Costco

Wholesale
Industries
Food Processing Facility, Monroe, N.J.

NYIT INFORMS
Student Chapter

nyit.edu/management
Table of Contents
Introduction4
Organizational Structure 6
Continuous Improvement Program 7
Nabisco Assembly Line 8

Videos11
Current Production Capacity of Nabisco Line 11
Annual Goals of Assembly Line 11
Case Questions 12

Case Contributors 12
 Photo 1. Locations of
Costco Wholesale Stores

Introduction
Costco Wholesale Industries (CWI ) and Packaging are the key
businesses that support the hundreds of Costco Member Warehouses
around the world with products and services (see Photo 1 for its
locations in North America). Two of these businesses are the Costco
Packaging Facility in San Diego, CA and Monroe Township, N.J. These Photo 2. CWI Monroe facility

facilities process foods such as Halloween candy assortment mixes,

mixed nuts, trail mix, etc. as well as specialty designed packaging for
Costco’s retail suppliers to display products in warehouse aisles or
on the shelves. While the first one, located in San Diego, is primarily
serving the demands of customers living on or near the West Coast,
the second facility in Monroe is serving customers on the East Coast.
Each facility processes and packages food- and nonfood-related
items and ships these items to the 14 distribution centers located
throughout the U.S. and 5 distribution centers in Mexico and Canada.
These items are sold in Costco Wholesale Stores under their own
brand label, called Kirkland, and for other brands such as Elizabeth
Arden and Nabisco.
CWI, a food-processing facility located in Monroe, N.J., a 244,000-
foot facility, was established in 1995 at Edison, N.J., and thereafter,
it was moved to the current location ( see Photo 2 ). It currently
produces 27 food-related Kirkland brand of items and 51 nonfood-
related brands of items (8 Kirkland brands and 43 private brands).
The products produced at this facility shipped to 8 distribution centers
located in the U.S., and 5 distribution centers in Canada and Mexico.
These items satisfy demands of customers located from Texas to
states located in the East Coast, eastern states of Canada, and to
some European countries

