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Lesson #3: Use Technology to Temper Your Costs

Article Overview: When one thinks of Costco, a company with a thriving technological edge is not necessarily the first thing that comes to mind. But, while Sinegal might not be your typical CEO, he does understand the importance of utilizing technology to his benefit. Not only has modern technology helped Costco automate many of its operations, but in keeping with Sinegal’s all important goals, has helped the company lower its costs.

Lesson #3: Use Technology to Temper Your Costs

When one thinks of Costco, a company with a thriving technological edge is not necessarily the first thing that comes to mind. But, while Sinegal might not be your typical CEO, he does understand the importance of utilizing technology to his benefit. Not only has modern technology helped Costco automate many of its operations, but in keeping with Sinegal’s all important goals, has helped the company lower its costs.

“Technology has made us much more productive,” says Sinegal. “With computers, fax machines, and cell phones we have more productive time during the course of the whole day and can react to situations more immediately.” Indeed, Costco’s computer system is a relatively sophisticated one. With a wireless record of purchases, Sinegal can get into the systems of any of his warehouses anywhere in the world without ever leaving his desk, to check on such things as how one item might be selling during the day. “Sometimes we have so much information it’s more than we can deal with,” he says. “Our web site and our e-commerce business are also profitable on a fully allocated basis, and that is somewhat of a milestone.”

Sinegal also embraced the concept of energy management and conservation early on, using technology to cut down on his energy demand. Costco stores make heavy use of skylights and controlled lighting based on the time of the day. They use high efficiency heating and air conditioning, and are venturing into photovoltaics, or the use of solar panels to generate electricity, and the use of hybrid delivery trucks. On an environmental side note, Sinegal also gives subsidies to his employees who carpool or use monthly bus passes. He believes that these efforts will not only benefit the communities in which Costco does business, but also the company’s shareholders and members in the long run.

Despite Sinegal’s embracement of new technologies in his bid to create a lean and efficient operation, he is wary not to go too far. “Technology helps us become more efficient and productive but our business still has a lot of art as opposed to strictly science,” says Sinegal. “The reason that the dot-com companies didn't succeed is that they were very good at the science end but they didn't understand anything about the art of buying and selling merchandise. They thought that was the easy part but it turned out to be the most difficult.”

Sinegal makes sure his Costco team understands that buying and selling merchandise is the real business of their company, while everything else simply augments that aspect of it. “If you don't have the right merchandise in the right place at the right time you can forget about everything else,” he says. “All the satellites in the world aren't going to help you.”

No matter how much online business is moved in the future, Sinegal still sees the future of shopping in physical stores. “People are still going to want to go out and have that social exchange,” he says. To that end, Costco focuses all its energies – and technologies – on making that experience the best it can be.

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