Premium Essay

Inventory Management of Costco

In: Business and Management

Submitted By heibaby
Words 414
Pages 2
Costco and data managing partner Information Resources, Inc. (IRI) joined forces in 2004 to create an innovative inventory system technology providing real time inventory information called Collaborative Retail Exchange (CRX). Inventory is monitored and re-ordered as part of this continuous re-order system. This continuous re-order system is used in a market setting in which demand over a period of time is uncertain and fluctuating. Costco adds estimated future demand during lead time (based off past sales) combined with a sales cushion during lead time (which is necessary due to market demand fluctuations) in order to find a reorder inventory point. Once stock falls below that reorder point “R” an order is immediately placed. The quantity ordered is the same amount calculated under the EOQ equation. This ensures a constant amount of stock necessary to meet market demand.

CRX System Data

The CRX system gives certain suppliers access to information such as how many items were sold in the last week and current inventory levels. These suppliers must be approved by Costco before granted access to this private data. IRI offers the service to those suppliers of managing and notifying suppliers that inventories are dangerously close to the reorder point and once they point is actually reached. This system is innovative because its puts inventory management mostly in the hands of the suppliers, whose job is to ensure Costco has sufficient inventory to meet market demand. Suppliers are truly in control of their own inventory. Once an item is scanned and a sale has been completed, the system is automatically updated and inventory managers are notified if inventory levels are nearing or have reached the reorder point. The main goal of the CRX was to improve communication between Costco as a company and its suppliers. Costco decides which suppliers are allowed

Similar Documents

Premium Essay

Case Analysis

...FIN3000 Term Project Costco Wholesale Corporation Introduction: Costco Wholesale Corporation sells a wide variety of quality, brand name products at substantially lower prices than other discount or retail stores from electronics, to produce, to clothing. In order to operate in this way, the company buys products straight from the manufactures and then sells them in bulk in a warehouse. Consumers must become a member of Costco, which requires the payment of an annual fee, to gain access into the warehouse and to be able to purchase its merchandise. Costco’s intent is to create an environment where both small business and personal needs can be met at the lowest possible price. The company’s dedication to customer satisfaction and price guarantee place Costco at the very top of the variety/discount stores industry and has allowed the company to expand well beyond the United States into international markets. Costco’s top competition is Sam’s Club. While Sam’s Club may have more warehouse stores, Costco has a larger customer base, giving it the edge in the discount/variety stores industry. Analysis: Current Ratio: Costco 2011 - 1.14 Industry Average - 1.18 The current ratio describes a company’s ability to meet short-term, or current, liabilities. Costco’s current ratio is greater than one and thus it is clear the company has enough current assets to cover its current liabilities. Because Costco’s current ratio falls just short of the industry average, Costco may encounter slight...

Words: 1970 - Pages: 8

Free Essay

Inventory Systems

...Businesses and Inventory Systems Inventory Systems Inventory systems are tracking systems designed for companies to maintain an accurate accountability of products in stock or on hand. Each time items are added or removed from inventory items on hand either decrease or increase in number. This paper will review inventory systems within Starbucks, Wal- Mart, Dell, Arby’s, and Starbucks. The paper will also provide information regarding the success of the inventory systems and if the companies are happy with the current systems. Businesses and Inventory Systems Dell is a leading global software company that manufactures desktop computers, notebook computers, network servers, work stations, and storage products. Dell uses the Just-In Time inventory system. Just-In-Time means a company can receive raw materials just in time to go into production and complete and assemble manufacturing parts just in time to ship to customers (Accounting 4 Management, 2012). The advantages of the Just-In-Time system are that it permits Dell to reduce overhead and have certainty that products are available. The Just –In-Time inventory system reduces the cost of doing business. For example, Dell does not have to spend an enormous amount of funds on the cost of warehouse storage and the customer receives the benefit of lower cost for products. The company has a high satisfaction rating because of their ability to produce products at a fast rate. The challenge includes the possibility...

