, instead of arranging individual items on shelves. In this way, Costco reduces inventory costs.

9. Scheduling. Costco’s scheduling approaches are comparable to those of other firms in the retail industry. The company uses automated systems for scheduling most of its sales personnel, so that HR capacity utilization is maximized. In this strategic decision area of operations management, Costco Wholesale applies conventional strategies and tactics.

10. Maintenance. Costco has minimal maintenance costs for its facilities, considering that it uses warehouse-style stores. In this strategic decision area of operations management, Costco’s business model contributes to the ease of maintenance. Also, human resources are maintained through continuous hiring and a number of training and development programs to support Costco’s business needs.

Productivity at Costco Wholesale

Costco Wholesale Corporation’s measures for productivity are based on effectiveness and efficiency of retail service operations management. The following are some of the notable productivity criteria used at Costco:

1. Revenue per square foot (Costco warehouse/store productivity)
2. Stockout rate (inventory management productivity)
3. Prints per day (Costco Photo Center productivity)

Costco Employee Training And Development

References

Costco Employee Training

• Becker-Peth, M. (2012). Behavioral Supply Chain Contracting: Decision Biases in Behavioral Operations Management. Kolner Wissenschaftsverlag.
• Costco Wholesale Corporation Form 10-K, 2015.
• Kaki, A., Salo, A., & Talluri, S. (2013). Impact of the shape of demand distribution in decision models for operations management. Computers in Industry, 64(7), 765-775.
• Liu, S., & Jiang, M. (2011). Providing Efficient Decision Support for Green Operations Management: An Integrated Perspective. INTECH.
• Najdawi, M. K., Chung, Q. B., & Salaheldin, S. I. (2008). Expert systems for strategic planning in operations management: a framework for executive decisions. International Journal of Management and Decision Making, 9(3), 310-327.
• Verdaasdonk, P., & Wouters, M. (2001). A generic accounting model to support operations management decisions. Production Planning & Control, 12(6), 605-620.