4  Case Study: Costco Wholesale Industries Case of Study: Costco Wholesale Industries  5

Organizational Structure
Six departments primarily represent the functions of this
food-processing company. These departments are:
Food processing (machine line)
This department takes care of the food and nonfood
items to be assembled with the help of machines.
Special packaging (hand line)
This department takes care of the assembly process of
food and nonfood items that do not require machines
to package rather demanding completely manual works
from the employees.
Roasted coffee
This department engages in roasting green coffee beans
and then performs either grinding the coffee beans into
the coffee powder to pack into pouches or packing
roasted whole coffee beans into bags and finally
packaging such bags and pouches for shipment. This
facility is the only one in CWI that processes roasted
coffee in the U.S.
6  Case Study: Costco Wholesale Industries
Receiving and shipping
This department takes care of receiving food and
nonfood items shipped by vendors and of delivering
final packaged items to the distribution centers. This
facility currently manages 60 vendors, and in specific,
6 vendors ship coffee beans to this facility.
Inventory control specialists
This department consists of inventory control
specialists who monitor and control inventory. It uses
two information systems such as Costco Wholesale
Inventory Management System (mainly for financial
management) and JDA Warehouse Software (mainly for
production and inventory management) that connect
this department with other departments at this facility.
Administrative section
The main tasks of this department are planning for
annual budget, maintaining records, and managing
human resources.
Continuous
Improvement
Program
Rigorous implementation of continuous
improvement programs was started three
years ago at this facility. This program
was started with reducing the weight of
the over-packaged roasted coffee brand
called Kirkland Signature Ground Coffee
Medium Roast. In specific, Costco rigorously
implemented the quality control policy
of not allowing roasted coffee package
weight being less than 2.5 pounds and at
the same time, it did not set upper limit for
this package weight in order to improve
customer satisfaction. This policy led
assembly process to produce more numbers
of over packaged coffee packets. The first
continuous improvement initiatives carried
out in the assembly process of Ground
Coffee Medium Roast product supported
Costco to achieve cost savings of $97,000.
In particular, the following activities are
continuously implemented to improve
process management to achieve superior
quality in this facility:
5S An effective organization method
implemented in the shop floor
of this facility to help employees
to follow sort, set in order,
shine, standardize, and sustain
procedures in order to improve
productivity in the shop floor.
Visual Visual management is a method
Management of communicating the key
processes visually to shop floor
employees to quickly understand
the expectations from the
employees, the current situation
of their work cells, and key
process indicators of their work
cells. It is mainly implemented to
avoid mistakes on their ways of
production (Poka Yoke).
Kaizen This philosophy focuses on
continuous improvement in the
shop floor to eliminate wastes in
the form of time, cost, or materials
and to encourage standardization
of the work processes.
Overall All efforts are taken toward
Equipment matching the performance of
Effectiveness manufacturing equipment or
assembly process at this facility
against the design capacity.
Bottleneck This analysis identifies the places
Analysis where bottlenecks occur in the
workflow, analyses the causes of
these bottlenecks, and encourages
employees to address the
identified causes.
Cross Cross training is given to all shop
training floor employees within each
department to perform multiple
roles having an aim to reduce
product variability and workload
variability.
Annual Employees are imparted
training knowledge about lean
manufacturing programs and the
importance of implementing these
programs in the facility through its
annual training programs.
Case of Study: Costco Wholesale Industries  7
Nabisco Assembly Line
One of the private labeled product CWI assembling at this packaging
facility is Nabisco Assorted Cookies Variety Pack. This pack consists
of 9 units of Mini Chips Ahoy, 8 units of Ritz Bits (Cheese flavor),
8 units of Nutter Butter Bites, 9 units of Mini Oreo, and 6 units of Ritz
Bitz ( Peanut Butter ).
To assemble this Nabisco Variety Pack, CWI uses 12 employees
who are classified in this assembly line as Group A, Group B,
and Group C. The following is the step-by-step procedure used
in this assembly process:
1. The flat folding cartons, stacked at one end of the 8. Thereafter, all the filled-up cartons are automatically
assembly line, are squeezed to open as containers weighed to check as to whether each carton meets
and each one is kept on the conveyer belt very the weight standard;
close to each other by an employee who is called Photo 3. Box maker Photo 4. Filling station Photo 5. Glue machine operator
9. Then, all the flaps of the cartons are closed
Box Maker. This box maker takes less than 2
together with adhesive using a glue machine (see
seconds to do this activity and is also responsible
Photo 5); and weight of each packet is monitored
to move flat folding cartons from pallets to the
by the glue machine operator.
assembly line (see Photo 3)
10. Once all the cartons are glued, cartons are
2. As opened cartons move along the conveyor,
palletized for easy shipment by two palletizer
6 units of Mini Chips Ahoy cookie pack are added
employees who follow the two-step procedure:
into the carton at this stage 2 by a filler employee
(see Photo 4); a. Selecting a 4-way entry pallet and moving to
palletizing area (see Photo 6)
3. At stage 3, 8 units of Ritz Bitz (Cheese flavor)
cookie pack have been added by a filler employee; b. Stacking 20 cartons one over another for 7
layers (140 cartons in total) without going
4. At stage 4, 6 units of Mini Oreo cookie pack are
beyond the edges of the pallet (see Photo 7)
added by a filler employee;
11. In addition to the above workforce, there are
5. At stage 5, 8 units of Nutter Butter Bites pack have
two material handling employees working at this
been added by a filler employee thereafter; Photo 6. Moving pallets
assembly line. Each one is tasked to replenish
6. At stage 6, two different cookie brands (3 units of filling stations mentioned in stages 2– 4 and stages
Mini Chips Ahoy and 3 units of Mini Oreo cookie 5 –7 respectively (see Photo 8). The major task
packs) are added by a filler employee; of this employee is remove shrink wrap from the
raw ingredient cases, open the cases, supply to
7. At this final filling stage 7, 6 units of Ritz Bitz
their filling stations, and throw empty cases into
(Peanut Butter flavor) pack have been added into
the overhead conveyor belt or move to recycling
the cartons by a filler employee; Note: each filler
section (see Photos 9 and 10).
employee spends 3.33 seconds to fill each carton.