Words: 1202 - Pages: 5

Premium Essay

Costco Supply Chain Management

... | |Costco Supply Chain Management System | | | | | |Supply Chain Management | |MGT/MKT 316F1LV | Costco is considered as one of the biggest global retailers that provide customers with a variety of merchandise, ranging from well known brands to private label items. Costco was established in 1976 under the name “Price Club” which was a store located in a converted airplane hanger in San Diego. Costco has been operating as a low cost leader, through it’s no frills warehouse business model, which enabled it to become the first company to grow from 0 to $3 billion sales in less than 6 years (Costco 2013). Costco competes intensely for customers and profits with Wal-Mart’s Sam’s Club warehouse model, and Target Corporation’s department store model. Costco started by targeting only small businesses, but then changed to serving also non-business...

Words: 2489 - Pages: 10

Premium Essay

Costco

...Costco Wholesale Corporation Application of Calculating Ratio in Financial Analysis 2001-2005 Group 2: 1. Nguyễn Hoàng Yến 2. Nguyễn Trần Bảo Ngọc 3. Nguyễn Ngọc Tuấn 4. Trần Minh Hoàn I. EXECUTIVE SUMMARY 1. Introduction: Costco Wholesale Corporation was founded in 1976 in San Diego, CAand with its first warehouse in Seattle. It is a membership-only warehouse club that provides a wide selection of merchandise. As of July 2012, it is the second largest retailer in the United States, the seventh largest retailer in the world and the largest membership warehouse club chain in the United States.Today, Costco is headquartered in Issaquah, Washington, United States has a total of 655 locations, with retail outlets in the United Kingdom, Australia, Canada, Mexico, Taiwan, South Korea, Japan, Spain and the United States. 2. Problem In this case, our group has a mission to prove that the basing on some financial results can lead to the investigate activity. At stand point in the year 2005, we had an analysis about Costco in period 2001-2005, then use these figures to make a decision whether or not invest in Costco in the next period. II. ANALYSIS To avoiding the problem of comparing companies of different sizes in Stock market, one of the most effective ways is to calculate and compare the financial ratios. Capture this trend, we are using ratio to analysis and predict future financial condition of COSTCO. Furthermore...

Words: 1757 - Pages: 8

Premium Essay

Costco Case Analysis

...Costco Companies Inc. – Case Analysis * Karthik Sundar (668943916) EXECUTIVE SUMMARY Costco is a membership only club warehouse giant that operates globally. Most of its business is concentrated in the United States with its presence in a majority of the states. It is currently having good business figures of 115 Billion dollars in revenue and a net income of 15.3 Billion dollars. The following is a case study of the hurdles faced by the management at Costco during the period of 1998 when they had come up with a new venture of offering services to its customers. Costco’s sales driver is the fact that it sell a bulk of its products at very low margin to its customers. It is able to do so as it has a large inventory at each warehouse and operational costs aren’t very high. Despite having a large inventory, it has a high number of inventory turns at each of its inventories. Such operational efficiency helps them offer products at great prices to its customers. This value offered attracts a lot of small business and general public. Costco’s customers are a good mix of such business and general customers from the public. It operates on an exclusive membership with a member enrollment fee of 40$ during the period of this case (55$ currently). Major revenue generators are food and sundries amounting to about 60% of the sales at Costco. It has a good business model of operating at good efficiency, competitive pricing, commitment to the quality and great employee focus. A combination...

