Inventory and costco s strategy

Sales, general and administrative expense of 9. Thirty years later, Costco is now the third largest grocery retailer in America according to Supermarket News. The club membership concept is clearly a winning formula and perhaps the only downside is that there is a minimum population threshold required to support the sales throughput of a warehouse store. Over the past 5 years, Costco Canada has only opened 10 new stores which is a small fraction of the new stores opened globally during the same time period Costco operates in the U.

Inventory and costco s strategy

It is a learning lesson that we can all benefit from. Quite simply, the more fingerprints on the box, the more money that is spent moving the box to the store shelf.

Costco has figured out how to minimize the fingerprints — plain and simple. Costco operates a mix of distribution facilities to accomplish the overall objective of operating with an efficient supply chain.

Costco purchases the majority of their merchandise directly from manufacturers and routes it through a network of cross-docking facilities which act as vendor consolidation points to move goods in full truckload volumes to the stores.

Depots receive truckload or container-based shipments from manufacturers Goods are allocated and then shipped to storesgenerally in less than twenty-four hours. To the greatest extent possible, goods are handled through the depots in full pallet quantities meaning that a forklift handles a full pallet of merchandise Inventory and costco s strategy receiving and at shipping without the need for people to touch individual cases.

At the warehouse stores, forklifts move pallets into racks such that the first time an item is physically touched is when the consumer reaches into the rack to pick the item and place it into their cart.

Thus the first time that a Costco employee touches product is at the cash register for most but not all of the items being sold. Contrast this approach to the traditional multiple-step supply chain that may include some or all of the following activities: Manufacturer produces goods that are shipped to a distributor or middleman in full truckload or less than truckload shipment quantities such that there is a shipping inefficiency combined with multiple touch points at both the shipping and receiving ends of the transaction.

Distributor then ships to the retailer distribution center in full truckload or less than truckload shipment volumes such that full cases are picked and shipped by the distributor with inbound pallets being received, putaway and then replenished to pick slots by the retailer. Retailer then picks store orders in full case quantities such that every case has a set of fingerprints, regardless of whether the product is picked to a pallet or to a flow through conveyor system.

Thus there can be many touches for a single carton of merchandise. At the store, the case is touched again at the back room as it is sorted and later on the store floor when it is opened and replenished to the store shelf.

In the traditional supply chain, some or all of the above steps combined add a substantial amount of cost to move goods through the supply chain. One way of thinking about this is to add 25 cents of cost to each case of merchandise every time a person touches the box.

This is why Costco saves money — they have figured out how to minimize the fingerprints. Now it is important to recognize that the Costco formula has its limitations. It is predicated on moving massive volumes through few selling points therefore store formats are large in terms of footprint which is why they are called warehouses.

Only stock and sell the fastest selling products and only sell one packaging format per item which forces high volume consumption. Notice that toothpaste is sold in one format only e. The emphasis is on keeping costs down such that consumers are walking through a warehouse environment rather than a high-end supermarket.

After all, moving full pallets of products requires forklift trucks to operate in the same aisles as consumers which creates limitations on the look and feel of the shopping environment.

Inventory and costco s strategy

Perhaps the only thing that Costco has not quite figured out how to do well is to build their parking lots big enough. Regardless of the time of day or the day of the week, Costco parking lots across Canada are almost always busy with shoppers loading up on forward buys of consumables amongst other things.

In fact, sometimes it can actually be a turn-off to shop at Costco because it is too hectic of an experience, such as on Saturdays or during peak holiday shopping periods. The lesson to be learned from Costco for every manufacturer, distributor or retailer, regardless of industry, is to figure out how to eliminate the fingerprints within your supply chain and within your internal processes.

If you can figure this out then you stand to gain the type of competitive advantage that has enabled Costco to become the third largest retailer in the U.

He can be reached by clicking here.Sep 10,  · Costco's Strategy for Avoiding the Bullwhip A primary concept of effective inventory management is balancing the cost of holding inventory with the costs of stocking out.

Wholesale superstore Costco seems to have nearly perfected this balance. Costco has a simple strategy for winning — concentrating on driving sales.

The company believes that if sales are good, "everything else will take care of itself," Goldman Sachs writes in a. What are the chief elements of Costco's strategy? How good is the strategy? 3.

Costco provides for estimated inventory losses between physical inventory counts as a percentage of net sales, using estimates based on Costco's experience. The provision is adjusted periodically to reflect physical inventory counts, which generally occur in the second and fourth fiscal quarters. Costco’s business model depends on quick inventory turnover and high sales volume, this means that supply chain management is an integral part of Costco’s success. The high sales volume was achieved through low prices and the limited number of products offered 3/5(2). 2. Quality 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.

Do you think Jim Sinegal is an effective CEO? What grades would you give him in Because of its inventory turnover, Costco it.

Costco’s Business Model Is Smarter Than You Think | Investopedia

able to sell inventory before that inventory payment is due to manufacturers. This allows. Costco’s business model is focused on producing high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of national name brands and select private-label products in a wide range variety.

Jan 31,  · From packaging, sales, and marketing to shipping and inventory management, sowing entrepreneurial seeds in Costco soil yields a high level of productivity and effectiveness.

That’s how a. Costco provides for estimated inventory losses between physical inventory counts as a percentage of net sales, using estimates based on Costco's experience. The provision is adjusted periodically to reflect physical inventory counts, which generally occur in the second and fourth fiscal quarters.

Costco's Mission, Business Model, Strategy & SWOT - Panmore Institute