Costco Wholesale

As previously mentioned, Costco does have some direct competition within the industry from companies such as, another big box retailer Sam’s Club, as well as, Target and Walmart. Comparing for instance, Costco and Sam’s Club, both retailers offer basically low prices, mass quantities, miscellaneous items for the home, and require individuals to pay in order to shop at the establishment (Quirk, 2016). There is a minimal difference in the amount individuals pay to be members of these establishments; Costco’s annual fee is $55 and Sam’s Club is $45 (Quirk, 2016). Although both retailers have various similarities there are a couple of differences that stand out. For instance, Costco extends opportunities for home mortgages, security

Costco buys the majority of its merchandise directly from manufacturers for shipment either directly to Costco’s selling warehouses or to a consolidation point where various shipments are combined so as to minimize freight and handling costs. As a result, Costco eliminates many of the costs associated with multiple step distribution channels, which include purchasing from distributors as opposed to manufacturers, use of central receiving, storing and distributing warehouses, and storage of merchandise in locations off the sales floors. (1)

Supply chain management plays an important role in the success of this business model, for example the limited number of items (around 4,000 per store compared to 10,000 for competitors) which are selected and decided upon how much to stock based on an analysis of each item’s ability to sell, allows Costco to have higher sales volumes for each item, thus enabling Costco to gain more bulk discounts from suppliers. This strategy enabled Costco to be the number one warehouse retailer in market share ahead of Wal-Mart’s Sam’s Club (Cascio 2013).

Costco’s inventory management strategy focuses on three main points: (a) point-of-sales system (POS), (b) vendor managed inventory and (c) low volume of stock keeping units. Costco takes aid from innovative inventory system that provides real time inventory information called Collaborative Retail Exchange (CRX). The system monitors and re-orders at the optimum inventory as part of the continuous re-order system. The CRX system analyses the sales for the previous weeks and inventory level which acts as information to the suppliers. Costco Wholesale follows a Bulk-buying strategy. It aims at selling products in large volume and comparatively low prices. The company also follows lower number of stock keeping units (SKU’s), an average of ~4,000

Costco is a company that has grown their business through customer service that goes above and beyond. Costco not only focuses on external customers they also care about their internal customers. They continue to strive to have affordable prices, great benefits for their internal customers, and Lenient return/refund policy. Costco has figured out a way to expand their membership by word of mouth(Timm,2014). They have done this by building a strong relationship with their customers. Having a strong relationship with customers is important, especially for a business such as Costco. Seeing as Costco is a retail business a majority of their customers will be return customers. Ensuring that their customers are satisfied has proved to be a key factor in their

Moving onto the income statement portion of the common-size financial statements, an increase in cash and equivalents (3.20% of total assets in 1997 to 5.97% in 2001) and receivables (2.69% of total assets in 1997 to 3.22% in 2001) coupled with a decrease in inventory signify Costco’s improving efficiency over this five year period. It is important to mention two points. First, the decrease in inventory as a percentage of total assets from 30.8% in 1997 to 27.14% in 2001 signifies an increase in the turnover rate, perhaps due to

Design of Goods and Services- Costco can be seen to be in their maturity stages of their life. Therefore, it is recommended for Costco to expand its Pharmacy department by at least 50%.

In business, three major strategies comprising of cost leadership, differentiation, and focus strategies exist. The focus strategy emphasizes on providing services and products to a specified buyer group or market segment within a given geographic market. The differentiation approach is often defined as provision of services or products that are perceived to be unique in the market place. Wal-Mart emphasizes on the long-term strategy of cost leadership. Through this strategy, the company ensures that it offers customers with quality products at relatively lower prices than other providers in the industry. Through overall cost leadership strategy, Wal-Mart has been offering better quality products at a lower price than any competitor can offer. For the organization to achieve this goal, it has developed long-term supply chain management, which ensures that products are made available to the market at the required time (Enz, 2010).

It’s a very appealing business model because what it does for Costco is it enables them to secure vendor purchasing power in volume. With their large warehouse facilities this enables them to distribute products on their floors efficiently while being able to store any leftover in house. This increases the availability of turnover. Also, with their large warehouses and lack of design beyond what’s necessity, it enables them to provide customer service without over investing in design.

The strategy for Costco was that the company continued to buy merchandise at volume discounts from manufacturers, rather than distributors. The stock is usually shipped directly to selling warehouses to minimize freight costs. Stocked items are placed directly onto the selling floor or are still stacked on their pallets, reducing handling and stocking labor. The number of sales and service employees is also minimal, with a large percentage of the employees holding part-time status. Warehouses are almost entirely self-service, from finding and buying items, to loading them into a customer's vehicle. (Miller, 2011)

Russell, R. S., & Taylor III, B. W. (2014). Operations and Supply Chain Management, 8th edition. Hoboken, New Jersey: John Wiley & Sons, Inc.

In an organization, product quality and delivery is largely dependent on the supply chain management which in turn affects the overall profitability. Therefore, supply chain quality control is essential in any organization to ensure a competitive edge in the industry and minimizing the operating costs. Firms are thus competing on the innovation front to stay upfront in meeting customer expectations. One of the industry in which advances in supply chain management have been evolving rapidly is the retail industry. Due to the changing nature of the competitiveness in the retail industry, supply chain managers must come up with expansion plans that align with multiple-channel and geographic growth.

What is the right supply chain for your product ? is the question asked by Marshall L. Fisher in his article titled, “What is the Right Supply Chain for Your Product ?” published in March-April 1997 issue of the Harvard Business Review. Author raises the question stating the fact that new ideas and technology implemented haven’t lead to improved performance. Performance has not become better but rather in at least some cases, has worsened due to costs rocketing to unprecedented levels.

Walmart is equally ranked among the highly valuable companies, in terms of market value, as well as the biggest grocery retailer where it generates more than 51% of its sales from the grocery business. This paper explores Walmart’s operation management with regard to supply chain characteristics, global business operations, production processes, the company commitment to quality and excellence, inventory methodologies, operational planning and movement towards lean processes (Massengill, 2013).

“Considering present market conditions and the way in which industry demand fluctuates nowadays, firms willing to remain operationally efficient will become more reliant on supply-chain management, This is one of the main reasons for which Wal-Mart has been capable of growing at an annual rate of 15.4%.”（Aleksandrov）