Words: 1485 - Pages: 6

Premium Essay

Costco Wholesale 2012

...COSTCO WHOLESALE IN 2012: MISSION, BUSINESS MODEL, AND STRATEGY Jim Senegal was a very effective CEO. He was able to take capitalize on the membership warehouse concept that he learned from Sol Price when he worked for Price club in the late 1970. In 1983, he developed a strategic mission and values “to continually provide our members with quality goods and services at the lowest prices possible”. This resulted in the first Costco being opened in 1983. The crafted strategy objectives centered around “ultra-low prices, limited product selection, a “treasure hunt” shopping experience, low operating costs, and geographic expansion. The rapid inventory turnover, vendor financing, low operating costs, and self service facilities enabled Costco to operate at a significantly lower gross margin and to pass on those savings to members through lower prices and higher quality goods. By charging members a prepaid fee, which supplemented overall profitability, it provided shareholders with an acceptable return. Those strategies could make Costco Wholesale as the third largest retailer in the United States and the seventh largest retailer in the world, also being the clear leader of the discount warehouse and wholesale club segment of the North American retailing industry. Began its operation in 1983 until January 2012, Costco had a total of 598 warehouses in 40 states and Puerto Rico, 9 Canadian provinces, United Kingdom, Korea, Taiwan, Japan, Australia, and Mexico. In 2011 Costco reached...

Words: 1613 - Pages: 7

Premium Essay

Costco Study Case

...Question 1 What is Costco’s business model? Is the company’s business model appealing? Why or why not? Costco’s business model focuses on selling limited selection of products at low prices, often at very high volume and rapid inventory turnover. These goods are bulk-packaged and marketed primarily to large families and businesses. Costco does not carry multiple brands or varieties where the item is essentially the same. It provides members with a selection of only about 4000 items, this results in a high volume of sales from a single vendor, allowing further reductions in price, and reducing marketing costs. Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own bags or use the merchandise shipping boxes from the company's outside vendors. Costco’s business model is appealing because rapid inventory turnover, high sales volume per warehouse, low prices, reduced handling of merchandise, are all elements that create value to a Costco’s members, and make the company successful. Question 2 What are the chief elements of Costco’s strategy? How good is the strategy? The chief elements of Costco’s strategy are:  Low prices: Costco’s pricing strategy is to cap the margins on brand-name merchandise at 14 percent (compared to 20-50 percent margins at other discounters and many supermarkets. The margins on Costco’s private-label Kirkland Signature items are a maximum of 15 percent. Costco’s strategy...

Words: 960 - Pages: 4

Premium Essay

Costco Case Study and Strategic Analysis

...Costco case study and strategic analysis Costco Wholesale Corporation (Costco), one among the few largest wholesaler giant differentiates itself applying unique strategies relating to production and operations, and marketing which make it stand out from the rest of the retailers who are also said to be competitive in the retailing and wholesaling business globally. Costco is one of the innovative wholesalers teamed by very dynamic management team and dedicated, motivated and satisfied workforce with the mission “to continually provide its members the best quality products at the lowest possible prices” (Costco Annual Report 2006). Some of the fundamental principle of the Costco is that they obey the law, they take care of their members, they take care of their employees, they respect their suppliers, and finally they reward their shareholders. Some of the reasons how Costco can serve those highest quality goods of national brands for the lowest possible prices is that they eliminate different cost associated with delivery expenditures, account receivable, inventory, sales people, and fancy buildings. And they successfully operate themselves in the competitive environment serving not only an individual customers but also a legal customers (a company), and small business customers. Costco believe that society and the community is one of the key factors of their success. Therefore, they are willing to give back to their community and the society in terms of quality goods in...

Words: 3114 - Pages: 13

Premium Essay

Costco

...CASE STUDY 1: COSTCO WHOLESALE IN 2008: Mission, Business Model and Strategy A retailing company with a mission to continually provide members with quality goods and services at the lowest price possible, Costco Companies, Inc.’s business model was to generate high sales volume and rapid inventory turnover by offering members very low prices on a limited selection of nationally branded and select private-label products in a wide range of merchandise categories. It is very much appealing as small businesses are the definite target customers. Low price definitely attracts more customers, and is strategically advantageous to this kind of industry. Costco’s low price strategy is the highlight of the company’s strategy and is very powerful and keeping the business hot to the customers. Its merchandising strategy in limiting selection to only about 4000 items is also good keeping in mind that the mission is to provide low price items, thereby lowered operational cost in stocking of these items. Treasure hunting balances the “routine-ness” of Costco and adds a state of excitement to buyers so they would regularly check out what’s new. Its low profile marketing and advertisement is being kept at minimum cost which is strategically aligned with the mission. Website sales also increases sale as it is convenient to the customers. Jim Sinegal is the key contributor in most of the success being celebrated by Costco. For instance, it is dubbed as the fourth largest retailer in the United...