Photo 7. Palletization process

8  Case Study: Costco Wholesale Industries


Photo 8. Replenishing filling station
Photo 9. Discarding the empty cases
In addition to the employees responsible
to the assembly, the Quality Control
Technician is situated in between the scale
and glue machine in the assembly line.
This technician opens 5 boxes every
15 minutes to verify that there are 40 cookie
bags inside each box. He/she also opens
every box rejected by the scale. The rejected
box is checked for correct quantity (40 bags)
and type. The Scale is set to the tolerances:
net target weight of 3.12 pounds (lbs) or
1415 gram; net underweight of 3.04 lbs or
1379 gram; and net overweight of 3.25 lbs
or 1474 gram.
An empty Nabisco box (with glue) has a
target weight of 295 gram. Each sub cookie
unit bag weighs 28 gram. The weight of
the full carton with 40 cookie bags is 1120
gram (40 units x 28 gram). Further, the
forklift driver delivers raw ingredients and
packaging pallets to the production line
as well as removing stacked pallets to be
wrapped by the Automatic Pallet Wrapper.
Photo 10. Discarding the slip sheet
Videos
There are four videos available to understand more
about this assembly line and watch the responsibilities
of these 12 employees: https://goo.gl/ryFk69.
The videos are the property of Costco Industries,
so students should email Dr. Birasnav Muthuraj
(bmuthura@nyit.edu) to request access.
Current Production
Capacity of Nabisco Line
At present, this Nabisco assembly line accommodates
11 station employees and 1 machine operator
and is capable of producing 14 variety pack boxes
per minute and 6 pallets in total per hour (840 packs/
hours). The production capacity of this assembly
line could be altered by simply adjusting the speed of
the conveyor.
Each shift lasts 510 minutes (8.5 hours) during which all
the employees get two paid breaks (15 minutes each)
and one unpaid lunch break (30 minutes). Planned
maintenance activities are carried out in the beginning
and end of the shift that would last for 15 minutes, and
thus, the planned down time is 30 minutes. As a result,
the planned production time of this assembly line is
420 minutes.
Annual Goals of Assembly Line
This assembly line has set an annual goal of increasing
the production rate by at least 5%. In other words,
the goal is to increase the production rate from current
production rate of 14 packs per minute to 18 packs per
minute. This goal would help CWI to produce 54 pallets
of variety packs per day (18 packs/min* 420 minutes)/
140 units per pallet). This set goal will help the facility
to achieve the labor productivity of 90 packs/man hour
(18* 60 minutes)/12 employees).
Case of Study: Costco Wholesale Industries  11
NYIT INFORMS
Student Chapter

Case Questions
1. Propose one or two innovative and implementable ways to
achieve the set goal of increasing production rate by at least 5%.
2. CWI is looking for ways to improve the quality of the pack. In
this direction, suggest one innovative way to improve the quality
of these variety packs to exceed quality standards. At the same
time, they should reduce the cost of production.
3. CWI pays attention to employees’ welfare. To improve the
well-being of the 12 employees in this assembly line, recommend
creative effective ways to reduce the fatigue of the workers.
Your presentation should be restricted to 15 minutes
(5 minutes per question); 5 minutes will be added for discussion.

Case Contributors
Birasnav Muthuraj, Ph.D.
New York Institute of Technology, Old Westbury, N.Y.
Honor Delafuente
Costco Wholesale Industries, Monroe, N.J.
Carlos Vallejo
Costco Wholesale Industries, San Diego, C.A.
Amr Swid, Ph.D.
New York Institute of Technology, Old Westbury, N.Y.
A3754c/0219/50