Costco is a membership warehouse club, dedicated to bringing its members the best possible prices on quality brand-name merchandise. With over seven hundred locations worldwide, Costco provides a wide selection of merchandise, plus the convenience of specialty departments and exclusive member services.
Improve productivity and sustainability in the fresh foods department
In a long-term mission to modernize its business processes, Costco was looking at ways to improve productivity and sustainability in the fresh foods department. Accurate demand forecasts are key to always having the right quantity of fresh items available when shoppers arrive. While unsold or damaged food items at Costco are not thrown away but donated to charity, it is simply not sustainable to spend time on producing items that aren’t going to sell.
It is the task of the bakery manager to anticipate the quantities of each item to produce every single day. Prior to the engagement with SAP, a bakery manager would need to develop a paper-based production plan by reviewing daily and weekly sales and trend reports, assessing local events and experience developed over time (known at Costco as “tribal knowledge”). These plans would be adjusted daily, based on daily carryover (items remaining on the floor) and damage and destroy items, and then the bakery team would kick-off the baking process for the day.
You can only teach what you know
In a Design Thinking workshop led by the SAP AppHaus in Palo Alto the ground work for a technology transformation was laid. Among the participants of this workshop were several managers and supervisors from Costco bakeries as well as Costco’s Senior Vice President of Fresh Foods, Jeff Lyons.
Following Jeff Lyon’s motto “you can only teach what you know”, which is also at the core of the SAP AppHaus philosophy, in-depth user interviews and user shadowing at four Costco warehouses were used to develop a journey map to showcase the day–to–day tasks of a bakery manager. These insights allowed the workshop participants to understand the as-is process and the opportunities to better serve the bakery team.
Based on this knowledge, the group co-created a future state bakery experience: a tablet-based solution that brings the data and insights into the bakery, digitizing the manual processes, and leveraging machine learning to provide a planning forecast for each bakery item.
Involving end users in the project from the beginning was key to project success.
We want to educate our employees along the way and share with them why we’re doing this. They get on board, and it’s a win-win because the employee is now engaged in the process.– Jeff Lyons (Senior Vice President of Fresh Foods, Costco)
A transformed bakery planning experience
SAP developed a digital solution to automate the paper-based planning process. Leveraging machine learning forecasts to control the bakery production increased planning accuracy significantly and automated much of the “tribal knowledge” that bakery managers use to plan weekly and adjust daily.
The machine learning algorithm initially uses 7 years of sales and promotions data, and leverages demand influencing factors such as weather, holidays, and sports events to accurately forecast demand for every bakery item produced.
Keeping it fresh with machine learning
Machine learning helps Costco meet the demand to have product that is both fresh and available, while reducing the related waste created by constantly stocking and restocking. Knowing the answer to a question like “Do people go shopping before visiting a sports event or after” is a huge help for making the right decisions in a production plan.
A rollout of the new solution to over 500 bakeries in the US is in progress. Costco is also exploring opportunities to use a human–centered approach to address business challenges in other parts of fresh foods business, such as the service deli and food courts.