Words: 1443 - Pages: 6

Premium Essay

Costco

...distinctive cost-saving methods in their production, operations, and selling that has allowed them to draw in the foremost affluent customers in discount selling. The central focus of their business model turned around high sales volumes and fast inventory turnover by giving fee-paying members beautifully low costs on a restricted choice merchandise that include a mix of across the country branded and illicit private-label products in an exceedingly wide selection of merchandise classes. This is an awfully appealing business model because it provides the power to control fruitfully at a lot of lower profit margin by securing marketer volume getting agreements, economical distribution, no-frill self-service warehouse facilities and supplemental membership fee revenue. Another magnet is because of the high sales volume and fast inventory turnover style of this business model, the accelerated money conversion cycle permissible Costco to gather the funds for inventory before marketer liabilities changing into due. This provided for marketer finance and also the ability to require advantage of early payment discounts that additional reduced operational prices. As a testament to the success of this business model, from 2008 through 2011, Costco was able to increase the amount of warehouses by 15.6%, revenues by 22.6%, and earnings by 14.0%. 2. What are the chief elements of Costco’s current strategy and is it effective? Costco’s...

Words: 3870 - Pages: 16

Premium Essay

Costco Case (Chapter 15 Marketing Mangement 14e)

...Marketing management 14ed, Kotler & Keller Chapter 15: Costco case (p.444) What is unique about Costco’s channel management process? What components can other retailers borrow or implement? Costco, the largest warehouse club retailers in the United States, was, first, a unique concept. The main purpose of shopping at establishments like Costco is to get low prices. Costco arrived in the market with a specific channel management that includes: · Goals: offering a broad range of brand name and private label merchandise at extremely low prices. · Policies. Costco does not sell anything in its warehouse stores with a margin that is higher than 14%, except for its private label pro ducts, Kirkland Signature. Kirkland Signature products may have margins that reach 15%. Costco has maintained the same membership fees for most of its 600 locations for the past 5 years. With commodity prices rising, Costco could raise prices, but tries not to. When the cost of bananas increased in early 2011, Costco raised the per bunch price by 4 to 5 cents, but reduced the price once the cost of bananas fell. This frugality and cost saving mindset is engrained in the Costco culture. Most Costco executives answer their own phones. · Products. Costco carries approximately 4,000 SKUs— only the fastest-selling flavors, sizes, models, and colors from a single vendor in each category. This efficient product sourcing results in several outcomes: high volume of sales, rapid inventory turnover...

Words: 646 - Pages: 3

Premium Essay

Costco

...HBS Case Study 2: Costco Wholesale Corporation Financial Statement Analysis (A) Lee Hathaway MMS 185: Managerial Finance Professor Veraldi September 27, 2007 It is important for stockholders to continuously re-evaluate their investments. Although some investors do this more frequently and thoroughly than others, the majority of shareholders do so at least once each year. Therefore, Torres’ desire to update her analysis in order to determine whether Costco was still operating efficiently makes perfect sense. After thorough examination, my analysis proves that Costco remains one of the industry’s leading competitors and there seems to be no reason for Torres to sell her shares as long as she wishes to retain holdings of a retail wholesale club in her portfolio. The common-size financial statements evaluating the period 1997-2001 (exhibit 9) reveal valuable information regarding Costco. Torres noticed that there were two revenue lines: net sale of goods and membership fees. She decided to use net sales of goods as the point of comparison and express other line items, including membership fees, as a percentage of net sales in order to allow for a clearer reflection of gross and operating margins. This format enabled her to analyze the profit and asset structures of Costco over time. To begin, Margarita Torres’ common-size financial statements for Costco demonstrate a rise in membership fees and other sources of revenue from 1.82% in 1997 to 1.93% in 2001...

Words: 3387 - Pages: 14

Premium Essay

Case Study 2

...company’s business model is to generate high sales volumes and rapid inventory turnover by offering members very low prices on a limited selection of nationally branded and select private-label products in a wide range of merchandise categories (p.C-35). The business model is appealing because of its unique set of practices and its great management. One of reason for its business success is its high sales volume and rapid inventory turnover, which helped the company to receive cash for inventory before it had to make a payment to its vendors (p. C-35). The company generated $71 billion at 544 warehouses in 40 states, Puerto Rico, Canada, the UK, Taiwan, Japan, Korea and Mexico. Its annual sales per store averaged $130 million whereas it’s closest competition; Sam’s club averaged $75 million per store. (p. C32-C33) 2.   What are the chief elements of Costco’s strategy? How good is the strategy? The chief elements of Costco’s strategy are low prices, a limited product line and limited selection, and a “treasure hunt” shopping environment (p. C-35). The company’s strategy is appealing because they entice with low prices to attract more customers. Similarly the company is also based on the limited product or product selection as more products mean more confusion for the customer. This technique helps to create a good relationship with its suppliers. The strategy contains all of the criteria to make Costco one of the successful companies today. 3.   Do you think Jim Sinegal...

Words: 1422 - Pages: 6

Premium Essay

Financial Analysis Costco Wholesale Corporation

...Financial Research Paper for Costco Company Overview for Costco Costco Wholesale Corporation operates affiliation warehouses that provide an assortment of exclusive and secluded label products in a variety of stock categories in no-frills, self-service warehouse facilities. The organizations product categories include candy, snack foods, tobacco, alcoholic and non-alcoholic beverages, and cleaning and institutional supplies; appliances, electronics, health and beauty aids, hardware, office supplies, garden and patio, sporting goods, furniture, and automotive supplies; dry and institutionally packaged foods; apparel, domestics, jewelry, housewares, media, home furnishings, cameras, and small appliances; meat, bakery, deli, and produce; and gas stations, pharmacy, food court, optical, one-hour photo, hearing aid, and travel. It offers Business and Gold Star (individual) memberships. As of October 8, 2009, the corporation operated a chain of 560 warehouses encompassing 407 in 40 states and Puerto Rico, 77 in Canada, 21 in the United Kingdom, 7 in Korea, 6 in Taiwan, and 9 in Japan, as well as 32 warehouses in Mexico and 1 in Australia. Costco Wholesale Corporation also propositions its products through costco.com in the U.S. and through costco.ca in Canada. It has a strategic alliance with Valdez Heli-Camps. The company, formerly known as Costco Companies, Inc., was founded in 1976 and is based in Issaquah, Washington. The company’s premier membership is the executive...

Words: 1836 - Pages: 8

Premium Essay

Costco Case

...Costco Wholesale Corporation | Table of Contents The Problem and Assumptions 2 The Problem 2 Assumptions 2 Qualitative Analysis 2 Quantitative Analysis 3 Industry Trends 3 Costco Strategy Expansion 3 Income Statement Industry/Competitor Comparison 3 Balance Sheet Competitor/Industry Comparison 5 Common-Size Analysis 6 Ratio Analysis 6 Statement of Cash Flow 9 Preferred Action Plan with Alternative Actions 11 The Problem and Assumptions The Problem Margarita Torres purchased shares in Costco Wholesale Corporation in 1997 and now it is 2002. She has decided to analyze her investment to see if Costco will continue to be profitable at a sustainable growth rate. The main question she needs to answer is how the company had been affected by growth. Had its operational efficiency changed? And how had it financed the growth and how its capital structure evolved? Assumptions For the year 2001 a recession occurred. This occurrence is considered when reviewing the financial numbers and statistics during this year. Qualitative Analysis The first step in analyzing Costco Wholesale Corporation is analyzing the relative qualitative data. Based on the data provided within the case the points below summarize how Costco is performing: * Industry: Wholesale clubs grew 12-15% in the 1990s and Costco is currently the largest wholesale club in the industry. * Strategy: Costco targets wealthier clientele of small business owners and middle...

Words: 4030 - Pages: 17